Yet again, nobody goes to jail as the German bank, Commerzbank AG, agrees to forfeit $563 million and pay a $79 million fine to the American Government which, combined with payments to regulators, brings the total up to $1.45 billion.

Commerzbank AG, a global financial institution based in Frankfurt, and its New York branch, signed the agreement with the US Justice Department for breaking the International Emergency Economic Powers Act (IEEPA) and the Bank Secrecy Act 1970 (BSA). The bank has also signed agreements with the US Treasury’s Office of Foreign Assets Control (OFAC) and the Board of Governors of the Federal Reserve System, the opaque conglomerate of private interests that issues America's currency.

The charge sheet and the penalties

Commerzbank admitted and accepted responsibility for its criminal conduct in violation of IEEPA, and Commerz New York admitted its criminal conduct in violation of the BSA.  Commerzbank further agreed to pay $263 million in forfeiture and a fine of $79 million for the IEEPA violations, and to pay $300 million in forfeiture in connection with the BSA violations, which will be remitted to the victims of a multi-billion dollar securities fraud scheme that occurred on its books. The usual rigorous internal controls and to cooperate fully with the Justice Department, including by reporting any criminal conduct by an employee.

In breaking the BSA, the New York branch willfully failed to run an effective anti-money-laundering (AML) programme, conduct "due diligence" on its foreign correspondent accounts, and send of suspicious activity reports to the Internal Revenue Service's computer in Detroit, to which other agencies including the Financial Crimes Enforcement Network (FinCEN) have access. If the bank’s complies with the deferred prosecution agreement, the government will drop the charges in three years.

The bank admitted to the that it broke New York State law by falsifying the records of New York financial institutions. In addition, it signed a cease and desist order with the Fed (containing promises to reform) and agreed to pay a civil monetary penalty of $200 million.  The New York State Department of Financial Services (NYDFS) has announced that it will pay it $610 million. OFAC has levied a fine of $258.6 million, which goes to the Justice Department.  In total, Commerzbank will pay $1.45 billion in penalties.

Commerzbank concealed hundreds of millions of dollars in transactions prohibited by US sanctions laws on behalf of Iranian and Sudanese businesses, even though managers inside the bank "raised red flags" (i.e. told compliance people) about its sanctions-violating practices. It tried to skirt US law by hiding its illegal business with Iranian banks from its own employees in the United States. Today’s resolution demonstrates that there will be consequences when global banks try to profit from the benefits of the U.S. financial system without respecting our laws.”

Also, Commerz New York stands charged with Bank Secrecy Act criminal offences for its "acute, institutional anti-money laundering deficiencies that made it a conduit for over a billion dollars of the Olympus fraud,” according to one official who added that this came about because of a multi-year investigation and a guilty plea by a former Commerzbank Singapore employee who helped set up the structure that allowed for the fraud. For this, the bank, as part of a deferred prosecution agreement, has accepted responsibility in a detailed statement of facts, agreed to continue reforming its anti-money laundering practices, and will pay $300 million towards the victims. There was the usual amusing mention of 'bad actors' spoiling everything.

Breaking IEEPA year after year

According to admissions contained in the deferred prosecution agreement, Commerzbank knowingly and willfully moved $263 million through the US financial system on behalf of Iranian and Sudanese entities subject to US economic sanctions between 2002 and 2008. The DoJ said: "Commerzbank engaged in this criminal conduct using numerous schemes designed to conceal the true nature of the illicit transactions from US regulators."

For example, Commerzbank has admitted that it used 'non-transparent' payment messages, known as cover payments, to conceal the involvement of sanctioned entities, and also removed information identifying sanctioned entities from payment messages, in transactions processed through Commerz New York and other financial institutions in the United States. In 2003, it told its Frankfurt back office to review and amend Iranian payments so that the payments would not be stopped by US sanctions filters.The Iranian payment messages did not mention the Iranian entity. The parent bank admitted that it hid these practices from Commerz New York. In 2003, when two state-owned Iranian banks wanted to begin routing their US dollar clearing business through Commerzbank, a back office employee sent out the email: “If for whatever reason CB New York inquires why our turnover has increased so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks!”  

In October 2003, the head of Commerzbank’s internal audit division stated in an email to a member of Commerzbank’s senior managers that Iranian bank names in payment messages going to the United States were being “neutralized.” This was not the only warning that was ignored.

In another scheme designed to avoid US sanctions, Commerzbank admitted that, in 2004, it agreed with an Iranian bank client that, rather than sending direct wire payments to the United States, the Iranian bank would pay US beneficiaries with Commerzbank-issued cheques listing only the Iranian bank’s account number and address in London but with no mention of the Iranian bank’s name.

Additionally, Commerzbank admitted that in 2005, it created a “safe payment solution” for an Iranian shipping company client, which involved routing payments through special purpose entities controlled by the Iranian company, which were incorporated outside Iran and bore no obvious connection to the Iranian client. Commerzbank and its client switched use of such special purpose entities when Commerz New York’s sanctions compliance filters were updated to detect the use of a particular special purpose entity. Commerzbank continued to process payments on behalf the Iranian client-firm even after OFAC had put it on a blacklist.

The Olympus Trip

Olympus is the famous Japanese camera company. Between at least the late 1990s and 2011, Olympus perpetrated a massive accounting fraud designed to conceal from its auditors and investors hundreds of millions of dollars in losses. In September 2012, Olympus and three of its senior executives pled guilty in Japan to inflating the company’s net worth by approximately $1.7 billion. Commerzbank and Commerz New York helped.  

Commerzbank, through its branch and affiliates in Singapore, lent money to off-balance-sheet entities created by or for Olympus to perpetrate its fraud, and transacted more than $1.6 billion through Commerz New York in furtherance of the fraud.

Between 1999 and 2010, a total of more than $1.6 billion in furtherance of the Olympus fraud was cleared through Commerz New York.  Commerz New York failed to file a SAR in the United States concerning Olympus or any of the Olympus-related entities until November 2013 – more than two years after the Olympus accounting fraud was revealed.

It does seem as though the American side of operations was more diligent than all the other parts of the empire. Commerz New York frequently had difficulties getting responses to requests for information generated in connection with automated transaction monitoring “alerts”  and these requests sometimes went unanswered for as much as eight months without anyone making a SAR and alerts were often closed without any response to the pending request.  As a result of these deficiencies, Commerz New York cleared numerous AML “alerts” based on its own perfunctory Internet searches and searches of public source databases but without ever receiving responses to its requests for information.

On June 24, 2010, a Commerz New York-based compliance officer who had primary responsibility for automated transaction monitoring told the head of compliance in New York (who had previously served as the head of compliance in Asia) that “we currently have 90 alerts a day,” with “808 alerts outstanding,” which “could lead to a possible backlog.” The man forwarded the e‑mail to Commerz’s global head of compliance, who set up new procedures to increase the speed of responses to requests for information from New York, but problems persisted.

Commerzbank and Commerz New York also failed on the “know your customer” front with respect to correspondent bank accounts for Commerzbank’s own foreign branches and affiliates.