Deutsche Bank Fined Over Serious Compliance Failures in Banking Relationship With Jeffrey Epstein

Summary

Deutsche Bank was penalized by the New York State Department of Financial Services (DFS) in July 2020 for significant compliance failures connected to its banking relationship with convicted sex offender Jeffrey Epstein. The enforcement action was the first taken by a regulator against a financial institution over its dealings with Epstein. Deutsche Bank began its relationship with Epstein in August 2013, several years after Epstein's 2008 conviction involving prostitution with a minor. The bank classified Epstein as a high-risk client, yet according to DFS failed to adequately monitor his accounts and transactions despite extensive publicly available information about his criminal history. Epstein, his related entities and associates ultimately maintained more than 40 accounts at Deutsche Bank during the relationship. New York State Department of Financial Services – Deutsche Bank/Epstein enforcement action: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202007071 Full New York DFS Consent Order: https://www.dfs.ny.gov/industry_guidance/enforcement_discipline/ea20200706_deutsche_bank DFS found that Deutsche Bank processed hundreds of transactions totaling millions of dollars that should have prompted additional scrutiny given Epstein's history. Transactions identified by the regulator included payments to individuals publicly alleged to have been Epstein's co-conspirators; payments to Russian models; payments covering women's school tuition, hotel and rent expenses; payments directly to numerous women with Eastern European surnames; and substantial payments to law firms. The regulator also identified more than $800,000 in suspicious cash withdrawals over approximately four years. According to DFS, the withdrawals were conducted by an Epstein associate and frequently involved amounts structured below thresholds that would trigger certain reporting requirements. DFS also identified payments exceeding $7 million to settle legal matters and dozens of additional payments totaling more than $6 million for what appeared to be legal expenses for Epstein and his co-conspirators. Despite Epstein's risk profile, DFS found that Deutsche Bank's monitoring failed to properly scrutinize these transactions and that the bank's relationship-management structure created serious weaknesses in oversight. The regulator concluded that Deutsche Bank had conducted business in an unsafe and unsound manner and failed to maintain an effective and compliant anti-money-laundering programme in connection with the relationships covered by the enforcement action. Deutsche Bank's relationship with Epstein lasted from 2013 until 2018, when the bank decided to terminate it. The regulator's investigation found significant failures in how the bank had onboarded, monitored and managed Epstein as a high-risk customer during that period. DFS imposed a total $150 million civil penalty on Deutsche Bank. The penalty covered compliance failures involving Epstein as well as separate deficiencies involving Deutsche Bank's correspondent banking relationships with Danske Bank Estonia and FBME Bank. Therefore, the entire $150 million should not be described as a fine solely for the Epstein relationship. New York DFS – $150 million Deutsche Bank enforcement announcement: https://www.dfs.ny.gov/reports_and_publications/press_releases/pr202007071 Company response: Deutsche Bank acknowledged that accepting Epstein as a customer had been a mistake. CEO Christian Sewing told employees following the regulatory settlement that the bank had made errors and needed to learn from its shortcomings. Deutsche Bank has subsequently stated explicitly that it acknowledges its error in onboarding Epstein in 2013 and regrets its historical relationship with him. The bank says it cooperated with regulatory and law-enforcement authorities and substantially strengthened its anti-financial-crime controls through technology, training and additional specialist staff. Deutsche Bank – Statement regarding Epstein and compliance failures: https://www.db.com/news/detail/20200707-update-on-our-transformation-progress-and-on-today-s-events-message-from-christian-sewing-to-staff Deutsche Bank's own regulatory disclosures subsequently confirmed that the DFS found the bank had violated New York banking laws in connection with its former relationships with Epstein, Danske Bank Estonia and FBME Bank, and that Deutsche Bank paid the $150 million civil penalty during the third quarter of 2020. Key facts: Deutsche Bank accepted Jeffrey Epstein as a client in 2013 despite his previous criminal conviction; classified him as high risk; Epstein and related entities and associates eventually maintained more than 40 accounts at the bank; DFS identified hundreds of transactions totaling millions of dollars that warranted greater scrutiny; transactions included payments to alleged co-conspirators and numerous women; an Epstein associate made more than $800,000 in suspicious cash withdrawals; millions of dollars were paid to law firms; DFS found significant failures in Deutsche Bank's monitoring and anti-money-laundering controls; and the bank acknowledged that onboarding Epstein had been an error. The case is particularly serious because the regulatory criticism was not based merely on Deutsche Bank unknowingly providing services to a customer who was later exposed as a criminal. Epstein's criminal history was already publicly known when Deutsche Bank accepted him in 2013, the bank itself classified him as high risk, and the New York regulator subsequently found that the bank nevertheless failed to adequately monitor activity involving millions of dollars in potentially suspicious transactions.