Unethical Practices That Affected The Image of Deutsche Bank

Anudeep Maity – 1923210
Business Ethics and Sustainability

Asynchronous Assignment (01-02-2021)
UNETHICAL PRACTICES THAT AFFECTED THE IMAGE OF

DEUTSCHE BANK
OVERVIEW
Given Deutsche Bank’s questionable reputation, it’s almost too easy of a subject. However,
this is a critical case. It’s an example of the pressure compliance officers sometimes have to
face, when it comes to choosing between doing what’s right and conforming to groupthink.
In 2013, Deutsche Bank onboarded the now deceased Jeffrey Epstein as a client. At that time,
Epstein’s involvement in sex trafficking was already public knowledge. He was a well-known,
convicted sex offender whose lawyers were able to negotiate a lax sentence.
During the onboarding, the KYC process revealed information on Epstein’s history. The
relationship coordinator, working on the case, prepared a memorandum for the relationship
manager to send to the Co-Head and COO of the Wealth division at Deutsche Bank. It included
the following statement:
Epstein was charged with soliciting an underage prostitution in 2007 for which he served 13
months out of his 18-month sentence and was accused of paying young woman for massages
in his Florida home. The statement also highlighted Mr. Epstein’s involvement in 17 out-of-
court civil settlements related to his conduct in 2007. The relationship manager added an email
to the memorandum, indicating they believed the relationship could attract cash flows of $100-
300 million and an estimated revenue of $2-4 million, annually, over time.
The Co-Head of the Wealth division cleared the relationship, saying he spoke with the Head
of AML Compliance — and the General Counsel — and neither of them objected, as long as
nothing else would come up in KYC and AML.
Unfortunately, over the years, more would come up.

Two of the most serious AML offenses were:
• Sending transactions to known co-conspirators from the previous Epstein case

• The structuring of cash withdrawals
Deutsche Bank did not act on these compliance breaches at the time.
Decisions that were made to improve Deutsche Bank’s Image
In terms of business decisions, since 1989, Deutsche bank had plans to become a global bank.
They acquired banks in other countries and obtained a greater global presence. By
consolidating their US operations into one, they had plans to take on Wall Street banks such as
Goldman Sachs. However, after the financial crisis, the sluggish European economy, and new
regulations, such plans fell apart. In 2019, plans to merge with another German bank,
Commerzbank, fell through. If the merger was successful, it would have created the eurozone
‘s second-largest bank. These plans were made as both banks were struggling, with Deutsche
trying to recover after the financial crisis.
Change in Employment
Deutsche made the decision that their business operations are spread too thin or over-
diversified. One of the executives stated that the bank had tried to compete in too many business
lines. To ratify this situation, they have decided to close the equities sales and trading business
and decrease the rates division. By removing this business line from the banks, they are also
letting go of 18,000 employees. Originally, executives were reluctant to cut this business line.
Although it is high risk, issuing and trading derivatives can be very profitable if done properly.
However, as Deutsche Bank becomes less profitable, the bank seeks more reliable business.
Now the bank will shift focus to corporate money management. The short-term cost of
Deutsche Bank’s restructuring process is $8.29 billion with a majority occurring in 2019. The
cost mostly consists of severance packages for the employees that were let go. The estimated
benefit is $6.7 billion in cost savings by 2022. Cost savings originate from lower salary
expenses and bonuses paid each year. Other banks have called this plan ambitious and the
actions radical.
Change in Management
Christian Sewing became the chief executive in 2018. Sewing had already cut over 3,000 jobs
and closed hundreds of branches. Sewing, along with the board, made the decision to cut the
equities sales and trading division as it lacks revenue reliability. As mentioned above, cost
savings are also expected from lower payment of bonuses. The previous chief executive was
criticized for the continuous payment of high bonuses for investment bankers. Not all of the
executives agree with or was unscathed by the decision. For example, Frank Strauss, the head
of retail business, has left the bank, as he did not agree with the restructuring plan. Garth
Ritchie, the chief of investment banking, will be leaving the bank as well.

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Anudeep Maity – 1923210

Business Ethics and Sustainability

UNETHICAL PRACTICES THAT AFFECTED THE IMAGE OF

Unfortunately, over the years, more would come up.

• Sending transactions to known co-conspirators from the previous Epstein case

Decisions that were made to improve Deutsche Bank’s Image

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