Commerzbank has agreed to pay $1.45 billion to settle several U.S. investigations that tracked a trail of illicit money to the German bank. The settlement was reached on March 12.
The first aspect of the case concerned the bank’s dealings with Iranian and Sudanese companies blacklisted in the United States. Authorities determined that the bank transferred at least $263 million through the U.S. financial system on behalf of these companies between 2002 and 2008. In addition, the bank attempted to disguise the source of the funds by deleting data from wire transfers. The Frankfurt branch had been hiding information relating to these practices from its New York branch which, according to investigators, was possible due to “ineffective” internal controls in New York.
These inadequate internal controls also played a role in the second part of the case, in which Commerzbank enabled Olympus Corporation to commit massive accounting fraud. The bank helped Olympus, a Japanese manufacturer of medical devices and cameras, by creating special-purpose vehicles through which over $1 billion was able to flow through New York.
Many red flags were raised over the years but as Benjamin M. Lawsky, New York’s Superintendent of Financial Services, said, “when there was profit to be made, Commerzbank turned a blind eye to its anti-money laundering compliance responsibilities.”
As a result, eight regulatory and prosecutorial offices, as well as the FBI in New York, took aim at the bank. Under the announced agreements, Commerzbank will pay the $1.45 billion penalty, admit to its conduct in a statement of facts, install an independent monitor, and dismiss some of its employees linked to the case. The settlement also resulted in the immediate resignation of the person in charge of money laundering and sanctions compliance in the bank’s New York office. But despite strong evidence and extensive investigation, Commerzbank still managed to avoid an indictment or guilty plea. However, this deferred prosecution agreement can be revoked if the bank misbehaves again.
The bank has already stated that it “improved its compliance function and has implemented remedial steps to address the conduct underlying these enforcement actions,” and “also made changes in senior compliance personnel and plans to more than double U.S. base compliance staff by 2016.”
Investigations such as this show that U.S. authorities have prioritized cracking down on money laundering and sanctions violations. It further demonstrates that violations of the Bank Secrecy and International Emergency Economic Powers Acts, along with New York’s banking laws, remain a vulnerable point for European banks. This settlement is but one of a series of similar cases, coming just months after BNP Paribas settled for a record $8.9 billion.