According to the news report by the Financial Times, Deutsche Bank AG’s headquarters were raided by the criminal prosecutors in Frankfurt for the second day in a row. The authorities are looking for evidence of money laundering by the country’s largest bank.
The transactions that are being investigated started in 2013, and prosecutors believe that this activities have continued till this year. It is believed that the money laundering took place from the lender’s wealth management business, which, from 2015, was managed by Christian Sewing until he took up the post of Chief Executive Officer early this year in April.
Deutsche Bank’s shares continued their downward trend thanks to this news. The bank’s shares are down by 2% in trading in Frankfurt today, after having dropped by more than 3% yesterday. Since Sewing took over as the CEO, the bank’s shares have fallen by 28%.
Additionally the cost of insurance for the bank’s junior debt against possible losses shot up to 384 basis points, a 12 point jump and the highest that it has been in over two years.
There are two Deutsche Bank employees who are at chief suspects. Both are managing directors at the company, one with the compliance unit and the other with the wealth management unit. And according to a source who is familiar with the case, both are still employed at the bank and neither has faced disciplinary action internally.
According to the news report by Bloomberg, these two employees have only been identified by their ages at this point in time. One is 50 and the other is 46 years old.
According to the prosecutors, neither of these employees red-flagged suspicious transactions conducted by clients who had accounts in the bank’s British Virgin Islands branch. These money transfers were most likely related to criminal activities.
The employees of the bank only started flag off suspicious transactions only in early 2016, after Deutsche Bank’s activities in foreign tax havens were revealed when a cache of documents, called the Panama Papers, were leaked.
The amount of suspicious transactions stood at €311 million (~$353.74 million) for 2016 alone. However, insider sources said that the actual number could be much higher since the suspected illicit activities went on for over half a decade.
The unit of the bank that is believed to be at the core of this money laundering case is Regula Limited, which is based out of Road Town in the British Virgin Islands, according to the internal sources. This information confirmed the report by the German newspaper Suddeutsche Zeitung, one of the dailies that had first broken the story about the Panama Papers back in 2016.
Information from the bank’s annual reports show Regula Limited listed as a 100% owned subsidiary of the German lender since 2010. In the company’s most recent annual report, the offshore unit has been classified as “Other Enterprise”. However, this company was sold in March this year.
Deutsche Bank, on its part, stated that all their executives had already provided the authorities will all information related to the Panama Papers. The bank, however, also stated that they would continue to cooperate completely with Frankfurt’s public prosecutor’s office. The bank averred that it had proved in the last few years that they were more than willing to cooperate with the authorities in all investigations.
This latest twist has only added to the mountain of problems that the bank is already facing from all directions – commercial, legal and regulatory. According to the Chief Executive Officer of investment advisory firm DGWA, Stefan Mueller, the bank could be paralyzed for months until there is clarity about how it will be affected by possible fines.