Deutsche Bank has agreed to pay the New York Department of Financial Services and the US Treasury a substantial fine for ignoring sanctions between 1999 and 2006 in a consent order, no provision of which is subject to review in any court or tribunal.

The Government of the United States is always conducting a few wars in various parts of the globe and sanctioning at least a handful of countries at the same time and this was indeed the case in 1999, when it was restoring peace in East Timor, bombing civilian targets in Serbia with depleted uranium and sanctioning an ecelctic array of nations. In the ensuing seven years, according to the NYDFS, Deutsche Bank used "non-transparent" (i.e. criminal) methods and practices to conduct more than 27,200 US dollar clearing transactions valued at more than $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to US economic sanctions, including entities on the Specially Designated Nationals (SDN) List of the US Treasury Department’s Office of Foreign Assets Control (OFAC).

The bank used such methods as:

• the removal of information from SWIFT payment messages that would otherwise have identified underlying participants who were subject to sanctions;
• the use of opaque cover payments which enabled the bank to send payment messages to the US that did not include information that might have identified these underlying parties to the transactions; and
• the inclusion of notes or code words, or instructions to customers to include notes or code words, in payment messages to ensure that bank staff undertook "special processing" or "special measures" (a phrase reminiscent of the Nazi "special handling" euphemism, used by another generation of Germans who were ashamed of what they were doing) to hide any whiff of sanction-breaking before sending the payments to the US.

The message-strippers

The first method is known as "message-stripping," although in the consent order the NYDFS calls it "wire-stripping." This is the alteration of the information included on a payment message. Bank staff in overseas offices handling Message Type 103 serial payment messages, or MT103s, removed information indicating connections to sanctioned entities before passing the payments on to correspondent banks in the US, the better to avoid causing a stir at the New York Clearing House.

In 2003, one relationship manager who handled significant business for Iranian, Libyan, and Syrian customers explained the need for "special measures" in an email to colleagues. He said that the bank had to employ “specific precautionary measures that require a great deal of expertise” because “[i]f we make a mistake, the amounts to be paid could be frozen in the USA and/or DB’s business interests in the USA could be damaged.” In the same vein, a lowly 'veep' who oversaw payments processing explained to a colleague who inquired about Iranian payments that he had to employ “the tricks and cunning of MT103 and MT202” because of the need to circumvent sanctions. Another email explains that the bank’s preferred method for handling Iran-related payments was to process a payment using the cover payment method, and when that was not possible, “we will arrange for the order to be dropped...into a further repair queue, where the references to the principal will then be eliminated."

On some occasions, the overseas office simply resubmitted payments that Deutsche Bank New York had rejected (because of suspicions about sanctions) to a different (and presumably less diligent) US correspondent bank. Some payments that were rejected in the US when they were sent as MT103 serial payments (which included details about the underlying parties) were then resubmitted as MT202 cover payments – the overseas office simply sent the same payments a second time using the less transparent method. The bank, of course, co-ordinated its criminal efforts with its sanctioned customers. One note to customers said the following.

“It is essential for you to continue to include [the note] ‘Do not mention our bank’s name…’ in MT103 payments that may involve the USA.  [That note] ensures that the payments are reviewed prior to sending. Otherwise, it is possible that the [payment] instruction would be sent immediately to the USA with your full details... [This process] is a direct result of the US sanctions.”

Indeed, the bank's representatives used such shenanigans as a selling point when soliciting new business from customers subject to US sanctions, especially on journeys to meet Syrian bankers. The phrase they used was "OFAC-safe products."

Too big to fail and too big to jail!

The consent order states darkly that "some evidence indicates that at least one member of the bank’s management board was kept apprised about and approved of the bank’s business dealings with customers subject to US sanctions." This is hardly something for the bank's senior employees to worry about, however; no police investigation into this appears to be underway and the regulator is not taking the matter further. As with all the other scandals that make a mockery of the American "war on terror" and "war on drugs," no very senior banker will spend even 24 hours in gaol because of this.

A few soft marshmallows are being thrown in the direction of some middling executives. The NYDFS has ordered Deutsche Bank to "take all steps necessary to terminate" (i.e. dismiss) a managing director in global transactions banking who was assigned the code number 24; a managing director in operations who was assigned the code number 325; a director in operations who was assigned the code number 7; a director in corporate banking and securities who was assigned the code number 11; a vice president in global transactions banking who was assigned the code number 1; and a vice president and relationship manager who was assigned the code number 30. There is even doubt about whether Deutsche Bank can do this, as these people appear to be in Germany and the NYDFS does not know whether German law allows it. If not, Deutsche Bank merely has to keep them away from anything to do with the United States.

The best investment ever?

The agreement contains the usual stipulation of an independent consultant to monitor the bank's progress in cleaning its operations up. This will be expensive but as the contrast between $258 million and more than $10.86 billion shows, the recent fine probably represents the best investment the bank has ever made.