Deutsche Bank has agreed to pay US authorities nearly $130M and entered into a DPA to resolve allegations that it breached bribery and fraud laws. A network of consultants in the UAE and Saudi Arabia were used to funnel bribes to clients. Commodities trading violations occurred in three countries .
Our first FCPA case of the year starts with a bang!
German banking giant Deutsche Bank Aktiengesellschaft (Deutsche Bank ) has agreed to pay more than $130 million to resolve a US investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.
“Deutsche Bank engaged in a criminal scheme to conceal payments to so-called consultants worldwide who served as conduits for bribes to foreign officials and others so that they could unfairly obtain and retain lucrative business projects,” stated Acting U.S. Attorney Seth D. DuCharme of the Eastern District of New York.
“Separately, Deutsche Bank traders on three continents sought to manipulate our public financial markets through fraud for five years” said Acting Deputy Assistant Attorney General Robert Zink of the Justice Department’s Criminal Division.
First let’s go through a quick summary of the case, then we’ll explore the meaty details of the misconduct and extract some compliance recommendations.
The charges arise out:
- a scheme to conceal corrupt payments and bribes made to third-party intermediaries by falsely recording them on Deutsche Bank’s books and records
- internal accounting control violations
- a separate scheme to engage in fraudulent and manipulative commodities trading practices involving publicly-traded precious metals futures contracts.
Deutsche Bank entered into a three-year deferred prosecution agreement (DPA) with the Criminal Division’s Fraud Section and Money Laundering and Asset Recovery Section and with the U.S. Attorney’s Office for the Eastern District of New York. Deutsche Bank was charged with one count of conspiracy to violate the books and records and internal accounting controls provisions of the FCPA and one count of conspiracy to commit wire fraud affecting a financial institution in relation to the commodities conduct.
Now let’s get to the meaty stuff.
The FCPA Case
According to the DOJ, between 2009 and 2016, Deutsche Bank, with the willful knowledge of its managing directors and high-level regional executives conspired to maintain false books, records, and accounts.
Essentially the scheme consisted of concealing, among other things, payments to business development consultants (BDC) who were either:
- acting as a proxy for a foreign official or
- bribe recipient for a client decisionmaker in order to obtain lucrative business for the bank.
In some cases, the payments to the BDCs were not supported by invoices or evidence of any services provided. In other cases, Deutsche Bank employees created or helped BDC’s create false justifications for payments.
In Saudi Arabia: Deutsche Bank’s employees contracted with a company owned by the wife of a client decisionmaker to facilitate bribe payments of over $1 million to the decisionmaker. So interesting to see a woman involved a bribery scheme, and in Saudi Arabia out of all places. The DOJ politely refers to her as the “Saudi BDC” so we’ll go with that.
Deutsche Bank approved the relationship with the Saudi BDC despite knowing about her relationship with the decisionmaker, and approved the corrupt payments.
Deutsche Bank employees even openly discussed the need to pay the Saudi BDC in order to incentivize her husband to continue to do business with Deutsche Bank. What always fascinates me is requesting bribe approvals in writing: in requesting approval of one payment, Deutsche Bank employees clearly mentioned that the “client and [the Saudi BDC] are intimately linked and . . . any cessation of payment to the [the Saudi BDC] will certainly prompt a significant outflow of [business]” from the client.
In Abu Dhabi: (why does Abu Dhabi keep reappearing on the US anti-corruption radar? If I’m not mistaken, this is the fourth corruption case arising out of there. Deutsche Bank itself recently made headlines in the UAE over the now-infamous Kaloti money laundering scandal)
Anyways, let’s get back to this case. In Abu Dhabi, Deutsche Bank contracted with an Abu Dhabi BDC to obtain a lucrative transaction, despite knowing that the Abu Dhabi BDC lacked qualifications as a BDC. His only qualification, it would appear, was his family relationship with the client decisionmaker, so he was acting as proxy for the client decisionmaker. Deutsche Bank paid the Abu Dhabi BDC over $3 million without invoices.
So in the US, they don’t like questionable “BDC” relationships, particularly if a company is subject to the FCPA and required to file reports with the SEC. In the US’ view, by agreeing to misrepresent the purpose of payments to BDCs and falsely characterizing payments to others as payments to BDCs, Deutsche Bank employees conspired to falsify Deutsche Bank’s books, records, and accounts, in violation of the FCPA.
Additionally, Deutsche Bank was charged for failing to implement internal accounting controls in violation of the FCPA.
Here we are reminded that in almost all FCPA enforcement actions, the failure to adequately conduct due diligence on a third-party agent (the BDCs in this case) results in a conspiracy to bribe a foreign official or other kickback scheme. Companies might feel pressured to use an agent when the agent company is an position to influence the award of a contract, obtain a license, or secure a regulatory permit. Deutsche Banks’ lack of meaningful due diligence regarding the BDCs, and their remuneration without being officially contracted with the Bank proved costly.
Likewise from an internal controls perspective, payments to third parties must be supported by appropriate invoices or adequate documentation of the services purportedly performed.
The Commodities Fraud Case
Between 2008 and 2013, Deutsche Bank precious metals traders engaged in a scheme to defraud other traders on the New York Mercantile Exchange Inc. and Commodity Exchange Inc., which are commodities exchanges operated by the CME Group Inc.
According to the DOJ, traders on Deutsche Bank’s precious metals desk in New York, Singapore, and London placed orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution. The intent was to profit by deceiving other market participants through injecting false and misleading information concerning the existence of genuine supply and demand for precious metals futures contracts.
Earlier last year, a Chicago federal jury found two former Deutsche Bank precious metals traders, James Vorley, 42, of the United Kingdom, and Cedric Chanu, 40, of France and the United Arab Emirates, guilty of wire fraud affecting a financial institution for their respective roles in the commodities scheme.
A third former Deutsche Bank trader, David Liew, 35, of Singapore, pleaded guilty on June 1, 2017, to conspiracy to commit wire fraud affecting a financial institution and spoofing. A fourth former Deutsche Bank trader, Edward Bases, 58, of New Canaan, Connecticut, was charged in a third superseding indictment on Nov. 12, 2020, and awaits trial on fraud and conspiracy charges.
The Bank is certainly no stranger to resolutions with the US Authorities.
In January 2018, the Bank agreed to the payment of a civil monetary penalty of $30 million to the U.S. Commodity Futures Trading Commission in connection with substantially the same commodities conduct.
In April 2015, the Bank’s London Subsidiary agreed to plead guilty in connection with long-running manipulation of London Interbank Offered Rate (LIBOR). The bank plead guilty to wire fraud for its role in manipulating the LIBOR, a leading benchmark interest rate used in financial products and transactions around the world. In addition, Deutsche Bank entered into a deferred prosecution agreement to resolve wire fraud and antitrust charges in connection with its role in both manipulating U.S. Dollar LIBOR and engaging in a price-fixing conspiracy to rig Yen LIBOR. Deutsche Bank and its subsidiary were ordered to pay $775 million in criminal penalties to the Justice Department.
Last but not least, for those of you who are interested in the nitty gritty dollar amounts.
The Penalties in this Case
The penalties are broken down as follows:
- criminal penalties: $85,186,206
- criminal disgorgement: $681,480
- victim compensation payments: $1,223,738
- $43,329,622 to the U.S. Securities & Exchange Commission (SEC) in a coordinated resolution.
Penalties were calculated based on:
- the Company’s failure to voluntarily disclose the conduct to the department
- the nature and seriousness of the offense, which included corrupt payments, willful violations of the FCPA accounting provisions, and commodities trading violations in three countries.
- Deutsche Bank received full credit for its cooperation with the department’s investigations and for its significant remediation.
- Penalties associated with both the FCPA and wire fraud conspiracies reflect a discount of 25% off the middle of the otherwise-applicable U.S. Sentencing Guidelines fine range, to account for Deutsche Bank’s 2015 resolution in connection with its manipulation of the London Interbank Offered Rate.
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