Deutsche Bank has agreed to pay a $16m (£13m) fine to US authorities overallegations that it hired unqualified relatives of powerful Russian and Chinese government officials to win business.
The Securities and Exchange Commission (SEC) alleged that Germany’s largest lender had used false books to record the hirings, which meant the relatives – known in China as “princelings” – did not have to go through rigorous interview processes.
In one case, the son of an executive from a Russian state-owned company was transferred from Moscow to London but failed to turn up to work, cheated in an exam and was described as a liability.
The SEC alleged that the hiring of poorly qualified relatives was in violation of the Foreign Corrupt Practices Act. Deutsche Bank did not admit or deny the findings under the settlement.
The charges centred on activities between 2006 and 2014, when the relatives were hired in the Asia–Pacific and Russia region with the primary goal of generating business for the company, such as through initial public offerings.
The SEC found that Deutsche Bank employees had created false records that concealed the corrupt hiring practices and had failed to accurately document and record certain related expenses.
Five examples were used to illustrate the charges, including the son of a senior Russian executive who failed to turn up to work, and was described as “a liability to the reputation of the program, if not their firm”.
A London-based human resources employee is alleged to have sent a email about the son saying that: “FYI . . . the classic nepo situation that we have every year.”
Two months later the HR person suggested the bank fire the son because “he failed to come to work, cheated on an exam,” the SEC alleged.
In another example, the bank hired the daughter of a “deputy minister” at a Russian state-owned company as an intern in Moscow and subsequently transferred her to London. “We must do it! We should have her in London as it is NOT politically correct to have her in Moscow!” the head of the bank’s Russian office is alleged to have told his UK bosses, according to the SEC.
The SEC said Deutsche Bank had taken extensive measures to fix its hiring compliance and internal accounting controls. A bank spokesman said: “Deutsche Bank provided substantial cooperation to the SEC in its inquiry and has implemented numerous remedial measures to improve the bank’s hiring practices.”
The $16m settlement includes a penalty of $10.8m, interest of $2.4m and a $3m civil penalty. The settlement is less than those imposed on other banks that have been accused of similar behaviour. In 2016, JPMorgan was penalised $264m and Credit Suisse last year agreed to pay $77m.
In a separate development, Deutsche Bank is to transfer 800 people to BNP Paribas as part of a deal in which the French bank will take its prime brokerage operations.
Deutsche Bank said in July it had struck a preliminary agreement with BNP covering the business that serves hedge funds as part of a €7.4bn (£6.7bn) overhaul, but details on personnel and the timing of any final deal were being hammered out.
The German bank has said it is eager to clinch a deal sooner rather than later to “provide continuity of service” to its clients, at a time when some have been leaving. Hedge fund clients have balances of close to $200bn with Deutsche.
Most of the staff affected are based in London and New York. A successful deal with BNP will mean Deutsche will not have to pay redundancy for those individuals as it seeks to cut about 18,000 jobs globally.
