New York state financial regulators said Tuesday that they have slapped Deutsche Bank with a $150 million penalty "for significant compliance failures" in the bank's dealings with accused child sex trafficker Jeffrey Epstein, a now-dead investor, as well as with two client banks.
The New York State Department of Financial Services said that Deutsche Bank, which agreed to the payment under a consent order, "failed to properly monitor account activity conducted on behalf of the registered sex offender despite ample" public information about Mr. Epstein's earlier criminal misconduct.
The big settlement comes days after Epstein's alleged procurer, Ghislaine Maxwell, was arrested on federal charges that accuse her of helping him get access to and groom underage girls so he could sexually abuse them.
The state said it was the first enforcement action by a regulator against a financial institution for dealings with Epstein.
The consent order covers Deutsche Bank's relationship with Epstein, and correspondent banking relationships with Danske Bank Estonia and FBME Bank.
Download Deutsche Bank's consent order here.
Deutsche Bank maintained a relationship Epstein, as well as with "related individuals and entities from August 2013 until December 2018," when the bank ended its dealings with him after the Miami Herald published a series of stories about a federal nonprosecution deal that Epstein obtained in 2008 in Florida. Over time, the German company handled more than 40 accounts related to Epstein and related people and entities.
The Financial Services Department said that because of the bank's oversight failure with Epstein, the "bank processed hundreds of transactions totaling millions of dollars that, at the very least, should have prompted additional scrutiny in light of Mr. Epstein's history."
Those transactions include payments to people who were publicly alleged to have been Epstein's co-conspirators in sexually abusing young women, and settlements totaling more than $7 million and payments to law firms of more than $6 million "for what appear to have been the legal expenses of Mr. Epstein and his co-conspirators," the department said.
Other payments were made "to Russian models, payments for women's school tuition, hotel and rent expenses, and (consistent with public allegations of prior wrongdoing) payments directly to numerous women with Eastern European surnames," according to the department.
Also noted were Epstein's "periodic suspicious cash withdrawals — in total, more than $800,000 over approximately four years," the department said.
All of these transactions occurred in the months and years after August 2013, when, in preparation for Epstein's accounts being shifted to Deutsche Bank, a junior relationship coordinator on the Epstein account prepared a memorandum for a relationship manager at the bank to be sent to the bank's then co-head of the wealth management Americas group and the chief operating officer of the wealth management Americas unit, the consent order notes.
That memo contained information about Epstein's prior state sex crime case in Florida, noting he was charged with soliciting an underage prostitute in 2007, that he served 13 months of his 18-month sentence, and that Epstein was accused of paying young women for massages in his Florida home, the consent order said.
"It also highlights that Mr. Epstein was involved in 17 out-of-court civil settlements related to his conduct in the 2007 conviction," the consent order said of the memo.
In an email to the two bank executives who included the memorandum as an attachment, the relationship manager "noted how lucrative the relationship could be, stating "[e]stimated flows of $100-300 [million] overtime [SIC] (possibly more)w/ revenue of $2-4 million annually over time," the consent order said.
"In the same email, [the bank's relationship manager] proposed that all Epstein-related accounts be for 'entities' affiliated with Mr. Epstein, 'not personal accounts,'" the consent order noted.
U.S. financier Jeffrey Epstein appears in a photograph taken for the New York State Division of Criminal Justice Services' sex offender registry March 28, 2017 and obtained by Reuters July 10, 2019.
New York State Division of Criminal Justice Services | Handout | Reuters
The order noted that banks are required to have anti-money laundering controls in place, and that they are also required to monitor their customers to prevent them from facilitating criminal activity.
State Financial Services Superintendent Linda Lacewell said in a prepared statement that "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," Lacewell said.
The state Financial Services Department said it concluded that Deutsche Bank failed to monitor the activities of their bank clients, Danske Estonia and FBME, "with respect to their correspondent and dollar clearing business. "
The department noted that Danske Estonia is "at the center of one of the world's largest money laundering scandals" and had control failures that led to large amounts of money being transferred on behalf of Russian oligarchs.
"Over the course of the years-long relationship between Deutsche Bank and Danske Estonia, Deutsche Bank was repeatedly put on notice of these failings and of the fact that few improvements were undertaken by Danske Estonia," the department said.
"Despite the fact that Deutsche Bank assigned Danske Estonia its highest possible risk rating, Deutsche Bank failed to take appropriate action to prevent Danske Estonia from transferring billions of dollars of suspicious transactions through Deutsche Bank accounts in New York."
The regulator also said that Deutsche Bank's relationship with FBME represented a similar failure "to act on red flags" from a "high-risk client that required annual enhanced anti-money laundering checks."
"Despite these checks, there was little evidence that FBME improved the quality of its controls over several years," the Financial Services Department said
Deutsche Bank CEO Christian Sewing, in an internal communication to all bank staff about the settlement said, "Today serves as a reminder of how vigilant we must remain."
"It not only marks the anniversary of our 'Compete to Win' strategy, but also our settlement just announced with the New York Department of Financial Services (DFS), resolving investigations into our controls and processes in the fight against financial crime," Sewing said.
He noted that "the settlement 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," the CEO said.
During a later interview on CNBC's "Closing Bell" with Wilfred Frost, Sewing said that his message to the bank's 86,000 employees was, "Thus must not happen again."
A Deutsche Bank spokesman said, "We acknowledge our error of onboarding Epstein in 2013 and the weaknesses in our processes, and have learnt from our mistakes and shortcomings."
The spokesman said that immediately after Epstein's arrest on child sex trafficking charges in July 2019, the bank "contacted law enforcement and offered our full assistance with their investigation."
We have been fully transparent and have addressed these matters with our regulator, adjusted our risk tolerance and systematically tackled the issues," the spokesman said.
Epstein, 66, died last August in a federal jail in Manhattan from what authorities ruled was a suicide by hanging after being denied bail in his criminal case, where he was charged with child sex trafficking and conspiracy to commit child sex trafficking.
Deutsche Bank has reportedly loaned more than $2.5 billion to projects run by Trump's company, the Trump Organization. The Supreme Court currently is considering arguments in case in which Trump has sued to block two House of Representatives Committees from getting financial records related to the president and related entities from Deutsche Bank pursuant to a subpoena.
At the time the bank began doing business with Epstein he was already a notorious registered sex offender, having pleaded guilty to the Florida state charges in 2008 in a case that was widely reported at the time.
Maxwell, who was a former girlfriend of Epstein as well as a one-time manager of his luxurious properties, was arrested last week on federal charges while holed up at a $1 million getaway in New Hampshire.
Prosecutors in New York say that in the mid-1990s, Maxwell helped Epstein get access to and groom underage girls so that they could be sexually abused by him, and sometimes with her participation.
At least one of the girls was 14 years old, court papers say.
Maxwell, 58, was transported by authorities to New York City. Her first court appearance in Manhattan federal court is set for July 14.
She is currently being held in a federal jail in Brooklyn pending a decision on whether she should be granted bail. Prosecutors want her held without bail, calling her an extreme flight risk.