Deutsche Bank will pay a $425 million fine in relation to a money-laundering scheme that regulators say moved $10 billion out of Russia, the New York State Department of Financial Services said Monday.
The department said Deutsche was moving money out of Russia by using a stock "mirror trading" strategy, in which its London branch would sell a trade that the Moscow branch bought earlier in the day.
"Operating through the equities desk at Deutsche Bank's Moscow branch, certain companies that were clients of the Moscow equities desk issued orders to purchase Russian blue chip stocks, always paying in rubles. Shortly thereafter, sometimes on the same day, a related counterparty would sell the identical Russian blue chip stock in the same quantity and at the same price through Deutsche Bank's London branch. The counterparties involved were always closely related, often linked by common beneficial owners, management or agents. The trades were routinely cleared through the bank's Deutsche Bank Trust Company of the Americas (DBTCA) unit. The selling counterparty was typically registered in an offshore territory and would be paid for its shares in U.S. dollars. At least 12 entities were involved, and none of the trades demonstrated any legitimate economic rationale."
The DFS said Deutsche "missed numerous opportunities to detect, investigate and stop the scheme due to extensive compliance failures, allowing the scheme to continue for years."
As part of the deal, Deutsche will also hire an independent monitor — with the department's approval — to review the bank's Bank Secrecy Act Anti-Money Laundering Examination Manual compliance.
Karl von Rohr, chief administrative officer at Deutsche Bank said in a memo to employees Tuesday, that the bank has improved its anti-money laundering controls, which included hiring more people to its anti-financial crime department.
"The settlement amounts are already materially reflected in existing litigation reserves," von Rohr said.
"As previously disclosed, we are cooperating with other regulators and law enforcement authorities, which have their own ongoing investigations into these securities trades. We therefore cannot say yet that this matter is closed, but we are making progress," he added.
— CNBC's Jim Forkin and Silvia Amaro contributed to this report.