Deutsche Bank to pay $258m penalty for violating US sanctions

Deutsche Bank has agreed to pay $258m (£167.7m, €237.3m) as penalties to settle charges for conducting business on behalf of entities in US-sanctioned countries. The fines are payable to the New York Department of Financial Services (NYDFS) and the US Federal Reserve. Of the total fine, $200m will be paid to NYDFS and the remaining to the Fed.

The US government prohibits doing business in countries such as Iran, Syria, Libya and Sudan as they are considered havens for possible terrorist financing. The penalty was charged as the US had identified a number of Deutsche Bank customers as acting on behalf of those sanctioned countries, the regulators said.

Between the years 1999 and 2006, Deutsche did business to the tune of $10.9bn in clearing transactions for the customers, using "non-transparent methods and practices" to shield them from scrutiny, NYDFS said. Apart from the monetary penalty, the settlement requires the German bank to sack six employees and hire an independent monitor.

A Deutsche Bank spokeswoman said, "The conduct ceased several years ago, and since then we have terminated all business with parties from the countries involved." This settlement, which was announced yesterday (4 November), is the latest in a series of crackdowns by American authorities on European headquartered banks that have allegedly conducted business with countries under US sanctions.

Examples of other banks that have been fined for violating US sanctions include, French bank BNP Paribas that paid about $9bn, Credit Agricole, another French bank, which was fined about $787m in October, Commerzbank, Credit Suisse Group, HSBC Holdings, Barclays, and Standard Chartered.

How the restricted transactions were conducted

To mask the restricted transactions, the German bank used several methods such as 'wire stripping' and 'cover payments'. Under the former, its overseas employees handling payment messages would remove any information indicating a connection to a sanctioned party from the message before passing it on to a corresponding US bank. In the cover payments method, employees would send two payment messages, one that included all the details and the other that did not include details about the underlying parties to the transaction.