Deutsche Bank Paid $16 Million Over Jobs Given to Relatives of Foreign Officials to Win Business

Summary

Deutsche Bank agreed in August 2019 to pay more than $16 million to resolve U.S. Securities and Exchange Commission charges that it violated the Foreign Corrupt Practices Act (FCPA) through hiring practices designed to improperly influence foreign government officials. According to the SEC, between at least 2006 and 2014, Deutsche Bank provided valuable employment opportunities to relatives of foreign government officials as a personal benefit to those officials in order to influence them to help the bank obtain or retain business and other benefits. U.S. Securities and Exchange Commission – Deutsche Bank FCPA hiring case: https://www.sec.gov/enforcement-litigation/administrative-proceedings/34-86740-s Full SEC enforcement order: https://www.sec.gov/files/litigation/admin/2019/34-86740.pdf The practice involved what Deutsche Bank internally called “Referral Hires” — candidates referred by clients, potential clients or government officials. According to the SEC, Deutsche Bank employees hired relatives at the request of government officials in the Asia-Pacific region and Russia in circumstances where employment was used to obtain or retain business or other benefits. These candidates did not always go through Deutsche Bank's normal competitive recruitment process. The SEC found that Referral Hires frequently bypassed the bank's highly competitive, merit-based hiring process and were sometimes less qualified than candidates recruited through the normal process. The SEC's detailed order describes cases involving China and Russia. In one example, Deutsche Bank hired the daughter of the chairman of a large Chinese state-owned enterprise after executives from the company requested that she be hired. The SEC found that she had minimal relevant work experience. Deutsche Bank employees subsequently assigned Referral Hires to deals where their parent or close relative was a key decision-maker, allowing the bank to capitalize further on the personal relationship. The misconduct is particularly significant because Deutsche Bank itself recognized the corruption risk associated with these practices. The SEC found that the bank understood that hiring relatives of government officials and clients in exchange for business could violate anti-bribery laws, including the FCPA. Deutsche Bank introduced a written policy in its Asia-Pacific operations in 2010 intended to detect and prevent corrupt referral hiring. However, the SEC found that the policy did not cover all categories of hires and that the bank lacked systems capable of adequately verifying compliance with it. The SEC also found that Deutsche Bank employees created false books and records that concealed aspects of the referral-hiring practices and failed to accurately document and record certain related expenses. The regulator concluded that Deutsche Bank's internal accounting controls surrounding hiring were insufficient to provide reasonable assurance that employees were complying with anti-bribery laws. The SEC determined that Deutsche Bank obtained substantial business connected with the referral-hiring programme. For transactions within the applicable statute-of-limitations period, the regulator calculated that Deutsche Bank had been unjustly enriched by approximately $10.8 million as a result of business associated with Referral Hires. Deutsche Bank settled the SEC case without admitting or denying the SEC's findings. The bank agreed to pay approximately $10.8 million in disgorgement, approximately $2.4 million in prejudgment interest, and a $3 million civil penalty, bringing the total settlement to more than $16 million. Company response: The SEC credited Deutsche Bank with cooperating with the investigation and taking remedial action. The settlement resolved the SEC's findings concerning deficiencies in the bank's hiring-related accounting controls and recordkeeping. Because Deutsche Bank settled without admitting or denying the findings, the case should be described as an SEC enforcement finding and settlement rather than as a criminal bribery conviction. Key facts: The conduct occurred between at least 2006 and 2014; Deutsche Bank provided employment to relatives of foreign government officials to improperly influence officials in connection with obtaining or retaining business; the practice involved government officials in the Asia-Pacific region and Russia; some Referral Hires bypassed the bank's normal competitive hiring process and were less qualified than ordinary candidates; Deutsche Bank employees sometimes placed Referral Hires on deals involving their influential relatives; the bank knew such hiring could create anti-bribery risks; employees created false records connected with the practices; the SEC calculated approximately $10.8 million in unjust enrichment from relevant transactions; and Deutsche Bank paid more than $16 million to settle the SEC case. The case is significant because the benefit allegedly provided to officials was not a conventional envelope of cash. Employment itself became the thing of value. According to the SEC, Deutsche Bank gave coveted employment opportunities to relatives of influential officials and clients in order to obtain business advantages, despite having already recognized internally that this type of conduct could violate anti-bribery laws.