Deutsche Bank Haunted by Control Lapses as U.S. Warns of Breach
Deutsche Bank Alerted by DOJ to Possible Breach of Criminal Deal
(Bloomberg) -- Deutsche Bank AG’s control lapses keep haunting Christian Sewing.
The Chief Executive Officer of Germany’s largest lender has spent his almost four years in the role trying to mend relations with regulators and restore a path to sustainable profitability. While he’s made progress on the latter, a slew of recent legal and regulatory headaches threaten to overshadow those achievements as he’s heading into the final year of his turnaround program.
In the latest setback, the Justice Department has told the Frankfurt-based bank that it may have violated a criminal settlement by failing to inform prosecutors about an internal complaint tied to the lender’s asset-management arm, according to a person familiar with the matter.
The complaint from Desiree Fixler, the former head of sustainability at DWS Group, alleged the firm had overstated its commitments to environmental, social and governance criteria. U.S. prosecutors learned of the allegations only after they were made public in August by the Wall Street Journal, which was also first to report the Justice Department notification.
The potential breach involves a deferred prosecution agreement reached in January between the Justice Department and Deutsche Bank in which the German lender agreed to pay more than $130 million to settle charges that it bribed foreign officials and manipulated the market for precious-metals futures. As part of that accord, the bank vowed to cooperate with investigations and make certain disclosures about allegations of misconduct.
Deutsche Bank’s shares traded lower on the news and were down about 2.3% at 11:31 a.m. in Frankfurt.
The bank has previously been told by the Federal Reserve that its compliance programs aren’t up to snuff. It’s conducting an internal probe into alleged misselling of derivatives in Spain. And an anti-money laundering monitor put in place by German watchdog BaFin has been given an expanded mandate.
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The issues have revived memories of the firm’s lost decade after the financial crisis, when Deutsche Bank faced more than $18 billion in fines and legal settlements, the biggest bill for any European bank after Royal Bank of Scotland Group Plc, calculations by Bloomberg News have shown. That number has increased over the past two years, though legal payments have declined substantially compared with previous years.
Increased spending to remedy its control weaknesses is one reason why Deutsche Bank scrapped its cost-reduction target earlier this year. It has also reshuffled leadership at its compliance and anti-money laundering units.
No final decision on whether Deutsche Bank breached the deal with the DOJ has been made, said the person, who asked not to be named because the communications between the U.S. government and the bank aren’t public. The department could end its query without taking further action.
Spokesmen for Deutsche Bank and the Justice Department declined to comment.
In recent months, Justice Department leaders have said they’re reviewing several non-prosecution and deferred prosecution agreements for evidence that companies haven’t been taking their obligations seriously.
The Deutsche Bank agreement requires notification and allows for the bank to respond to any allegations. The Justice Department’s warning could lead to the bank reaching a new settlement with the department. If prosecutors were to move forward, the earlier deal would be voided and criminal charges could be filed in court.
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