Thursday, July 09, 2020

NY Dept. of Financial Services Fines Duetschebank $150 MIllion For Laundering Epstein Money


nakedcapitalism |  The New York Department of Financial Services, which made its mark under Benjamin Lawsky by embarrassing Federal regulators via its aggressive pursuit of big bank money laundering, and later went after mortgage servicing misconduct, is back in the headlines. It’s dinged Deutsche Bank for $150 million for playing fast and loose with anti-money-laundering requirements on Jeffrey Epstein’s accounts, a bank in Cyprus accused of money laundering and connections to the Russian mob, and Danske Estonia, which conducted what was arguably Europe’s biggest money laundering operation. We’ve embedded the consent order at the end of the post and focus this post on Jeffrey Epstein, although for anyone in the banking business, the entire order is a good read. 

Even though cynics have pointed out that the US likes to come down harder on misbehaving foreign banks than home grown ones, Department of Financial Services has clout over foreign banks because pretty much all of them choose to organize their operations through a New York branch. Long-standing readers may recall that Lawsky caused outrage in the Beltway when he ordered the CEO of serial anti-money-laundering-regulation abuser Standard Chartered to appear in his office and explain why his New York banking license should not be revoked. That was the equivalent of a death threat. No New York banking license means no dollar clearing, which would end Standard Chartered’s international operations.

In the past, Federal regulators embarrassed by the Department of Financial Services’ enforcement actions would either join the DFS effort or launch a parallel one and in either case, collect additional fines. So far, there’s no evidence of that happening with this DFS consent order with Deutsche.

One has to wonder if Deutsche is truly as incompetent and disorganized as it appears in the DFS account, or whether the bank was so caught with its pants down that this was the best defense it could muster. For instance, if you read carefully, you can infer that someone who had been on the Epstein team was able to produce a copy of an e-mail from a co-head of Wealth Management Americas saying the head of anti-money laundering and the General Counsel had said Epstein didn’t represent a reputation risk despite his sex offender warts and he was good to go as long as “nothing further is identified”. Deutsche maintained it had no record of that e-mail and claimed there had been no initial review by the Americas Reputational Risk Committee. 

Similarly, even though Epstein’s accounts were designated high risk, which supposedly called for close supervision, the bank looked past obvious red flags. For instance, Epstein and his minions regularly wired $10,000 or more to three co-conspirators named in the press. His “Butterfly Trust” had these co-conspirators among its beneficiaries, as well as women with “Eastern European surnames” (this after the press had alleged that Epstein had been procuring underaged women from Eastern Europe). The Order makes clear the trust looks a, if not the, payment channel for Esptein’s sex trafficking via over 120 wires for $2.65 million.

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