Deutsche Bank will pay $258 million and install an independent monitor for New York Banking Law violations in connection with transactions on behalf of countries and entities subject to U.S. sanctions, including Iran, Libya, Syria, Burma, and Sudan.

Deutsche Bank was represented by Alan Vinegrad of Covington & Burling in New York

While several of the employees who were centrally involved in this misconduct no longer work at the Bank, Deutsche Bank will take action to terminate an additional six employees involved in the scheme who currently remain employed by the Bank, and ban three other employees from any duties involving the firm’s U.S. operations.

The overall $258 million penalty Deutsche Bank will pay includes $200 million to the New York State Department of Financial Services (NYDFS) and $58 million to the Federal Reserve.

“We are committed to investigating and pursuing sanctions violations and money laundering at financial institutions,” said Anthony J. Albanese, Acting Superintendent of Financial Services. “We are pleased that Deutsche Bank worked with us to resolve this matter and take action against individual employees who engaged in misconduct. To truly deter future wrongdoing, it is important to focus not just on corporate accountability, but also individual accountability.”

From at least 1999 through 2006, Deutsche Bank used non-transparent methods and practices to conduct more than 27,200 U.S. dollar clearing transactions valued at over $10.86 billion on behalf of Iranian, Libyan, Syrian, Burmese, and Sudanese financial institutions and other entities subject to U.S. economic sanctions, including entities on the Specially Designated Nationals (SDN) List of the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).

Starting at least in 1999, Bank employees recognized that U.S. sanctions rules, which applied at that time or over the course of subsequent years to Iranian, Syrian, Libyan, Burmese, or Sudanese customers or to customers who were listed on OFAC’s SDN list, would pose problems for U.S. dollar payments sent to or cleared through the U.S., including clearing done through Deutsche Bank New York.

Payments involving sanctioned entities were subject to additional scrutiny and might be delayed, rejected, or frozen in the United States.

In order to facilitate what it saw as “lucrative” U.S. dollar business for sanctioned customers, Bank employees developed and employed several processes to handle dollar payments in non-transparent ways that circumvented the controls designed to detect potentially-problematic payments.

One method was wire stripping, or alteration of the information included on the payment message.

Bank staff in overseas offices handling Message Type 103 serial payment messages, or MT103s, removed information indicating a connection to a sanctioned entity before the payment was passed along to the correspondent bank in the U.S.   With any potentially-problematic information removed (or, as was done in some cases, replaced with innocuous information, such as showing the bank itself as the originator), the payment message did not raise red flags in any filtering systems or trigger any additional scrutiny or blocking that otherwise would have occurred if the true details were included.

A second method was the use of non-transparent cover payments.  The cover payment method involved splitting an incoming MT103 message into two message streams:  an MT103, which included all details, sent directly to the beneficiary’s bank, and a second message, an MT202, which did not include details about the underlying parties to the transaction, sent to Deutsche Bank New York or another correspondent clearing bank in the U.S.  In this way, no details that would have suggested a sanctions connection and triggered additional delay, blocking, or freezing of the transactions were included in the payment message sent to the U.S. bank.

Bank employees recognized that these handling processes were necessary in order to evade the sanctions-related protections and controls of Deutsche Bank New York and other correspondents.

For example, a relationship manager who handled significant business for Iranian, Libyan, and Syrian customers explained the need for special measures as follows, in a 2003 email to colleagues:

The Bank employs “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.”

Or as the Assistant Vice President who oversaw payments processing explained to a colleague who inquired about Iranian payments, the Bank needed to employ “the tricks and cunning of MT103 and MT202” because of the U.S. sanctions restrictions otherwise applicable to sanctions-related payments.