The New York Department of Financial Services has fined Deutsche Bank for its relationship with Jeffrey Epstein and entities related to him and with two dollar-clearing/correspondent banking relationships with foreign banks, FBME and Danske Bank.

On 24 January 2014, Deutsche Bank opened current/checking and money-market accounts for an Epstein-related trust named the Butterfly Trust. Among the beneficiaries of this trust were some of these alleged conspirators and some additional women with Eastern European surnames. Epstein described some of them as employees and some as friends. The KYC records state that the purpose of the money market account was “to pay all expenses/disbursements related to the trust [such as] taxes, trust fee [sic], etc.” The regulator says that the bank should have decided that Epstein might use these accounts to further criminal activity and endanger more young women.

Bank staff did notice that one of these people had been named as a conspirator but the compliance department approved the relationship on the basis of an enthusiastic note from the aforementioned executive. Epstein then used the trust account and other accounts to send more than 120 wire transfers totalling $2.65 million to beneficiaries of the Butterfly Trust, including some to alleged co-conspirators or to Eastern European women, for the stated purpose of covering hotel expenses, tuition and rent.

Fresh allegations surfaced in 2015 and the bank asked Epstein about them and appeared to be satisfied by his response. The NYDFS says that the bank told it that it has no contemporaneous records of the meeting with Epstein and is not aware of any other steps taken at the time to investigate the veracity of the allegations beyond speaking to Epstein. On 30 January the bank's Americas Reputational Risk Committee met to discuss the Epstein relationship, but the department says that "despite the fact that Deutsche Bank’s policies and procedures mandate that detailed minutes of such meetings be kept, the bank has represented to the Department that there are no recorded minutes from that particular meeting." Later that day, a member of the committee emailed the executive to say, without explanation, that the committee was  “comfortable with things continuing.”

A later email from the committee placed three restrictions - all quite mild - on the relationship with Epstein. The NYDFS complains that several senior bankers, right up to and including the bank’s CEO of the Americas, were told about these conditions, but that the relevant relationship managers were not told and consequently kept on dealing with Epstein in exactly the same way. The NYDFS adds that a compliance officer then 'purportedly' misinterpreted the restrictions when telling the transaction monitoring team what to do. One subsequent message from someone on the team consequently said of a payment to a Russian model: “[s]ince this type of activity is normal for this client it is not deemed suspicious.” The bank kept up its relationship with Epstein despite the appearance of other warnings or 'red flags.'

Correspondent accounts

The department has also accused Deutsche Bank of failing to monitor and manage two of its correspondent banking relationships - with FBME and Danske - properly.

In 1982, FBME was established in Cyprus as a subsidiary of the Federal Bank of Lebanon, which was founded in 1952. In January 1984, FBME opened a correspondent banking account with Bankers Trust, which Deutsche Bank acquired in 1999.

Due to Cypriot laws that placed restrictions on domestic financial institutions that primarily provided offshore banking services, FBME was incorporated in the Cayman Islands in 1986, though it kept its headquarters and staff in Cyprus. In 1987, FBME’s Cyprus branch was granted a licence to operate.

After the terrorist attacks on New York on 11 September 2001, the US Congress passed the USA PATRIOT Act and pressurised the Cayman Islands into requiring all banks registered there to establish a physical local presence. FBME's response was to relocate to Tanzania, where it was reincorporated in 2003.

Deutsche Bank was therefore obliged to keep an eye on FBME's compliance effort and over a period of years (2005-10) found it to be underwhelming. At the beginning of this period, it deemed it to be a "high risk" customer. Its North American Client Screening Committee knew that it had been, in the DFS's words, "associated with money laundering linked to Russian organised crime."

On 15 July 2014, the US Treasury’s Financial Crimes Enforcement Network (FinCEN) called FBME a "foreign financial institution of primary money laundering concern" in accordance with s311 USA PATRIOT Act. This at last caused Deutsche to end its relationship with FBME. The NYDFS thinks that it was rather slow off the mark in doing so.

The correspondent relationship between Deutsche and Danske Bank began in 2007. It counted this relationship as a "high risk" one as well, solely because the bank operated in the highly risky jurisdiction of Estonia, where its customers had generated a high number of "alerts and cases." By June 2008, Deutsche Bank was aware of problems at Danske Estonia concerning its non-resident customer accounts which have by now ballooned into a scandal of international proportions. (See here and here and here and here and here and here.) In September 2010 it gave Danske its highest AML risk rating. It still maintained the relationship with Danske, however, even after visiting the Estonian branch and professing unhappiness at the results. The relationship ended in October 2015, Deutsche Bank having identified another flurry of suspicious transactions.

In its consent order, the NYDFS has therefore decided that Deutsche Bank conducted business in an unsafe and unsound manner and thereby broke New York Banking Law § 44. It also says that the bank failed to maintain an effective and compliant anti-money laundering regime, in breach of 3 NYCRR § 116.2.