Deutsche Bank AG may be close to settling a U.S. Federal Reserve inquiry into how billions of dollars moved through the bank and out of Russia. But it’s still waiting for U.S. prosecutors to resolve a potentially more consequential investigation.
The Fed settlement is being finalized and could be announced in coming weeks, according to people familiar with the situation. They declined to discuss the size of any fine, which would follow $630 million that the German lender has paid the U.K. and New York state over lax anti-money-laundering practices. Officials from Deutsche Bank and the Fed declined to comment.
After a Fed settlement, the remaining question is how hard the U.S. Justice Department might come down on the bank. Federal authorities who can bring criminal cases are investigating how Deutsche Bank helped clients move $10 billion out of Russia from 2011 to 2015, after the bank’s internal review of the trades found “systemic” compliance failures.
Developments in the Justice Department’s case will be closely watched, including on Capitol Hill. Representative Maxine Waters and other House Democrats have previously raised concerns that investigators’ independence could be compromised because the leaders of the Justice Department are appointees of President Donald Trump, a longtime Deutsche Bank client.
This week, those Democrats ratcheted up pressure by requesting internal bank reports on the Russia trades as well as any reviews it has conducted on accounts held by Trump and members of his family. The lawmakers cited the bank’s admissions of wrongdoing in several previous U.S. matters and its willingness to continue to do business with Trump after other financial institutions shied away.
“Only with full disclosure can the American public determine the extent of the President’s financial ties to Russia and any impact such ties may have on his policy decisions,” they wrote in the letter, which was made public Wednesday. The bank declined to comment on the letter.
The Russia-trade matter is probably the biggest legal challenge facing Deutsche Bank Chief Executive Officer John Cryan, who has spent almost two years navigating probes, culminating in a $7.2 billion mortgage-bond settlement with the U.S. government in January. The lender is now focusing on restoring revenue growth after raising $8.5 billion from investors in April to replenish capital eroded by fines.
The Justice Department lodged several information requests with the Frankfurt-based bank last year related to the Russia trades, people familiar with the matter have said. The status of the case remains unclear. That suggests a settlement isn’t imminent, because prosecutors typically begin discussing accusations and penalties with bank lawyers around the time investigators wrap up their work.
The Justice Department declined to comment.
Deutsche Bank conducted the mirror trades, as they’re known, on behalf of about a dozen wealthy Russian individuals or institutions, the New York Department of Financial Services said earlier this year. Bankers bought blue-chip Russian stocks in rubles while selling the same amount of shares in London, effectively converting rubles to dollars abroad, where they flowed from London through Cyprus, Estonia and the U.S. While such trades can be legal, they can also support money laundering or tax evasion. Not only did employees in Moscow, London and New York fail to flag the trades as suspicious, the New York regulator said, a Moscow supervisor even took an undisclosed payment to keep them going.
Prosecutors began looking at the mirror trades as other Deutsche Bank activities were also under scrutiny. The bank had signed a deferred-prosecution agreement with the Justice Department, admitting wrongdoing in interest-rate manipulation. As part of that deal, the bank agreed to cooperate with the government in exchange for not being prosecuted, a deal that could be torn up if it fails to comply.
The matter has become politically charged because Deutsche Bank is one of Trump’s largest creditors, with about $300 million in loans outstanding to him.
Also, some of the billions transferred out of Russia have been linked to associates of President Vladimir Putin. Part of the investigation has been handled by the U.S. Attorney for the Southern District of New York, people familiar with the probe have said. The top prosecutor there, Preet Bharara, was among the U.S. attorneys pushed out by the Trump administration on March 10.
The same day, Waters and other House Democrats called on Representative Jeb Hensarling, the chairman of the House Financial Services Committee, to guard the mirror-trade probe’s integrity and start a bipartisan investigation.
“The extensive ties of President Trump and his advisers to Russian government officials and oligarchs raise serious concerns about whether the president and his inner circle will direct the department to steer clear of issues that could implicate those who benefited from Deutsche Bank’s trading scheme,” they wrote. Waters office didn’t receive a response to that letter, her office said. Hensarling’s office declined to comment.