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The FinCEN Files investigation has revealed that top Deutsche Bank executives knew the bank could be used for money laundering. The news is the latest in a long line of scandals from Germany's largest bank.
It had been quieter than usual at Deutsche Bank lately. No new accusations, no more financial penalties. New management led by Christian Sewing, at the helm since spring 2018, seems to have accomplished what the high-rise banks in Germany's financial capital Frankfurt had long desired: calm, and an urgently needed restructuring program.
Now the quiet days appear to be over. The revelations gleaned from the leaked FinCEN files suggest the bank's top management knew about suspicious transactions amounting to over $1 trillion dollars.
In the years since the global financial crisis hit in 2007 and 2008, Germany's top bank, with its 150-year legacy, continues to make headlines for all the wrong reasons. An overview of Deutsche Bank's greatest scandals:
Subprime credits are considered to be what caused the global financial crisis. It was above all Deutsche Bank that bought up the poorly secured mortgages from US home buyers, wrapped them up in highly complex financial products, slapped them with top ratings, and sold them on to other banks as secure investment products. When the market collapsed, the bonds were instantly worthless.
Meanwhile, internally, Deutsche Bank had long bet on a crash — and made a lot of money doing so. In 2013, the bank was given a first penalty; it had to pay $1.9 billion to then-nationalized US construction financiers Freddie Mac and Fannie Mae. The bank agreed on a settlement with US authorities in 2017. Initial talks were of $14 billion, equivalent to financial ruin for Deutsche Bank. In the end, the bank paid $7.2 billion.
While in the midst of negotiations with US authorities, another Deutsche Bank scandal, albeit much smaller, came to light in 2015. According to investigators' finding, the bank had used stock transactions to launder $10 billion-worth of dirty money in Russian rubles. Since the transactions were in dollars, US authorities again intervened. The penalty this time: $600 million. Deutsche Bank subsequently terminated its investment banking practices in Russia.
Euribor and Libor are abbreviations for specific reference interest rates. The Euro Interbank Offered Rate (Eurobor) lays out the interest rates at which European banks can grant each other euro-denominated bonds. Libor (London Interbank Offered Rate) serves as the basis for financial transactions in a certain volume, for example in derivatives or mortgages. In 2013, the European Commission imposed a fine of €1.7 billion on six major international banks after traders manipulated interest rates. The largest fine of €725 million was paid by Deutsche Bank, which was later fined another $2.5 billion dollars by British and US authorities.
Much lower were the fines Deutsche Bank had to pay after US authorities said it had violated an existing US embargo on Iran. The bank paid out $260 million in 2015, far less than the $1.4 billion Deutsche Bank rival Commerzbank was forced to pay over similar accusations.
"It was a grave mistake to take Jeffrey Epstein on as a client in 2013."
This was Deutsche Bank's meek response after the New York State Department of Financial Services (DFS) imposed a financial penalty of $150 billion on the bank. Deutsche Bank knew about Epstein's "horrible criminal past" and still did nothing about the "regular, suspicious withdrawals," the advisory body said. The transactions were also tied to the sexual abuse of minors. The convicted sex offender and billionaire took his own life while in prison in August of 2019.
Deutsche Bank also played a role in one of the world's largest money laundering scandals — as the correspondent bank of Danske Bank. Suspicious transfers valuing some €200 million flowed through the branches of the Danish bank between 2007 and 2015. DFS once again accused the bank of "inadequate oversight of its customers." Deutsche Bank has since invested around a billion dollars in improving its internal auditing, adding over 1,500 employees to the oversight department.
The scandals of the past years haven't just hurt the bank's reputation. Its share prices and, consequently, its market value are also in the basement. Looking back ten years, shares have lost around 75% of their value. Over 20 years, they've lost 85%. The bank's market capitalization is currently a meager €16 billion. Only those who bought their first Deutsche Bank shares this year can be happy about a plus of 25%.
But in light of the latest revelations, that may well be over.