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Deutsche Bank breaks relationships with ‘a very small number’ of wealthy customers with criminal records following the arrest of the embarrassed financier Jeffrey Epstein.
When Germany’s largest bank accepted Epstein as a client in 2013, he was already a convicted sex offender. Deutsche agreed to pay $ 150 million last year for negligence failures, including dealing with the money manager, who died in prison two years ago.
Christian Sewing, chief executive, acknowledged last year that the decision to do business with Epstein was a “critical mistake”.
Following the arrest of Epstein in 2019, Deutsche Bank conducted an internal analysis looking for ‘other cases of customers who were on board in the past but had to be viewed differently today’, said Stefan Simon, the lender’s administrative head , told the Financial Times.
As a result, it has broken off its relationships with a very small number of clients, Simon said, adding that the legal issues are different from Epstein’s.
Simon, a former partner at the law firm Flick Gocke Schaumburg and a member of the supervisory board of Deutsche Bank, joined the board of directors of the borrower in 2019 as head of regulation.
This year he is also in charge of compliance and anti-financial crime in a wider plate shake. He took over shortly after the bank was publicly punished by the German financial watchdog BaFin for poor control and promised to make it “more effective”.
Simon acknowledged that competitors had begun to strengthen their control over financial crime earlier than Deutsche. “We fell behind and caught up for a while,” he told the FT.
The 52-year-old has embarked on a fundamental overhaul of bank compliance, centralizing the department at the borrower’s headquarters and replacing nearly half of the senior staff of the control functions.
Deutsche earmarked an additional but unknown amount for the review. The expenses are one of the reasons why the bank will miss its previous cost target for 2021, which was abandoned this summer. Deutsche has spent € 2 billion over the past two years on its control functions and additional compliance staff.
Most of the additional money will be spent on strengthening Deutsche’s anti-financial crime capability, including technology to detect money flows related to terrorist financing and money laundering – an area where BaFin and the US Federal Reserve have called for improvements .
The bank is also streamlining its IT infrastructure and will soon begin replacing its dated and fragmented monitoring systems with new software. “We will develop less of our own individual solution, but we will buy more products on the shelf,” Simon said, adding that it ‘could save us time and money’.
In addition to spending a lot on new software and more staff, Simon stressed that the mindset of bankers was the key to avoiding legal and compliance risks. “In the first place, the business is in charge and also responsible for the risks of financial crime – just as it is responsible for the financial risks associated with a client or a transaction,” he said.
‘If we have doubts, we should say no to customers and transactions, even if it is legal in a formal sense. It can be painful from a business perspective, but we just have to do it – and we already do. “
He said Deutsche will punish bankers who do not meet this expectation. “We’ve done this in the past,” Simon said, refusing to discuss further details.
The FT reported in June that the departure of two veteran executives was linked to an ongoing investigation into alleged non-sale of foreign exchange derivatives to corporate clients in Spain. Simon did not want to comment on the sin, which is called “Teal”.