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Deutsche Bank’s Many Epstein Failures

22/07/2020

New York banking regulators hit Deutsche Bank with a $150 million penalty Tuesday for its business dealings with notorious sex trafficker Jeffrey Epstein, and painted a damning picture of compliance failures that went on for years at the bank while it reaped millions from such a lucrative customer. 

The New York Department of Financial Services imposed the penalty, and its 38-page consent order against Deutsche Bank is not easy reading. The order shows how Esptein sailed through client onboarding at the bank in 2013 even though bank staffers had documented Epstein’s previous prison sentence for soliciting underage prostitutes; and how Deutsche Bank compliance and wealth management executives alike bumbled through years of poor monitoring of Epstein’s suspicious transactions. 

We all know how Esptein’s personal tale ended: he died last August while in federal custody, awaiting trial on new charges of underage prostitution and sex trafficking. The official cause of death was determined to be suicide, but given Epstein’s many famous friends — including defense lawyer Alan Dershowitz, Prince Andrew, and President Trump — conspiracy theorists question that conclusion. 

Whatever. This is about Deutsche Bank, and pervasive compliance program failures there. Linda Lacewell, head of the NY Department of Financial Services, pummeled the bank in a press release

[Deutsche Bank] failed to properly monitor account activity conducted on behalf of the registered sex offender despite ample information that was publicly available concerning the circumstances surrounding Mr. Epstein’s earlier criminal misconduct… This substantive failure was compounded by a series of procedural failures, mistakes, and sloppiness in how the Bank managed and oversaw the Epstein accounts.

Even Deutsche Bank CEO Christian Sewing said in a statement: “Onboarding [Epstein] as a client in 2013 was a critical mistake and should never have happened.”

So what went wrong? Jeez, where to begin… 

Negligence During Onboarding

The debacle began in 2013. Epstein was looking for a new bank, and a relationship manager at Deutsche Bank who had previously worked with Epstein suggested that Deutsche Bank try to land him as a client. Epstein was game, so the bank began onboarding him around April 2013. 

A junior banker wrote a memo about Epstein’s background, which plainly stated that Epstein had served time for soliciting underage prostitutes and was involved in 17 legal settlements relating to his conviction. 

The relationship manager attached that memo to an email he sent to the heads of Deutsche Bank’s wealth management division. The email itself, however, talked up Epstein’s potential as a client: several hundred million dollars in “flow” with fee revenue of $2 million to $4 million annually. The relationship manager also proposed that all Epstein-related accounts be for “entities” affiliated with Epstein, “not personal accounts.”

What happened next is crucial, but fuzzy. The head of wealth management replied to the relationship manager that he had talked with the head of AML compliance for the Americas and the general counsel for the Americas, and both said Epstein could skip further review by the bank’s Americas Reputational Risk Committee. The general counsel was chair of that committee, by the way. 

So Deutsche Bank had clear, documented evidence that Epstein was a pimp and a pervert; that evidence was passed along to senior executives; and they saw no need for further scrutiny of Epstein’s application. 

At least, that’s what we’re supposed to believe — because, as the consent order put it, “The bank has represented to the Department that it has no other record of this communication.”

This was a significant thing. We have what looks, in hindsight, to be a terrible decision about onboarding a skeezy lowlife because he’d be a lucrative customer. Worse, we don’t know what else passed for initial onboarding of Epstein, because the bank has incomplete documentation of its decisions. 

As the consent order said:

Despite the nature of Mr. Epstein’s prior criminal history, the initial onboarding of the first account was not reviewed by the bank’s regional reputational risk committee but was instead approved in what appears to have been an off-hand conversation reflected only in the Approval Email. That Approval Email was then relied upon, substantially without additional scrutiny, to open numerous other Epstein-related accounts. 

All other mistakes Deutsche Bank made flowed from this original sin of weak scrutiny, and weak documentation of its decision-making for a known high-risk customer.

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