World Economy

Deutsche Bank Probes $10b in Mirror Trades

Deutsche Bank Probes $10b in Mirror TradesDeutsche Bank Probes $10b in Mirror Trades

Deutsche Bank AG has identified as much as $4 billion in suspicious transactions related to its Russian operations, in addition to $6 billion in so-called mirror trades it is examining, said several people with knowledge of the bank’s review of the matter.

That means the Frankfurt-based bank flagged as much as $10 billion in total trade that may not have been vetted for money laundering as clients moved money out of Russia, Bloomberg reported.

Previously unreported transactions under scrutiny include those in which trading in an account went consistently in one direction–primarily buy orders, for example–according to people familiar with the matter. Unlike the mirror trades, the additional transactions may have been conducted with another bank on the opposite side.

The bank shared its findings with international authorities in September, according to two people familiar with its report on the trades. US prosecutors were previously reported to be looking into whether Deutsche Bank’s handling of the mirror trades may have violated US anti-money laundering rules. The US officials have also been made aware of the additional suspicious trades, said the people familiar with the matter.

 Libor Cases

While Russia’s central bank levied a small fine on Deutsche Bank after looking into some of the bank’s trading in the country, the US Justice Department’s investigation continues. Should regulators find violations in laws or regulations, the overall tally of trades could be one factor in deciding an ultimate fine or penalty. US Justice Department spokesmen declined to comment.

The mirror trades have drawn regulatory scrutiny in the UK and a criminal investigation in the US, adding to an increasing list of legal woes as co-Chief Executive Officer John Cryan seeks to restore investor confidence in Germany’s largest lender. Over the past year, the bank paid $258 million to settle a US probe in which it admitted sanctions-law violations. It also paid $2.5 billion to settle US and British investigations into the rigging of the London interbank offered rate, the highest among Libor cases to date after regulators accused the bank of foot-dragging in its investigations.

 Another Drag

“Cryan will want to gain some certainty around the cost to the bank as he manages capital and leverage,” Christopher Wheeler, an analyst in London with Atlantic Equities LLP, said in reference to the larger tally and its potential impact on the bank. “Otherwise, it will be another drag on performance, not dissimilar to the long awaited Libor settlement.”

Deutsche Bank closed little changed at €21.55 in Frankfurt, after dropping 0.8% during the day. They are down 14% this year.

The first indication that the bank was reviewing its Russian operation emerged in June, when people familiar with the matter said the bank was looking into several years of mirror trades–in which clients bought shares in Russia and simultaneously sold similar shares abroad in foreign currency–beginning in 2012.

As the bank examined whether the mirror trades were subject to proper internal controls, it asked similar questions that led it to flag the other $4 billion or so in transactions, said the people familiar with the review. Some of those trades were connected to the same accounts that benefited from the mirror trades.