A year after Deutsche Bank, Germany’s biggest lender, was fined $700 million for money laundering, recent confidential reviews that the bank conducted internally on June 5th and July 9th revealed deficiencies in its initial know-your-customer (KYC) screening procedures and its inability to properly confirm customer identities due to staff turnover. When testing for the percentage of files that met the bank’s KYC standards in various countries such as Italy, Russia, Spain and South America, Deutsche discovered that it had a pass rating of 0% as compared to the 95% that the bank strives for.
However, Deutsche added in its reports that, while the reviews showed the screenings to be too complex, their overall controls in place to prevent money laundering were effective. When alerted to the results of the reviews, Deutsche released this statement; “We still need to improve in terms of internal processes. What the documents show is that our internal processes are still too complicated. So it is not about effectiveness, but about the efficiency of our processes.” In the past, Deutsche Bank has struggled with the consequences of its weak oversight, being fined $630 billion by US and UK regulators in January 2017 for feigned trades in New York, London and Moscow that were used to launder $10 billion out of Russia. In May 2017, the US Federal Reserve fined Deutsche Bank an additional $41 million for failing to ensure that their system could pick up on money laundering.
Deutsche’s June report, which was released to the European Central Bank, also stated that the bank was missing proper verification of a client’s address, identity and source of funds along with a system that would determine if a client is a potential “politically exposed person.” In the January 2017 case against Deutsche, that resulted in the $$630 billion fine, New York financial regulators accused the bank of knowingly operating with a weak KYC system in place, particularly in Russia.
Despite these accusations and the recent large fines, Deutsche still believes that its anti-money laundering (AML) and KYC procedures are “very effective.” Although, after being pressured by the negative attention as a result of the fines received over the past 3 years, the bank has attempted to fix the issues by changing management, cutting jobs and cutting back on global investments. Christian Sewing, Deutsche’s new chief executive, has promised to strengthen the bank’s weaknesses by working with regulators despite the cut of employees and has increased the number of KYC employees. While Deutsche’s procedures have improved to a 67% pass rating after hiring auditors to assist with checks, review of the bank’s KYC systems still showed low pass rates for various countries such as the Netherlands and the US.
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