The New York State Department of Financial Services (DFS) imposed the penalties on Deutsche Bank AG, its New York branch and Deutsche Bank Trust Company America for “significant compliance failures”, along with correspondent banking relationships with Danske Bank Estonia and FBME Bank.
The government body reported that the fines marked the first enforcement action by a regulator against a financial institution for dealings with Mr Epstein.
The bank was found to have failed to properly monitor account activity conducted on behalf of the registered sex offender despite “ample” information being publicly available around Mr Epstein’s earlier criminal misconduct.
The bank as a result processed hundreds of transactions totalling millions of dollars, including payments to individuals publicly alleged to have been Mr Epstein’s co-conspirators in sexually abusing young women, settlement payments totalling more than US$7 million ($10 million), as well as dozens of payments totalling more than US$6 million ($8.6 million) for what appeared to be the legal expenses of Mr Epstein and his co-conspirators.
The regulator also pointed to payments to Russian models, payments for women’s school tuition, hotel and rent expenses and transactions made directly to multiple women with Eastern European surnames, which was consistent with public allegations of wrongdoings.
There were also periodic “suspicious” cash withdrawals, totalling more than US$800,000 ($1.1 million) over a period of approximately four years.
Superintendent of financial services Linda Lacewell said in each of the cases being dealt with, the German financial services giant had failed to “adequately monitor the activity of customers that the bank itself deemed to be high risk”.
“Banks are the first line of defence with respect to preventing the facilitation of crim through the financial system, and it is fundamental that banks tailor the monitoring of their customers’ activity based upon the types of risk that are posed by a particular customer,” Ms Lacewell said.
“In the case of Jeffrey Epstein in particular, despite knowing Mr Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions.”
The finance watchdog said that certain conditions imposed upon the Epstein accounts by a Deutsche reputational risk committee, that may have prevented suspicious transactions, were not transmitted to the majority of the account relationship team and were misinterpreted by a compliance officer in a manner that resulted in very little change in how the accounts were monitored.
“Throughout the relationship, very few problematic transactions were ever questioned, and even when they were, they were usually cleared without satisfactory explanation,” the New York State Department of Financial Services stated, while referring to the “sloppiness” in how the bank managed and oversaw the accounts.
Deutsche Bank global chief executive Christian Sewing addressed the business relationship with Mr Epstein in a note to staff on Tuesday.
“Onboarding the latter [Mr Epstein] as a client in 2013 was a critical mistake and should have never happened,” Mr Sewing wrote.
He added that the group will need to work to ensure similar matters don’t occur again.
“It is our duty and our social responsibility to ensure that our banking services are used only for legitimate purposes,” Mr Sewing wrote.
“That’s exactly why we should examine things critically, ask questions and speak up.”
Deutsche Bank has invested almost US$1 billion in improving its training, controls and operational processes, as well as having increased its anti-financial crime team to more than 1,500 people.
The group indicated that its transformation is set to continue.
Looking at its relationships with Danske Estonia and FBME, DFS concluded that Deutsche Bank failed to properly monitor the activities of their foreign bank clients with respect to their correspondent and dollar clearing business.
Danske Estonia, which was at the centre of an immense money laundering scandal, was said to suffer from “inherent control failures that resulted in large quantities of money being moved on behalf of Russian oligarchs”.
Deutsche Bank was reported to have been placed repeatedly on notice during the years it had a relationship with Danske Estonia, being told by the Federal Reserve of the bank’s failings and the fact that it had undertaken few improvements.
Deutsche had assigned Danske Estonia its highest possible risk rating, but the New York Department of Financial Services noted it had failed to take appropriate action to prevent the bank from transferring billions of dollars of suspicious transactions through Deutsche Bank accounts in New York.
Similarly, the relationship with FBME was said to represent a lack of action despite red flags.
FBME’s failings over a number of years had resulted in the US Treasury Department’s Financial Crimes Enforcement Network stepping in and mandating that all banks operating in the US stop doing business with it.
At that point, Deutsche Bank was the last major western bank with a correspondent banking relationship with FBME.
From the beginning of its relationship with FBME, Deutsche Bank considered FBME to be a high-risk client that required annual enhanced anti-money laundering checks.
Despite the checks, there was reported to be little evidence that FBME had improved the quality of its controls over a number of years.
