BaFin finds fault again with Deutsche Bank’s control mechanisms

Germany’s financial watchdog has ordered Deutsche Bank to fix its anti-money laundering controls in a move that shows Christian Sewing, chief executive, has still not sorted out all shortcomings three years after taking office.

BaFin on Friday evening said it had broadened and extended the mandate of KPMG, which it installed as special representative in September 2018 to monitor the lender’s progress on tightening up its internal controls.

The special representative’s appointment was an unprecedented move in 2018. People familiar with the matter told the Financial Times that KPMG had received a new 36-month mandate from BaFin.

The watchdog has called on Deutsche to put in place “further appropriate internal safeguards” and to “comply with due diligence obligations”. Without going into details, BaFin said the lender needed to tackle shortcomings “in particular with regard to regular customer reviews” but also in its “correspondent [banking] relationships and transaction monitoring”.

In a statement on Friday Deutsche said it had “significantly improved” its controls, spending €2bn on the matter over the past two years and that it now has 1,600 employees globally to fight financial crime.

“We are also aware that there is still work to be done,” the lender said, adding that it will “continue to invest heavily in 2021 and beyond, especially into the fight against financial crime”.

BaFin said its order was “intended to bring about sustainable improvements in money-laundering prevention at Deutsche Bank”, adding that the special monitor “will help us to continue closely monitoring this, both now and in the future”.

The auditor’s remit was extended by BaFin in February 2019 to investigate Deutsche’s role in the Danske Bank’s Estonia money-laundering scandal, where the German lender was a correspondent bank and processed more than €160bn of potentially suspicious cross-border payments for the unit.

In October, Frankfurt prosecutors fined Deutsche Bank €13.5m for the belated reporting of suspicious transactions it processed for Danske Bank’s Estonian branch.

Deutsche in March also announced yet another reorganisation of its control and compliance organisation, putting chief legal officer Stefan Simon in charge of its anti-financial crime unit and compliance. Those functions were given to Stuart Lewis, chief risk officer, in mid-2019 after the ousting of the heavily criticised chief compliance officer Sylvie Matherat.

Lewis, the longest-serving board member, will resign at the AGM in 2022, one year before his contract is set to expire, after holding the job for a decade.

Frank Kuhnke, chief operating officer, who was in charge of Deutsche’s know-your-client procedures, will also leave the bank in May.

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