Bank fined $150M for mismanagement of Epstein account

Jeffrey Epstein

NEW YORK — Deutsche Bank and its New York branch will pay $150 million in penalties after sloppy management failed to intervene in hundreds of suspicious transactions in Jeffrey Epstein’s account, even after he faced widespread sex trafficking allegations, officials said.

Deutsche Bank AG, its New York branch and Deutsche Bank Trust Company America will pay $150 million in fines to the state Department of Financial Services as part of a consent order released Tuesday for significant compliance failures in connection with the bank’s relationship with Epstein, a registered sex offender, Danske Bank Estonia and FBME Bank.

After an investigation, the department found Deutsche Bank, a global financial institution headquartered in Frankfurt, Germany, failed to properly monitor Epstein’s suspicious account activity despite global public information about his history of criminal misconduct. The bank processed hundreds of transactions totaling millions of dollars, which should have been scrutinized, according to a statement Tuesday from the Financial Services Department.

The transactions included payments to Epstein’s alleged co-conspirators in sexually abusing young women; more than $7 million in settlement payments, including over $6 million in dozens of payments to law firms for Epstein and his co-conspirators’ legal expenses; payments to Russian models, payments for women’s school tuition, hotel and rent expenses and direct payments to numerous women with Eastern European surnames; and more than $800,000 periodic, suspicious cash withdrawals over approximately four years.

“We acknowledge our error of onboarding Epstein in 2013 and the weaknesses in our processes, and have learnt from our mistakes and shortcomings,” A Deutsche Bank spokesperson said in an emailed statement Tuesday. “While the settlement reflects our upmost cooperation and transparent engagement with our regulator, it also shows how important it is to continue investing in our controls and enhancing our anti-financial crime capabilities. We have been fully transparent and have addressed these matters with our regulator, adjusted our risk tolerance and systematically tackled the issues.

“Our reputation is our most valuable asset and we deeply regret our association with Epstein.”

Bank representatives contacted police and offered assistance with the investigation. In its consent order, the U.S. Department of State details the bank’s “exemplary cooperation” and immediate “efforts to begin to remediate” its shortcomings, which commenced before the department started its probe.

“Today serves as a reminder of how vigilant we must remain,” Deutsche Bank CEO Christian Sewing said in internal communication to all staff. “Our settlement just announced with the New York Department of Financial Services, resolving investigations into our controls and processes in the fight against financial crime ... covers three issues: Danske Bank, the Federal Bank of the Middle East and our former business relationship with Jeffrey Epstein. Onboarding the latter as a client in 2013 was a critical mistake and should never have happened.”

Tuesday’s agreement is a regulator’s first enforcement against a financial institution for dealings with Epstein.

“Banks are the first line of defense with respect to preventing the facilitation of crime through the financial system, and it is fundamental that banks tailor the monitoring of their customers’ activity based upon the types of risk that are posed by a particular customer,” Superintendent of Financial Services Linda Lacewell said in a statement Tuesday. “In each of the cases that are being resolved today, Deutsche Bank failed to adequately monitor the activity of customers that the bank itself deemed to be high-risk. In the case of Jeffrey Epstein in particular, despite knowing Mr. Epstein’s terrible criminal history, the bank inexcusably failed to detect or prevent millions of dollars of suspicious transactions.”

Epstein, a financier worth around $630 million, hanged himself last year in a Lower Manhattan jail cell while awaiting trial for sex trafficking. Epstein’s alleged chief enabler, Ghislaine Maxwell, was charged last week with enticing underage girls to travel for sex.

The penalty is the latest sign of trouble at Deutsche Bank. It has faced scrutiny during President Donald Trump’s administration for serving as his primary lender for development projects when no other bank would touch him. The bank agreed to pay a $2.5 billion fine in 2015 for a conspiracy to rig a benchmark interest rate.

The bank engaged in several procedural failures, mistakes and overall sloppiness in managing and overseeing the Epstein accounts and failed to properly monitor the activities of foreign bank clients of Danske Estonia and dollar-clearing business FBME, according to the department.

According to the consent order, after Epstein’s relationship manager at one major bank moved to Deutsche Bank in late 2012, the manager encouraged top executives at Deutsche Bank’s wealth management Americas unit to recruit Epstein as a client. The relationship manager promised that Epstein could generate as much as $100 million to $300 million in “flow,” as well as $2 million to $4 million in annual revenue over time.

The regulator didn’t identify Epstein’s previous bank. He was a longtime client of JPMorgan Chase & Co.’s private bank, which severed the relationship around that time, after Epstein’s Florida conviction. JPMorgan declined to comment.

Although a client coordinator at the bank laid out Epstein’s criminal history in a memo, bank executives, including some working in compliance, signed off on adding him as a client. They allowed him to shield his identity by keeping his funds in a variety of entities that didn’t bear his name.

Soon after moving his funds to Deutsche Bank, Epstein began sending out payments of more than $10,000 to individuals who had been identified in news accounts as his co-conspirators. Many of the payments came out of an entity created by Epstein called the “Butterfly Trust.”

The Epstein associates aren’t identified in the New York filing. Maxwell is alleged in numerous media accounts to have been Epstein’s primary facilitator.

Over time, according to the New York regulator, Epstein paid out $2.65 million to his co-conspirators as well as various “women with Eastern European surnames,” ostensibly for hotel expenses, schooling and rent. When a bank compliance officer raised concerns about a transfer to one of the Russian bank accounts, an Epstein accountant characterized it as a tuition payment.

Bank representatives questioned few problematic transactions, or cleared them without sufficient explanation, according to the department.

“No matter how rich, how big or how powerful an institution you are, predatory behavior of any type will not be tolerated in New York,” Gov. Andrew Cuomo said in a statement about the DFS penalty Tuesday. “For years, Mr. Epstein’s criminal, abusive behavior was widely known, yet big institutions continued to excuse that history and lend their credibility or services for financial gain.

While Washington has routinely looked the other way when it comes to punishing financial institutions, New York and the Department of Financial Services will continue to take its role as a strong regulator seriously and will use every possible tool to protect New Yorkers from predatory behavior in all its forms.”

Danske Estonia — at the center of one of the world’s largest money-laundering scandals — suffered from inherent control failures resulting in large quantities of money moved on behalf of Russian oligarchs. Deutsche Bank was repeatedly put on notice about these failings over the course of its years-long relationship with Danske Estonia. Deutsche Bank assigned Danske Estonia its highest risk rating, but failed to take appropriate action to prevent Danske Estonia from transferring billions of dollars of suspicious transactions through Deutsche Bank accounts in New York, according to the department.

Deutsche Bank’s relationship with FBME similarly represented a failure to act on red flags concerning a correspondent-banking relationship. From the beginning of its relationship with FBME, Deutsche Bank considered FBME to be a high-risk client requiring annual enhanced anti-money laundering checks. Despite these checks, the state department found little evidence over several years FBME improved the quality of its controls, according to DFS.

In 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network mandated all U.S. banks cease business with FBME. At that time, Deutsche Bank was the last major U.S. bank with a correspondent-banking relationship with FBME.

“The DFS’ factual findings on Danske Estonia and FBME, like our own internal investigation, identified various deficiencies in our oversight and monitoring of the banks that used our clearing services,” A Deutsche Bank spokesperson said in an emailed statement Tuesday. “There was no intentional effort by anyone within the bank to facilitate unlawful activity. We have invested almost $1 billion in improving our training, controls and operational processes, as well as an increase to more than 1,500 people in our anti-financial crime division.”

Sewing thanked his colleagues for handling the bank’s internal investigations.

“We all have to help ensure that this kind of thing does not happen again,” he said in internal communication to all staff. “It is our duty and our social responsibility to ensure that our banking services are used only for legitimate purposes. That’s exactly why we should always examine things critically, ask questions and speak up.”

The Tribune News Service contributed to this report.

Johnson Newspapers 7.1

(1) comment

scottmyers

Deutsche‘S building next to the South World Trade Tower was disassembled to the ground after 9/11.

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
PLEASE TURN OFF YOUR CAPS LOCK.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.