* Deutsche employee spent $8,800 to entertain client-police
* Japan securities watchdog sanctions Deutsche Securities
* Deutsche Securities violated financial laws -SESC
* Deutsche Bank says "cooperating fully" with investigators
By Nathan Layne and Chang-Ran Kim
TOKYO, Dec 5 Japan's securities regulator
sanctioned the domestic investment banking unit of Deutsche Bank
on Thursday and one of its employees was arrested for
lavishly entertaining pension fund clients, an act considered
bribery under the law.
The moves mark the latest crackdown by Japanese authorities
on pension fund executives who are subject to the same
anti-bribery laws as government employees because part of the
money they manage is invested in the national pension scheme.
Officials at the Securities Exchange and Surveillance
Commission (SESC) told a media briefing that Deutsche Securities
had allowed its pension sales team to "run amok" in their
pursuit of revenues. They also blasted the bank for failing to
catch falsified expense receipts.
Deutsche Bank apologised and said in a statement that it was
"cooperating fully" with investigators while taking necessary
steps to bolster compliance.
It said it had launched its own probe into the matter before
the SESC began a regular audit of the German bank's Japanese
business in May. The pension marketing division in question had
already been effectively shut down, it added.
The president, chairman and chief operating officer of
Deutsche Securities will also take a temporary pay cut of up to
30 percent, said a person with knowledge of the matter who
declined to be identified as the details were confidential.
Many of the overseas trips expensed by the pension sales
teams were to Europe and were aimed at gathering information
about mainly index-linked products, the source said.
GOLF, WINING AND DINING
The Tokyo Metropolitan Police earlier said it had detained
Deutsche Securities pension sales executive Shigeru Echigo, 36,
and 60-year-old Yutaka Tsurisawa, a former official at a
corporate pension fund affiliated with Mitsui & Co.
Last year, Echigo spent 900,000 yen ($8,800) to wine and
dine Tsurisawa and to pay for overseas trips and golf outings,
rewarding him for Mitsui's investment of 1 billion yen ($9.7
million) in Deutsche's financial products, police said.
In a parallel civil case, the SESC said Deutsche Securities
had spent a total of 6.3 million yen ($61,400) entertaining
three pension fund clients between 2010 and 2012, providing them
with "special benefits" in violation of financial laws.
That amount includes the money spent on the Mitsui pension
executive being detained by police.
The SESC has put a spotlight on pension funds since
Tokyo-based AIJ Investment Advisors was found to have defrauded
pensioners out of more than $1 billion last year, often using
lavish entertainment to attract investors.
The scandal led to the arrest of AIJ's top executive and
triggered an ongoing industry-wide review by regulators of
companies that manage pension money and the brokers that serve
them as clients.
An SESC official who declined to be identified noted that
some of the entertaining by Deutsche had taken place after the
AIJ scandal became public.
"This involves quasi-public officials and that's what makes
the infraction so grave," the official told the briefing. "This
is something that should be regulated by the company, it's
against company policy and the law."
The Financial Services Agency, which carries out the
recommendations of the SESC and decides the punishment, is
expected to issue an order to Deutsche Securities to improve its
compliance, sources familiar with the matter said.
Wining and dining by brokers and late-night drinking
sessions have traditionally been a regular practice in cementing
business ties in Japan.
Tokyo created a code of ethics for public employees after a
1998 scandal in which finance ministry officials were arrested
for accepting special treatment - mostly meals - from officials
of banks they were supervising.
That prompted the financial industry to tighten its policing
of client entertainment, but guidelines for entertaining pension
fund executives were rarely enforced until the AIJ scandal put a
spotlight on the issue, financial industry sources say.