QUESTION 2 - ETHICS Read the case study below and answer the questions which follow: Deutsche Bank to pay $258 mn for violating US sanctions AFP/File / Daniel Roland (Source: The Citizen November 04, 2015) Deutsche Bank will pay $258 million in fines for doing business with US-sanctioned countries like Iran and Syria German banking giant Deutsche Bank will pay $258 million in fines for doing business with USsanctioned entities and countries like Iran and Syria, US regulators said Wednesday. (Washington AFP) “The firm did not have sufficient policies and procedures to ensure that activities conducted at its offices outside of the United States complied with US sanctions laws,” said the Federal Reserve, which announced the penalties along with the New York State Department of Financial Services. Deutsche Bank will pay $200 million to the NYDFS and $58 million to the Federal Reserve. In addition, Germany’s largest bank will install an independent monitor and fire six employees who were involved in the sanctions-evasion scheme, and bar three other employees from any work involving the company’s US operations. From at least 1999 through 2006, Deutsche Bank disguised 27,200 dollar-clearing transactions valued at more than $10.86 billion to skirt US sanctions, the authorities said. The customers involved in the transactions included Iranian, Libyan, Myanmar, Syrian and Sudanese entities. Deutsche Bank decided to pursue a “lucrative” US dollar business for sanctioned customers, the NYDFS said. – Cloaking transactions – MBL5902 MAY/JUNE 2020 6 To disguise the transactions, the bank altered the information included on the payment message, a method known as wire stripping, before the message was passed to the correspondent clearing bank in the US. Deutsche Bank told sanctioned customers it was crucial to note “Do not mention our bank’s name” in the message for payments that may involve the US to avoid raising a red flag. “Otherwise it is possible that the (payment) instruction would be sent immediately to the USA with your full details,” the bank said, according to the New York regulator. Another bank instruction said: “Important: no Iranian names to be mentioned when making payment to New York.” Deutsche Bank also concealed the true nature of the transactions by splitting an incoming payment message into two: one that included all the details, sent to the beneficiary’s bank, and a second that excluded details about the underlying parties to the transaction, sent to Deutsche Bank New York or another clearing bank in the US. “The special processing that the Bank used to handle sanctioned payments was anything but business as usual; it required manual intervention to identify and process the payments that needed ‘repair’ so as to avoid triggering any sanctions-related suspicions in the US,” the NYDFS said. Anthony Albanese, acting chief of NYDFS, said the US authorities were “pleased” that Deutsche Bank had worked with them to resolve the matter and take action against employees who engaged in the misconduct. “To truly deter future wrongdoing, it is important to focus not just on corporate accountability, but also individual accountability,” he said. Deutsche Bank welcomed the closure of the case. “The conduct ceased several years ago, and since then we have terminated all business with parties from the countries involved,” said Renee Calabro, a spokesman for Deutsche Bank New York, in an emailed statement. The penalties announced Wednesday are dwarfed by the fines for sanctions violations paid by French banks BNP Paribas and Credit Agricole, at $8.9 billion and $787 million, respectively. The NYDFS, which has been aggressive in the sanctions cases and other large enforcement cases involving foreign banks, is also far along in discussions with Deutsche Bank on investigations into manipulating the foreign exchange market and facilitating money laundering in Russia, a person familiar with the matter told AFP on Tuesday. Deutsche Bank is also among about two dozen large banks being sued for allegedly rigging the US Treasury bond market. MBL5902 MAY/JUNE 2020 7 The German bank was fined a record $2.5 billion in May for its involvement in rigging interest rates
. 2.1 Identify the main ethical issues that manifest in this case.
(5) 2.2 How could the main issue be solved? (10)
2.3 Discuss investor relations and suggest how cases such as this could impact on financial institutions.
1. The main ethical issue is the concealment of data, going against the law of the land. And betraying the laws for personal interest.
Here, the bank was doing business with US sanctioned countries like Iran and Syria, which was prohibited. Bank personnel circumvented the laws and made it possible for sanctioned countries to get transactions cleared in the US.
The act was done for selfish means, resulting in a USD 258 million fine to the bank, installing an independent monitor, along with firing 6 employees.
2. The main issue can be resolved by having greater accountability on a person and the institution. Apart from that, an independent auditor and strict consequences if convicted can be used to deter these issues.
For the employees, the bank must monitor their activities. In case of suspicion, their actions can be recorded. Along with that, they must be encouraged to take up ethical and legal steps and the consequences of not doing so.
3. Businesses with certain investors are banned from the banks at a place. This can be due to political or other reasons. For example, sanctions or restrictions can be because, investors are from a particular country known to use institutions for terrorist funding. Thus, not only the sanctions may harm the institution but also the world.
Plus, if convicted, the eligible investors may feel betrayed as their trust upon the bank is breached.
The financial institution may have to pay a heavy fine, in much serious conditions even its license to run operations can be canceled.
This goes along with losing the trust of other investors in both cases.
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