Deutsche Bank has agreed to pay a $150m fine for compliance failures in its dealings with Jeffrey Epstein, the late disgraced financier, as well as Danske Bank Estonia and FBME Bank.
The German lender processed millions of dollars of potentially suspicious transactions by Epstein, a registered sex offender, including payments to alleged co-conspirators, Russian models, and $800,000 in suspicious cash withdrawals, the New York State Department of Financial Services said on Tuesday.
“Despite knowing Mr Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions,” Linda Lacewell, the superintendent of financial services, said in a statement.
The settlement marked the first enforcement action against a bank for its dealings with Epstein, who was convicted in 2008 of soliciting sex from a minor and subsequently arrested last year on federal charges of sex trafficking underage girls. He died in jail last August while awaiting trial, in what was ruled as a suicide.
It is also the latest monetary penalty for Deutsche, which has paid billions of dollars in fines and settlements for a number of misconduct issues over the past decade, in an attempt to shed its reputation for high-risk relationships and poor compliance controls.
“Onboarding [Epstein] as a client in 2013 was a critical mistake and should never have happened,” Christian Sewing, Deutsche’s chief executive, said in an internal memo seen by the Financial Times. “Our reputation is our most valuable asset and we deeply regret [the] association.”
The consent order agreed by Deutsche revealed new details about Epstein’s finances, such as a trust known as “The Butterfly Trust”, whose beneficiaries included alleged co-conspirators and “a number of women with eastern European surnames”.
Epstein sent more than 120 wires amounting to $2.65m to the trust’s beneficiaries for “hotel expenses, tuition, and rent”, according to the consent order, which also detailed apparent settlement payments of more than $7m and legal expenses of more than $6m.
In addition, the bank allowed an unnamed attorney for Epstein to withdraw about $800,000 in cash between 2013 and 2017 on the justification that it was needed for travel, tipping, and expenses, the New York financial regulator said.
The regulator also outlined a series of “procedural failures, mistakes, and sloppiness” in Deutsche’s handling of more than 40 accounts opened by Epstein between 2013 and 2018, when the bank terminated the relationship following renewed press scrutiny of the financier’s crimes.
Deutsche had previously continued its relationship with Epstein despite questions about his conduct. In January 2015, two Deutsche employees had met with Epstein and questioned him about reports of his sex crimes that had re-emerged in the press. The employees “appeared to be satisfied by Mr Epstein’s response”, according to the regulator, but Deutsche had said it had no contemporary record of the substance of the meeting.
Also that month, the bank’s reputational risk committee in the US met to fully assess the Epstein relationship. The committee did not take minutes, and the additional conditions it imposed had little effect as not all members of the team handling Epstein were told, the regulator said.
Tuesday’s settlement, which credited Deutsche’s “exemplary co-operation”, also said the German lender had “failed to take appropriate action” to prevent Danske Bank Estonia executing billions of dollars in suspicious transactions through accounts in New York.
Between 2007 and 2015, Deutsche acted as a correspondent bank for Danske’s Estonian branch, which is suspected of laundering €200bn out of money from former Soviet states.
During that time, Germany’s largest lender cleared more than €160bn for Danske’s tiny Estonian branch.
Deutsche quit its role clearing dollars for Danske’s Estonian branch in 2015 after its internal controls started to flag a rising amount of suspicious transactions, which the bank reported to authorities.
The regulator said Deutsche had similarly failed to act on red flags in its relationship with FBME in Cyprus. FBME was sanctioned by the US in 2015 over money laundering concerns.
Deutsche acknowledged deficiencies in its relationship with Danske and FBME but said “there was no intentional effort by anyone within the bank to facilitate unlawful activity”.
“We have invested almost $1bn in improving our training, controls and operational processes, and have increased our anti-financial crime team to more than 1,500 people,” the bank added. “Our transformation and strengthening continues.”
Additional reporting by Olaf Storbeck in Frankfurt