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Road traffic passes the Deutsche Bank AG headquarters, left, near the Moskva river in Moscow, Russia, on Wednesday, Oct. 10, 2012. Russia's Internet market amounted to 554 billion rubles ($18 billion) last year, equivalent to about 1 percent of the country's gross domestic product, according to the Higher School of Economics in Moscow, which also advises the government. Photographer: Andrey Rudakov/Bloomberg via Getty Images Bloomberg Bloomberg via Getty Images

Deutsche Bank’s Suspect Russian Trades May Top $10 Billion

Dec 22, 2015

Deutsche Bank's (db) problem with suspected money-laundering in Russia just keeps getting worse.

According to Bloomberg, the bank has identified another $4 billion in suspicious transactions tied to its operations in Russia on top of the $6 billion it had already flagged to regulators earlier in the year. That raises the risk of another substantial fine for Germany's largest bank as it struggles to come to terms with a decade of lax governance that has embroiled it in scandals from mortgage-securities fraud to rigging benchmark interest rates.

Media started to report allegations against the bank of money-laundering on behalf of Russians on the list of people sanctioned by the U.S. government after Russia's annexation of the Ukrainian province of Crimea last year (although the trades in question had been running since 2012, well before the Ukrainian problem erupted). The bank had confirmed in October that it was reviewing a "significant" volume of trades by "certain clients in Moscow and London" that violated its compliance policies.

According to reports, Deutsche's clients bought securities in rubles in Moscow while selling analogous ones through its branch in London. These so-called 'mirror trades' effectively allowed them to liquidate their offshore accounts and put their money beyond the reach of the Treasury and the U.K. authorities.

The case is now being investigated by the Department of Justice and the New York Department of Financial Services. The bank has already reportedly been fined the princely sum of just over $4,000 by the Russian Central Bank for its poor internal controls. Bloomberg reported a central bank source as explaining that that the small size of the fine was due to Deutsche's status as a "victim of an illegal scheme" and its role in proactively flagging the incident.

According to Bloomberg, some of the trades benefited a relative of Vladimir Putin and two of his closest associates, Arkady and Boris Rotenberg. The Rotenbergs deny any involvement, while the Kremlin has declined to comment.

However, the signs are that it expects a much bigger fine from U.S. regulators who have griped for years about Deutsche's inadequate internal controls. The bank set aside $1.2 billion in new litigation provisions in the third quarter, mainly related to the Russian mirror trades.

Deutsche has already suspended or fired some staff in connection with the matter, notably Tim Wiswell, a U.S. citizen who ran its equity sales desk in Moscow. Wiswell has sued the bank for wrongful dismissal, according to the FT.

Deutsche Bank didn't immediately respond to a request for comment.

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