A New York financial watchdog fined Deutsche Bank $150 million for its connections to Jeffrey Epstein and correspondent relationships with Dankse Estonia and FMBE Bank.
The move is the first enforcement action of a regulator against a financial institution for dealings with Jeffrey Epstein, who was arrested last year under sex trafficking charged and died in custody a month later.
“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,” Linda A. Lacewell, superintendent of financial services said in a statement. “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,” she added.
The fines come as Deutsche Bank faced scrutiny over weak money laundering controls and risk management after an audit in March. The New York Department of Financial Services noted that the bank failed to monitor activity of Epstein’s accounts, despite ample knowledge concerning his earlier criminal record, where he pleaded guilty in 2008 to soliciting from a minor and after which JPMorgan Chase & Co. dropped him as a client because of reputational concerns.
Deutsche Bank had correctly flagged Epstein as a high-risk client, but failed to properly monitor his accounts and processed hundreds of transactions totaling millions of dollars which included periodic suspicious cash withdrawals, settlement payments of over $7 million, and payments to publicly alleged co-conspirators in sexually abusing young women.
The regulator said that the bank had “procedural failures, mistakes, and sloppiness,” in the oversight of Epstein’s accounts, including failure to question problematic transactions and clearing of issues without satisfactory explanation. A bank reputational risk committee imposed certain conditions on Epstein accounts that, if implemented properly, could have detected suspicious transactions. Failure to communicate the conditions to the majority of the account relationship team and misinterpretation by a compliance officer led to minimal changes in monitoring his accounts.
Dankse Estonia is currently embroiled in a long-term money laundering scandal that involves large quantities of money moved on behalf of Russian oligarchs, where billions of dollars were transferred through Deutsche Bank accounts in New York. Despite a high-risk warning and knowledge of internal control failures at Dankse Estonia, Deutsche Bank failed to take action to prevent suspicious money transfers.
FBME Bank and Deutsche Bank’s relationship followed a similar path, where Deutsche Bank marked FBME as a high-risk client, but did very little to improve the quality of their controls. Eventually, the United States mandated all banks operating in the U.S. to terminate business with FBME, and Deutsche Bank was the last major western bank with a banking relationship with FBME. 
Stephanie Liu is assistant editor at Internal Audit 360°