Deutsche Bank Used Intermediaries to Conceal Bribes and Improper Payments for Global Business

Summary

Deutsche Bank reached coordinated resolutions with the U.S. Department of Justice and Securities and Exchange Commission in January 2021 over violations of the Foreign Corrupt Practices Act involving the bank's use of third-party intermediaries, consultants and finders to obtain and retain business around the world. According to the SEC, from at least 2009 through 2016, Deutsche Bank used hundreds of business development consultants and other intermediaries. These included foreign officials, their relatives and associates, sometimes in circumstances presenting significant bribery risks that the bank failed to adequately assess or mitigate. SEC – Deutsche Bank FCPA enforcement action: https://www.sec.gov/newsroom/press-releases/2021-3 SEC – Full enforcement proceeding: https://www.sec.gov/enforcement-litigation/administrative-proceedings/34-90875-s The SEC found that weaknesses in Deutsche Bank's internal accounting controls resulted in approximately $7 million in bribe payments or payments for unknown, undocumented or unauthorized services. Those payments were improperly recorded in Deutsche Bank's books as legitimate business expenses. The SEC also found that the transactions involved invoices and other documentation falsified by Deutsche Bank employees. The conduct was not limited to a small isolated office. The SEC's FCPA enforcement records identify improper intermediary payments involving business in China, the United Arab Emirates, Italy and Saudi Arabia. The SEC further found that certain former members of Deutsche Bank's senior management, including members of its Management Board, knew that the bank's controls governing these intermediaries were insufficient. Despite this, Deutsche Bank failed to take sufficient steps to address and remediate the known control failures until 2016. The SEC calculated that Deutsche Bank was unjustly enriched by approximately $35 million as a result of the conduct. The bank agreed to pay approximately $35 million in disgorgement plus $8 million in prejudgment interest, resulting in an SEC settlement exceeding $43 million. U.S. Department of Justice – Deutsche Bank FCPA and fraud resolution: https://www.justice.gov/archives/opa/pr/deutsche-bank-agrees-pay-over-130-million-resolve-foreign-corrupt-practices-act-and-fraud Deutsche Bank also entered into a three-year Deferred Prosecution Agreement with the U.S. Department of Justice. The criminal information charged the bank with conspiracy to violate the FCPA's books-and-records and internal-accounting-controls provisions. The DOJ described a scheme in which corrupt payments and bribes made through third-party intermediaries were concealed by falsely recording them in Deutsche Bank's books and records. According to the Justice Department, consultants were used as conduits for bribes to foreign officials and others so that Deutsche Bank could improperly obtain and retain lucrative business. The DOJ resolution also covered a separate commodities-fraud scheme involving manipulation of precious-metals futures, which should not be confused with the FCPA conduct. The combined DOJ resolution involved criminal penalties of approximately $85.2 million, criminal disgorgement of approximately $681,000 and victim compensation of approximately $1.22 million, alongside the approximately $43.3 million SEC resolution. Altogether, the coordinated resolutions exceeded $130 million, but that total covered both the FCPA case and the separate commodities-fraud conduct. DOJ – Deferred Prosecution Agreement: https://www.justice.gov/archives/opa/press-release/file/1360741/dl Company response: Deutsche Bank entered into the Deferred Prosecution Agreement and SEC settlement and agreed to the financial penalties and compliance obligations. The SEC credited Deutsche Bank with cooperation and remedial efforts. Deutsche Bank subsequently disclosed that it had reached settlements with both the DOJ and SEC concerning its historical use of finders and consultants and its compliance with the FCPA. Key facts: The misconduct occurred from at least 2009 through 2016; Deutsche Bank used hundreds of third-party business-development consultants and finders; some intermediaries were foreign officials, their relatives or associates; approximately $7 million consisted of bribes or payments for unknown, undocumented or unauthorized services; employees falsified invoices and documentation and recorded improper payments as legitimate expenses; former senior management personnel, including Management Board members, were aware of weaknesses in the bank's internal controls; Deutsche Bank did not sufficiently remediate those known weaknesses until 2016; the SEC calculated approximately $35 million in unjust enrichment; Deutsche Bank paid more than $43 million to resolve the SEC FCPA case; and the bank entered a three-year Deferred Prosecution Agreement with the DOJ. The case is particularly serious because regulators did not describe merely a rogue employee secretly paying a bribe. The SEC found that Deutsche Bank used hundreds of intermediaries over approximately seven years, that some former senior management personnel knew the controls were inadequate, and that employees falsified documentation to make improper payments appear to be legitimate business expenses.