Deutsche Bank to Pay $258M Fine Over Sanction Violations

Deutsche Bank AGDB has been slammed with a fine of $258 million for executing transactions on behalf of nations and entities that are subject to U.S. sanctions, including Iran, Libya, Syria, Burma and Sudan. Of the total penalty amount, the German banking giant is set to pay $200 million to the New York State Department of Financial Services ("NYDFS") and $58 million to the Federal Reserve, according to a release by the NYDFS.

Further, the bank has agreed to set an independent monitor and dismiss six employees allegedly involved in the matter. Also, the bank will bar three other employees from engaging in any duties involving the U.S. operations of the company.

Per the NYDFS release, from a period between1999 to 2006, Deutsche Bank conducted over 27,200 U.S. dollar clearing transactions worth more than $10.86 billion on behalf of the sanctioned entities including entities on the Specially Designated Nationals list of the U.S. Treasury Department's Office of Foreign Assets Control.

Employees at Deutsche Bank were cognizant of the fact that U.S. dollar payments relating to sanctioned entities were subject to extra scrutiny. Payments might be delayed, discarded, or at most frozen in the U.S in the event such payments were sent to or cleared through the U.S., including clearing through Deutsche Bank New York.

Hence in order to enable smooth running of the U.S. dollar business for sanctioned customers which was viewed as a "lucrative" business by the bank, the employees adopted a number of "non-transparent" processes to get away with stricter controls. For instance in a process called 'wire stripping', the bank staff altered true details in the payment message, removing any information reflecting link to a sanctioned entity, before the payment was passed to the correspondent bank in the U.S.

According to Anthony J. Albanese, acting Superintendent of Financial Services, "We are committed to investigating and pursuing sanctions violations and money laundering at financial institutions. We are pleased that Deutsche Bank worked with us to resolve this matter and take action against individual employees who engaged in misconduct."

A Deutsche Bank spokeswoman mentioned in a statement, "The conduct ceased several years ago, and since then we have terminated all business with parties from the countries involved."

Notably, the bank is facing a related criminal investigation by New York federal prosecutors and the Manhattan district attorney's office.

The latest agreement adds to the series of settlements by large banks alleged with violation of laws so as to conduct business with sanctioned nations. In 2014, BNP Paribas SA BNPQY , the French banking giant, paid around $9 billion and pleaded guilty to U.S. sanction violations. Further, the U.S. subsidiaries of many other global banks including those of HSBC Holdings plc HSBC and Barclays PLC BCS have also paid fines to settle similar charges. Last month France-based Credit Agricole agreed to pay a penalty of $787.3 million for similar violations.


Deutsche Bank is likely to get some relief with the latest settlement. However, we believe the company's financials will be impacted to some extent.

The settlement comes at a time when Deutsche Bank's new co-chief executive, John Cryan, is expediting efforts to revamp the bank and boost profitability. Recently, the bank announced plans to axe nearly 35,000 employees and close operations in 10 countries, mostly in the Latin American region as part of its restructuring overhaul. Also, last month the bank's Supervisory Board unveiled its plan of restructuring business segments along with reshuffling of executive committees and senior management changes.

However, we remain cautious as litigation headwinds are not likely to ease soon as the bank continues to struggle with numerous lawsuits and regulatory proceedings. Notably, the company's third-quarter results, which reported net loss of €6 billion ($6.7 billion), included litigation charges of €1.2 billion. At the end of the quarter, the company's litigation reserve stood at €4.8 billion.

Deutsche Bank currently carries a Zacks Rank 2 (Buy)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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