Daily Times

There are more than a few arresting paragraphs in the New York State Department of Financial Services report on Deutsche Bank’s “mirror trades,” which was published this morning. But this one jumped off the page: Furthermore, a supervisor on the Moscow desk appears to have been paid a bribe or other undisclosed compensation to facilitate the schemes. The supervisor’s close relative, who apparently had a background in historical art, and not finance, was also the apparent beneficial owner of two offshore companies, one each located in the British Virgin Islands and Cyprus (both high-risk jurisdictions for money laundering). In April and again in June 2015, one of the key counterparties involved in the mirror-trading scheme made payments totaling $250,000 to one of the companies owned by this close relative, allegedly pursuant to a “consulting agreement.” Payments to one of these two companies, totaling approximately $3.8 million, were almost exclusively identified for the purported purpose of “financial consulting,” and largely originated from two companies registered in Belize.

I spent several months investigating Deutsche Bank’s mirror-trades scandal for this magazine. Although the new report doesn’t say so, the supervisor in question appears to refer to an American banker named Tim Wiswell, who orchestrated the mirror-trades scheme, in which Russian clients clandestinely moved money offshore-turning rubles into dollars and circumventing anti-money-laundering controls-by buying and selling identical volumes of stock through related entities in Moscow and London. More than ten billion dollars was moved in this way, over nearly four years. Today, the Department of Financial Services, in New York, working in conjunction with the Financial Conduct Authority, in the U.K., detailed what it believes to be Deutsche Bank’s failings in this matter, and took its pound of flesh-a settlement of six hundred and thirty million dollars in total-from the lender’s haunch.

That sum is significant, and Deutsche Bank is still concussed from the seven billion dollars it agreed to pay, in December, for its role in selling risky mortgage-backed securities before the financial crisis of 2008. But the new fine won’t break the bank. On Tuesday, I spoke to a key institutional shareholder at Deutsche Bank who expressed his relief that the lender had dodged a larger penalty from the regulators. There was even a modest rally in the share price, which has since flattened. Deutsche Bank’s chief administrative officer, Karl von Rohr, wrote to his staff about how this settlement was another step on the road to resolving the bank’s “legacy” legal issues.

That sense of relief may be premature. There remains a Justice Department investigation into mirror trades. The language used by the D.F.S. should light a zealous fire under those at the F.B.I. and other agencies conducting that investigation. Tim Wiswell was the head of a Russian equities desk at Deutsche Bank’s Moscow Branch-a desk that, like the rest of Deutsche Bank’s Moscow division, was shuttered in the wake of the scandal. He spent many months after his dismissal from the bank in Bali, with his wife, Natalia, who appears to be the “close relative” of the report. The suggestions of bribery in the report are particularly interesting. I was told that Russian clients of mirror trades-professional money launderers-sometimes paid Wiswell in his wife’s offshore account and sometimes delivered payment in Moscow, in cash, in a bag. The idea, one such operative in Russia said, was to “hook” Wiswell, so that he would not do “unexpected things.” The D.F.S. now has quantified the amounts placed into offshore accounts; that will no doubt intrigue criminal investigators.

The bribery allegations may be the most explosive detail of the consent order. The bigger picture is more shocking. Mirror trades were used to ship billions out of Russia. They were used because they bypassed currency, anti-money-laundering, and, possibly, tax controls. Representatives of Deutsche Bank have said that they’ve never uncovered the “actual purpose” of mirror trades. I like to imagine a look of lamb-like bafflement on the face of the lawyer who related this position to the New York regulator. In any event, the D.F.S. report makes short work of this faux naïveté. The transactions, the report says, “lack obvious economic purpose and could be used to facilitate money laundering or other illicit conduct.” As such, “they are highly suggestive of financial crime.”

It’s not the job of the Department of Financial Services to criminally prosecute individuals or corporate entities, and the language of the D.F.S. stops short of calling this business what it is. But the story it tells is damning: a scheme existed with no economic logic other than to facilitate capital flight from Russia; the users of that scheme moved their money in a clandestine fashion; the key facilitator of that scheme, an American citizen, took bribes from clients to keep the gravy flowing. This chain of events isn’t “highly suggestive of financial crime”; rather, it’s something more straightforward and concerning, particularly when one considers that some of the ultimate clients of the scheme, as it was reported to me, were Chechens with connections to the Kremlin.

For all the power of these investigations, the reports compiled by the F.C.A. in London and the D.F.S. in New York leave some questions unanswered. For instance, there is no indication of how the regulators arrived at their conclusions. For seven months last year, I spoke to many people with intimate knowledge of mirror trades, including fourteen people who had worked for Deutsche Bank’s Moscow branch. Since the article was published, in August, I have continued to ask these sources whether they have spoken to anybody from the F.C.A., the D.F.S., or other agencies. I checked again today. As far as I can ascertain, only one person with knowledge of how the trades worked day to day has been interviewed by the regulators-and the interview was not conducted in person. Most of the people who would know the most about mirror trades say they have never been approached by a regulator.

So where does the regulators’ information come from? One must assume it is almost entirely gathered from the bank itself. The F.C.A. notes that Deutsche Bank has been “extremely cooperative,” but declined to tell me how its report was compiled, who was interviewed, or how much material had been provided to them by the subject of its investigation. Nobody from the D.F.S. wished to be quoted on this issue, but I understand that most of the material for the investigation came from trading receipts and electronic records of internal communications provided by Deutsche Bank. The obvious problem with that approach is that the most interesting conversations do not take place over e-mail or on a work phone.

The other, more significant question raised by the reports is this: Why has Deutsche Bank’s management in London been given a pass by the Financial Conduct Authority? In its report, the F.C.A. bends over backward to exonerate Deutsche Bank London, saying, “There is no evidence that senior management at Deutsche Bank or any Deutsche Bank employee in the U.K. was aware of or involved in the suspicious trading, including the mirror trades.”

The F.C.A. must know that this sounds inconceivable. The facts are simple. Even if Moscow employees operated the scheme, half the mirror trades were booked in London. They appeared on the London balance sheet. At least two managers with direct control over the Moscow equities desk sat in London. Moreover, Moscow employees told me about conversations between London managers and the desk in Moscow specifically regarding this trading activity. The F.C.A. would know about those conversations if they had conducted more interviews with current and former employees of the bank. (For its part, the D.F.S. has been much tougher in its analysis; it admonishes senior management at Deutsche Bank for what amounts to their willful blindness in failing to arrest the scheme once it had begun.)

The final questions about Deutsche Bank’s mirror trades relate to President Donald Trump and the future of the D.O.J. investigation. Last night, the acting Attorney General, Sally Yates, was fired because she advised Justice Department lawyers not to enforce Trump’s executive order on immigration. A new acting Attorney General, more amenable to the will of the President, is in place. Businesses belonging to Donald Trump and his son-in-law, Jared Kushner, owe Deutsche Bank several hundred million dollars. Various government agencies have investigated Trump for his potentially compromising business relationships with Russia. Whatever his deals with Russian government or business interests, Trump has indicated he’s considering an end to sanctions against Russia.

In this environment, we should watch how aggressively the Department of Justice pursues allegations that an American citizen, working in Russia for a European bank, enriched himself while spiriting billions of dollars of dubious provenance out of Russia-and their investigation into who, at the bank, knew what he was doing.