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[MOSCOW] Deutsche Bank AG has identified as much as US$4 billion in suspicious transactions related to its Russian operations, in addition to US$6 billion in so-called mirror trades it is examining, said several people with knowledge of the bank's review of the matter.
That means the Frankfurt-based bank flagged as much as US$10 billion in total trades that may not have been vetted for money laundering as clients moved money out of Russia.
Previously unreported transactions under scrutiny include those in which trading in an account went consistently in one direction - primarily buy orders, for example - according to people familiar with the matter. Unlike the mirror trades, the additional transactions may have been conducted with another bank on the opposite side.
The bank shared its findings with international authorities in September, according to two people familiar with its report on the trades. US prosecutors were previously reported to be looking into whether Deutsche Bank's handling of the mirror trades may have violated US anti-money laundering rules.
The US officials have also been made aware of the additional suspicious trades, said the people familiar with the matter.
While Russia's central bank levied a small fine on Deutsche Bank after looking into some of the bank's trading in the country, the US Justice Department's investigation continues. Should regulators find violations in laws or regulations, the overall tally of trades could be one factor in deciding an ultimate fine or penalty. US Justice Department spokesmen declined to comment.
The mirror trades have drawn regulatory scrutiny in the UK and a criminal investigation in the US, adding to an increasing list of legal woes as co-Chief Executive Officer John Cryan seeks to restore investor confidence in Germany's largest lender.
Over the past year, the bank paid US$258 million to settle a US probe in which it admitted sanctions-law violations. It also paid US$2.5 billion to settle US and British investigations into the rigging of the London interbank offered rate, the highest among Libor cases to date after regulators accused the bank of foot-dragging in its investigations.
"Cryan will want to gain some certainty around the cost to the bank as he manages capital and leverage," Christopher Wheeler, an analyst in London with Atlantic Equities LLP, said in reference to the larger tally and its potential impact on the bank. "Otherwise, it will be another drag on performance, not dissimilar to the long awaited Libor settlement."
Deutsche Bank closed little changed at 21.55 euros in Frankfurt, after dropping 0.8 per cent during the day. They are down 14 per cent this year.
The first indication that the bank was reviewing its Russian operation emerged in June, when people familiar with the matter said the bank was looking into several years of mirror trades - in which clients bought shares in Russia and simultaneously sold similar shares abroad in foreign currency - beginning in 2012.
As the bank examined whether the mirror trades were subject to proper internal controls, it asked similar questions that led it to flag the other US$4 billion or so in transactions, said the people familiar with the review. Some of those trades were connected to the same accounts that benefited from the mirror trades, the people said.
Deutsche Bank said in October that its review of Russian transactions had turned up violations of its internal policies and deficiencies in controls. It told investors that it had increased its litigation reserves by 1.2 billion euros, mainly to cover possible liabilities related to its Russia operation.
The bank declined to comment on the broader tally of trades. Amanda Williams, a spokeswoman, referred to an interim report put out in October, which disclosed that the bank is investigating a "significant" volume of offsetting equity trades by clients in Moscow and London. Regulators and law-enforcement agencies in Germany, Russia, the UK and US have been advised of the review, according to the statement.
The bank's internal review of its Russia trading began after the country's central bank asked it in October 2014 to review certain clients' accounts, people familiar with it have said.
The mirror trades, as described in a Russian central bank report earlier this year on Deutsche Bank, involved clients buying Russian shares for rubles in Moscow and simultaneously selling them in London, usually for dollars, according to people familiar with the central bank's findings.
That sort of trade, while legal in some circumstances, can also be used to skirt US rules on reporting large international movements of money.
Assets in some of the accounts under review at Deutsche Bank were believed to belong to close associates of Russian President Vladimir Putin, people familiar with the matter have said. These associates include a relative of the president and two of his longtime friends, Arkady and Boris Rotenberg, the people said.
There's no indication that the Rotenbergs or other individuals possibly linked to the accounts are under investigation for the trades. A representative for the Rotenbergs reiterated on Dec 21 that the brothers weren't involved in any such transactions.
A Kremlin spokesman has declined to comment on what he characterised as unsubstantiated allegations.
The Russian central bank, which examined about a year of mirror trades, fined Deutsche Bank the equivalent of about US$5,000, largely for procedural shortcomings, according to people familiar with the report.
The Russian regulator concluded the bank was a victim of an illegal scheme and had addressed its technical shortcomings, according to a person familiar with the central bank's findings. The Russian central bank declined to comment.
In recent months, Deutsche Bank shut much of its Moscow operation, saying it wanted to simplify operations. It also said it has taken disciplinary action against individuals in the matter. In November, the bank said it would stop accepting new customers in locations with high risk ratings while it reviews how it vets account-holders.