FRANKFURT (Reuters) - When regulators looked into the “mirror” trades at Deutsche Bank, they didn’t like what they saw.
A client would ask Deutsche Bank in Moscow to buy Russian blue-chip stocks using roubles, for example, then shortly after another would tell Deutsche Bank in London to sell the same amount of shares at the same price for dollars.
There was a steady flow of small trades, typically $2-3 million each, totaling about $10 billion of deals over about four years, according to regulators. The parties often lost money on the deals due to fees and commissions.
In fact, the two clients involved “were actually closely related”, said the New York State Department of Financial Services, such as through common ownership.
The regulators established that the deals covertly moved money from Russia to elsewhere in the world in a manner that could have been used for money laundering.
“I have a billion rouble today ... will you be able to find a security for this size,” the U.S. watchdog cited one party to a deal as telling a Deutsche Bank trader in Moscow.
The web of trades stretched from Moscow, London and New York to Cyprus and the British Virgin Islands.
Deutsche Bank (DBKGn.DE), which has a large presence on Wall Street, said it regretted its role in the scheme and that it has since addressed shortcomings. It has agreed to pay a total of about $630 million in fines to the New York and British financial regulators.
The mirror scheme started in 2011, as Deutsche traders struggled with a slowdown in business, in the wake of a slump in oil and gas prices as well as the aftermath of the global financial crisis.
“Greed and corruption motivated the DB (Deutsche Bank) Moscow traders,” said the New York authority.
“Traders conceded that they did not forcefully question these suspicious trades, because they were earning commissions at a time when trading had dramatically slowed.”
“One trader admitted that the trader was largely ‘focused on commission’ during this time of ‘slow markets’ and continued these trades despite misgivings,” it said.
The American and British regulators said the bank’s controls had failed, but did not say top management was aware.
Checks on customers were lax and systems for storing such information fragmented, leaving the bank in the dark about who they were trading for, and where the money for the deals was coming from.
The UK regulator, the Financial Conduct Authority (FCA), said cost-cutting at Deutsche had reduced compliance staff between 2010 and 2012, leaving them “stretched”.
The London office was responsible for the company’s trading book, but it was “not aware of the identities of the customers that were entering trades into the book”, the FCA added.
Deutsche Chief Executive John Cryan is seeking to draw a line under the bank’s misdeeds in the wake of the financial crisis as it sought to carve and keep a foothold on Wall Street.
The settlement is the latest in a string of penalties that have hammered the lender’s finances, including a $7.2 billion U.S. fine this month for the sale of toxic mortgage debt.
The fact the wrongdoing in Russia took place as recently as 2015 underlines the scale of the task still facing the CEO.
There were occasions when Deutsche was made aware that there could be something awry with the trades in question, according to the New York regulator.
In November 2011, a trade in Russia failed after the Russian markets regulator suspended the operating license of one of the parties involved.
Then in January 2014, a European bank, processing transactions from Deutsche, approached it to ask if it “had any reason to believe that the transactions ... are in any way of a suspicious nature”.
The U.S. regulator said the European bank, which it did not name, received the following response from the German lender after sending repeated reminders: “Deutsche Bank sees no reason for concern here.”
Additional reporting by Alexander Winning in Moscow; Editing by Pravin Char