The Superintendent of the New York State Department of Financial Services announced on Thursday, March 12th that Commerzbank has agreed to pay a $1.45 billion penalty, fire certain employees who engaged in misconduct and install an independent monitor for violations in connection with transactions on behalf of Iran, Sudan, and a Japanese corporation that was involved in accounting fraud.
Of note, the $1.45 billion penalty paid by Commerzbank includes $610 million to the Department of Financial Services; $300 million to the U.S. Attorney’s Office for the Southern District of New York; $200 million to the Federal Reserve; $172 million to the Manhattan District Attorney’s Office and $172 million to the U.S. Department of Justice.
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Statement from Benjamin Lawsky
According to DFS Superintendent Benjamin Lawsky: “When there was profit to be made, Commerzbank turned a blind eye to its anti-money laundering compliance responsibilities. Bank employees helped facilitate transactions for sanctioned clients such as Iran and Sudan, and a company engaged in accounting fraud. What is especially disturbing is that employees sought to alter the Bank’s transaction monitoring system so that it would create fewer ‘red flag’ alerts about potential misconduct, which highlights a potential broader problem in the banking industry.” The report from the DFS had some shocking subtitles including:
Bank Ignored Compliance Staff Warnings of Potential “Fraud, Asset Stripping, Market Manipulation, and Derivative Tax Offences”
Compliance Personnel Altered Bank Transaction Monitoring System; Calibrated System Based on a Desire Not to Generate “Too Many Alerts”
Commerzbank Employee: Bank’s Lax Compliance “A Time Bomb Ready to Go Off”
Commerzbank execs ignored clear compliance violations
The NY DFS statement highlights that Commerzbank management willfully ignored clear compliance violations for the sake of profits. Relating to business with the Japanese camera maker Olympus, the Regional Head of Compliance warned a specially assigned London-based compliance officer that, while the business produced “very substantial” fees for Commerzbank, the structure of the accounting was “complex” and “extraordinarily elaborate and redolent of layering” and that it raised suspicions of money laundering, “fraud, asset stripping, market manipulation, and derivative Tax offences.”
In another case, a resigning compliance staff member told the Head of Regional Compliance for the New York Branch that Singapore compliance was “a time bomb ready to go off.” But then, after moving to the New York Branch, he did not share any concerns with the New York compliance staff who could have examined the fraudulent transactions being processed through the New York office.