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Exclusive: U.S. congressional probe finds possible lapses in Deutsche Bank controls - sources

[September 06, 2019] By Mark Hosenball, Matt Scuffham and John O'Donnell

LONDON/NEW YORK (Reuters) - U.S. congressional investigators have identified possible failures in Deutsche Bank AG's <DBKGn.D> money laundering controls in its dealings with Russian oligarchs, after the lender handed over a trove of transaction records, emails and other documents, three people familiar with the matter said.

The congressional inquiry found instances where Deutsche Bank staff in the United States and elsewhere flagged concerns about new Russian clients and transactions involving existing ones, but were ignored by managers, two of the people said.

Lawmakers are also examining whether Deutsche Bank facilitated the funneling of illegal funds into the United States as a correspondent bank, where it processes transactions for others, one of the sources said.

The congressional probe, whose initial findings have not been previously reported, is at an early stage, and it is not yet clear whether it will lead to any action against the bank, the three sources said.

A Deutsche Bank spokesman, Troy Gravitt, said the bank cannot comment on the work of the congressional committees but remains committed to cooperating with authorized investigations.

Addressing past deficiencies in the bank's controls, the spokesman said: "We have worked to address them, taken disciplinary measures with regards to certain individuals and reviewed our client onboarding and monitoring processes."

The House of Representatives Financial Services Committee declined to comment.

The Democrat-controlled House began examining possible money laundering in U.S. property deals involving President Donald Trump, a Republican, earlier this year. The lawmakers are also looking into whether Trump's dealings left him subject to the influence of foreign individuals or governments.

The White House and a Trump Organization spokeswoman, Amanda Miller, did not respond to requests for comment.

Deutsche Bank has been drawn into the inquiry as Trump's biggest lender and submitted documents to investigators in response to a subpoena.

The stakes are high for the German lender, which is trying to engineer a turnaround under Chief Executive Officer Christian Sewing after a multi-year bet on building a global investment banking business unraveled.

Graham Barrow, a financial crime consultant, said that while the bank had since sought to reform, it had taken too many risks in countries such as Russia.

"The bank decided to go for becoming a global investment bank," Barrow said. "They were compromised."

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The headquarters of Germany's Deutsche Bank is photographed early evening in Frankfurt, Germany, January 26, 2016. REUTERS/Kai Pfaffenbach/File Photo

Deutsche Bank declined to comment on Barrow's view.

In 2017, Deutsche Bank agreed to pay regulators in the United States and Britain $630 million in fines for organizing $10 billion in sham trades that could have been used to launder money out of Russia. Two of the sources said that the preliminary findings of the congressional investigators may have some overlap with that case but also include lapses unrelated to that matter.

New evidence thrown up by the congressional probe could feed into further investigations by other authorities, regulatory experts said.

If evidence of wrongdoing is found, it could also harm the bank's efforts to strengthen its relationships with U.S. regulators and deter investors concerned about the possibility of future regulatory sanctions. Deutsche Bank's shares hit an all-time low last month.

CONGRESSIONAL SUBPOENA

Earlier this year, the House Financial Services Committee served a 12-page subpoena on Deutsche Bank. Reuters has seen a version with portions blacked out.

Lawmakers requested documents that identify "any financial relationship, transactions, or ties" between Trump, his family members and his companies and "any foreign individual, entity, or government", according to the subpoena.

It also asks for hundreds of documents relating to other bank clients, including Russian oligarchs, the three sources said. These documents include account applications, know-your-client money laundering checks, internal assessments of "suspicious activity", as well as information about loans and mortgages, according to the subpoena.

Although Trump has challenged the release of his banking records in court, in April Deutsche started handing over information that is not directly related to the president and is continuing to do so, one of the people said.

That includes material prepared by bank staff for filing so-called suspicious activity reports to the U.S. Treasury Department and documents about Russian deals circulated among the bank's management and reputational risk committee, one person said.

The bank has also assembled a large amount of the subpoenaed Trump material, pending the court's decision on whether it should be released, the three people said.

The House Financial Services Committee will continue its investigation of Deutsche Bank's money laundering processes regardless of whether the court rules the lender should hand over the Trump documents to investigators, three sources familiar with the investigation said.

(Reporting by Mark Hosenball, Matt Scuffham and John O'Donnell; editing by Paritosh Bansal and Grant McCool)

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