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 Commerzbank had been primed to settle with U.S. regulators and
prosecutors by the end of September over its dealings with Iran and
other countries under U.S. sanctions, Reuters has reported.
The sanctions settlement was expected to cost the bank about $650
million, people familiar with the deal have told Reuters, and the
bank had been expected to enter into deferred prosecution agreements
with prosecutors that would suspend criminal charges.
But the accord was put on ice after the Manhattan U.S. Attorney's
office, which is not involved in the sanctions deal, looked into the
bank's records in connection with the $1.7 billion accounting fraud
at Japan's Olympus, said two sources who did not want to be
identified. Other people with knowledge of the matter did not
dispute the reasons for the delay.
The total amount for a coordinated settlement is now expected to
cost Commerzbank more than $650 million, one of the two sources
said, but the person did not provide a new estimate.
Media outlets have previously reported that a probe related to lax
money-laundering controls could delay Commerzbank's sanctions
related settlement, but the Olympus connection has not been
revealed, nor the new target for a settlement date.
Representatives for the Manhattan U.S. Attorney's office and
Commerzbank declined to comment.
The Olympus fraud is considered one of the biggest corporate
scandals in Japan's history. In 2011, the camera and medical
equipment maker admitted the company used improper accounting to
conceal massive investment losses over more than a decade and
restated years of financial results.
Commerzbank handled hundreds of millions of dollars of transactions
connected to the fraud, court filings show, and Manhattan U.S.
Attorney Preet Bharara began to investigate the bank's records and
compliance with the Bank Secrecy Act, the two sources said.
The Bank Secrecy Act (BSA) is the United States' prime anti-money
laundering law and requires monitoring and flagging suspicious
transactions.
Authorities have connected a former banker at Commerzbank, Chan Ming
Fon, to the Olympus accounting scheme. Chan pleaded guilty in U.S.
District Court in Manhattan last year to conspiracy to commit wire
fraud.
Chan worked at Commerzbank in Singapore until 2000, was at Societe
Generale until 2004 and then formed his own company where he
continued to work for former Olympus executives, according to a
report commissioned by Olympus in 2011.
Chan is cooperating with the government, court filings show. His
lawyer declined to comment.
Commerzbank in recent years has already been focused on improving
its controls after it entered into an agreement in 2012 with the
Federal Reserve Bank of New York to improve compliance with BSA/anti-money
laundering laws and regulations.
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The New York branch still failed to maintain adequate controls, the
Federal Reserve found last year, and issued a cease and desist
order. It is not clear if the Fed action was related to the bank's
activities with Olympus.
A spokeswoman for the Federal Reserve declined comment.
Authorities involved in the sanctions settlement view the BSA probe
as coming "out of left field," one of the two sources said. But from
the government's perspective, it doesn't make sense to resolve one
case and a couple of months later, have another against the same
bank, the person said.
Authorities want to consider a joint settlement that could come by
the end of the year, the source said.
The authorities involved in the sanctions settlement are the
Department of Justice, the U.S. Attorney in Washington, D.C., the
Treasury Department, the Federal Reserve, New York's Department of
Financial Services, and the Manhattan District Attorney. All
declined to comment on the settlement.
In addition to the $650 million, Reuters has reported that New
York’s Department of Financial Services, which is expected to get a
little less than half the money, wants Commerzbank to fire a handful
of employees involved with the alleged sanctions-related wrongdoing.
The inquiry into Commerzbank's activities with sanctioned entities
began in 2010 with the Manhattan District Attorney's office, a
different source said. Authorities have found that the bank
allegedly stripped identifying information from incoming wires to
avoid red flags that would have helped regulators police the
transactions, Reuters has reported.
(Reporting by Karen Freifeld; Additional reporting by Aruna
Viswanatha in Washington; Editing by Karey Van Hall and Lisa
Shumaker)
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