Deutsche Bank – FCPA Recidivist: Part 1 – Introduction

Thomas Fox
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Compliance Evangelist

There is a reason Donald Trump and his family use Deutsche Bank. It is one of the most corrupt banking institutions around. You have to admit, after Wells Fargo, that is really saying something. Last week, Deutsche Bank continued its ignoramus history in settling yet another set of corruption and illegal conduct claims. According to a Department of Justice (DOJ) Press Release, Deutsche Bank “agreed to pay more than $130 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.

“The resolution includes criminal penalties of $85,186,206, criminal disgorgement of $681,480, victim compensation payments of $1,223,738 and $43,329,622 to be paid to the US Securities & Exchange Commission in a coordinated resolution.” Settlement documents include a Deferred Prosecution Agreement(DPA) and Information. This settlement comes on the heels of another Foreign Corrupt Practices Act (FCPA) settlement in August 2019, where the Bank paid $16.2 million to settle a ‘Princeling’ charge that it corruptly hired sons and daughters of foreign officials and of employees of state-owned enterprises. Today, I will begin a multi-part exploration of this settlement.

Deutsche Bank is still under Monitorship from that 2019 FCPA resolution. It is not clear if the monitor uncovered the continued illegal conduct of the Bank. The DPA dryly notes that the Bank “did not voluntarily and timely self-disclose to the Offices the FCPA conduct described in the Statement of Facts.”

Acting Deputy Assistant Attorney General Robert A. Zink of the Justice Department’s Criminal Division said in the DOJ Press Release, “Deutsche Bank engaged in a seven-year course of conduct, during which it failed to implement a system of internal accounting controls regarding the use of company funds and falsified its books and records to conceal corrupt and improper payments. Separately, Deutsche Bank traders on three continents sought to manipulate our public financial markets through fraud for five years. This resolution exemplifies the department’s commitment to help ensure that publicly traded companies devise and implement appropriate and proper systems of internal accounting controls and maintain accurate and truthful corporate documentation. It also stands as an example of the department’s efforts to police the public U.S. markets so that all may continue to trust, and rely upon, the integrity of our public financial systems.”

The FCPA portion of the criminal action involved the use of third-parties to facilitate bribery and corruption to obtain and retain business. Acting US Attorney Seth D. DuCharme of the Eastern District of New York said, “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.”

Charles Cain, Chief of the SEC Enforcement Division’s FCPA Unit, said in a Securities and Commission (SEC) Press Release, “While third parties can assist in legitimate business development activities, it is critical that companies have sufficient internal accounting controls in place to prevent payments to third parties in furtherance of improper purposes.” Additionally, according to the SEC’s order, “Deutsche Bank engaged foreign officials, their relatives, and their associates as third-party intermediaries, business development consultants, and finders to obtain and retain global business. The order finds that Deutsche Bank lacked sufficient internal accounting controls related to the use and payment of such intermediaries, resulting in approximately $7 million in bribe payments or payments for unknown, undocumented, or unauthorized services.  The order further finds that these payments were inaccurately recorded as legitimate business expenses and involved invoices and documentation falsified by Deutsche Bank employees.”

Between 2009 and 2016, the Bank “knowingly and willfully conspired to maintain false books, records, and accounts to conceal, among other things, payments to a business development consultant (BDC) who was acting as a proxy for a foreign official and payments to a BDC that were actually bribes paid to a decisionmaker for a client in order to obtain lucrative business for the bank.” Specifically,  regarding Saudi BDC, Bank employees conspired to contract with a company owned by the wife of a client decisionmaker to facilitate bribe payments of over $1 million to the decisionmaker, despite the fact that Bank employees knew about the relationship between the Saudi BDC and the decisionmaker. Indeed, the DPA stated, “In requesting approval of one payment, Deutsche Bank employees cautioned 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.”

There was a similar relationship with an Abu Dhabi BDC,  but here Bank employees knew the Abu Dhabi BDC “lacked qualifications as a BDC, other than his family relationship with the client decisionmaker, and that the Abu Dhabi BDC was in fact acting as proxy for the client decisionmaker. Deutsche Bank paid the Abu Dhabi BDC over $3 million without invoices.”

Moreover, Bank employees conspired to falsify the Bank’s books, records, and accounts, in violation of the FCPA. Bank employees knowingly conspired to fail to implement internal accounting controls in violation of the FCPA by “failing to conduct meaningful due diligence regarding BDCs, making payments to certain BDCs who were not under contract with Deutsche Bank at the time, and making payments to certain BDCs without invoices or adequate documentation of the services purportedly performed.”

The SEC’s found the Bank violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934. The Bank agreed to a Cease-and-Desist Order and to pay disgorgement of $35 million with prejudgment interest of $8 million to settle the action. The SEC did not impose a civil penalty in light of the $79 million criminal penalty paid in the criminal resolution.

Tomorrow we consider the bribery schemes.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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