MOSCOW: Big international banks provide the frontline troops in the battle against financial crime, or so their bosses like to say. In the post-crisis era, battalions of compliance officers have been recruited and trained. The costs are enormous and still increasing, say the banks, but financial regulators have got what they demanded. All banks must know their clients, including where and how they got their money, and the supporting documentation has to be pristine, especially if chunky sums are moving across borders. That’s the theory, but then there’s the practice. At Deutsche Bank, circa 2012 to 2015, the system was an underfunded shambles. The bank has been fined $630m (£506m) for “unacceptable” deficiencies in its anti-money laundering controls but the details of the affair are extraordinary. Some $10bn was transferred out of Russia through Deutsche “in a manner highly suggestive of financial crime,” says the Financial Conduct Authority.
Red flags should have been everywhere in a wheeze whereby shares were bought in roubles in Deutsche’s Moscow branch and then sold via the London office for dollars. These so-called mirror trades lacked “legitimate economic rationale”. says New York’s Department of Financial Services, the other regulator on the case. The counterparties, typically registered offshore, were always related and often linked by common beneficial owners. Most damning of all, a few Deutsche employees detected something rotten but their concerns were either ignored or allowed to fizzle out inconclusively. Traders in Moscow were told not to worry and to get on with their jobs. A senior compliance officer complained he had to “beg, borrow and steal” to receive appropriate resources.
This tale of gross incompetence at one of the world’s largest banks would be easier to understand if it had emerged from the pre-crash era of light-touch regulation. But, to repeat, the events happened as recently as 2012 to 2015, well after the hardening in the regulatory mood. We must assume, or hope, that most other international banks fulfil their duties and that Deutsche’s systems and controls were uniquely dreadful. If not, all these fine boasts about how the banks are performing a service for the world by cleaning up the financial system aren’t worth a rouble.
