Deutsche Bank gained more than $10.7 million in business and fees resulting from "referral hires" of relatives of Chinese and Russian government officials over eight years.
In a settled order, Deutsche Bank AG agreed to pay combined penalties of $16.2 million for violating FCPA provisions relating to books and records and internal controls. Between 2006 and 2014, the bank hired relatives at the request of foreign officials in the Asia-Pacific region and Russia to land business deals and other benefits, then created false books and records to conceal the corrupt hiring practices (In the Matter of Deutsche Bank AG, Release No. 34-86740, August 22, 2019).
Corrupt hiring practices. Since at least 2006, through a practice of "referral hiring" or "relationship hiring," Deutsche Bank hired numerous relatives of foreign government officials to improperly influence the officials to help the bank in obtaining or retaining business and other benefits. The referral hires bypassed the bank’s highly competitive merit-based screening. According to the SEC, the bank was unjustly enriched by approximately $10.7 million from transactions in China and Russia within the statute of limitations.
The financial expectations were often fairly explicit. For example, in many instances when bankers submitted a client referral hire request for a relative of an official at a state owned entity (SOE), Deutsche Bank management asked what role the parent performed at the SOE to determine if the parent could steer business to the bank, and asked the banker to quantify the fees Deutsche Bank could expect to earn from the referring client. In another instance, the chairman of a Chinese client asked Deutsche Bank to hire his son. The banker working on the client’s IPO told Deutsche Bank management that he believed the bank would be awarded the business if they hired the son.
Deutsche Bank did have compliance policies and procedures in place to prevent corrupt hiring practices, but they were sometimes bypassed to hire the frequently unqualified relatives. In one case, a Chinese referral hire who failed to meet basic eligibility criteria was employed after having been rejected three times by the compliance department. In another, a Russian referral hire was kept on for several months until a transaction completed, despite attempts by Human Resources to fire him for performing so badly that he was "a liability to the reputation of the program, if not the firm."
Sanctions. Without admitting or denying the findings, Deutsche Bank agreed to a consent order finding that it violated Section 13(b)(2)(A) of the Exchange Act pertaining to accurate books, records, and accounts; and Section 13(b)(2)(B) relating to adequate internal accounting controls. The bank was ordered to pay disgorgement of $10,785,900, prejudgment interest of $2,392,950, and a $3 million civil penalty.
In determining the penalties, the SEC acknowledged cooperation and remedial efforts by Deutsche Bank, including sharing key facts and documents, enhancing its internal controls and compliance programs, and making personnel changes including employee terminations.
The release is No. 34-86740.
Companies: Deutsche Bank AG
MainStory: TopStory Enforcement FinancialIntermediaries InternationalNews
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