By Philip Mattera
Deutsche Bank’s position as one of the world’s leading financial institutions has been repeatedly tarnished in recent years in a series of scandals involving issues such as tax evasion and the sale of toxic mortgage securities. It has paid more than $3 billion in penalties related to allegations of violating U.S. economic sanctions and manipulating the LIBOR interest rate index.
Founded in Berlin in 1870, Deutsche Bank played a major role in financing electrification and railway expansion in Germany as well as other countries. It continued to grow until Germany's defeat in the First World War and Allied demands for reparations put the country's banking system in a precarious position. To cope with the instability, Deutsche Bank merged with its main rival Disconto-Gesellschaft in 1929. The combined operation, now far and away the leading bank in Germany, weathered the Depression and ensured its political survival through the war years by providing financial support to the Nazi regime and removing the Jewish members of its board directors.
After the war, Allied authorities determined that Deutsche Bank had not only actively supported the Nazi regime but had also maintained close ties to officials such as SS chief Heinrich Himmler and had been involved in appropriating assets of financial institutions in countries overrun by the Nazis. The occupying forces divided the bank first into ten and then three regional institutions, one each for the north, central, and southern regions of West Germany. In 1957, however, the operations were reunited and allowed to function under the Deutsche Bank name once again.
The bank set out to build both its retail business and its international operations, which had been dismantled after the war. It became one of the leading participants in the Eurobond market. Deutsche Bank expanded its investments in a wide range of German companies, and the bank soon held seats on the supervisory boards of more than 100 firms, among them the biggest names in German industry. In 1984 Deutsche Bank purchased a 4.9 percent interest in the British securities firm Morgan Grenfell, and five years later purchased the remainder of the firm.
By the late 1980s Deutsche Bank was actively pursuing a goal of becoming a global investment bank and a Europe-wide universal bank, offering corporate and consumer services as well as mutual funds and asset management. The bank demonstrated its new assertiveness in 1990, when it wasted no time taking advantage of the collapse of Communism in East Germany by forming a joint venture with Deutsche Kreditbank (which four decades earlier had expropriated many Deutsche Bank operations). Along with its rival Dresdner Bank, Deutsche Bank left U.S. banks in the dust in the rush east.
Nazi Collaboration Again an Issue
Deutsche Bank’s Nazi ties became an issue again in 1986, when it purchased the Flick industrial empire around the same time that a Flick subsidiary paid about $2 million to belatedly fulfill a pledge it had made in the 1960s to compensate about 1,300 Jews who had been used as slave laborers in its gunpowder factories during World War II. In 1995 unearthed documents from East Germany provided new documentation of the ways in which Deutsche Bank helped the Nazis expropriate Jewish businesses. The bank later expressed regret when a historian’s report indicated that it had engaged in gold transactions with the Nazi regime.
In 1994 Deutsche Bank found its image tarnished because of its close ties with the giant Jurgen Schneider real estate group, which collapsed amid reports of accounting irregularities. Several Deutsche Bank executives were ousted in the wake of an auditor’s report that found that the bank was careless in its lending of some $750 million to Schneider.
To advance its goal of becoming a global investment bank, Deutsche Bank announced plans in 1998 to acquire New York-based Bankers Trust. Like Deutsche Bank, Bankers Trust was testing the limits of what a commercial bank could do, but its aspirations were impeded by a series of scandals. In the mid-1990s those controversies stemmed from charges of deceptive investment sales practices. One of its major institutional customers, Procter & Gamble, brought a racketeering suit that accused Bankers Trust of engaging in fraudulent practices in its derivatives business. (The bank settled the case for about $200 million.)
Just a few months after the Deutsche Bank acquisition was announced, Bankers Trust pleaded guilty to criminal charges that its employees had diverted $19 million in unclaimed checks and other credits owed to customers over to the bank’s own books to enhance its financial results. The bank paid a $60 million fine to the federal government and another $3.5 million to New York State. One executive later pleaded guilty to a related criminal charge.
Abusive Tax Shelters
Deutsche Bank was also having its own legal problems during this period. In June 1998 its offices were raided by German criminal investigators looking for evidence that the bank helped wealthy customers engage in tax evasion. In 2004 investors who purchased what turned out to be abusive tax shelters from Deutsche Bank sued the company in U.S. federal court, alleging that they had been misled (the dispute was later settled for an undisclosed amount). That litigation as well as a U.S. Senate investigation brought to light extensive documentation of Deutsche Bank’s role in tax avoidance.
In the 2000s, Deutsche Bank was cited numerous times by financial regulators for violations. In 2002 three U.S. agencies—the SEC, the New York Stock Exchange and NASD (the U.S. industry regulator now known as FINRA)—fined Deutsche Bank Securities $1.65 million for failing to adhere to requirements relating to the preservation of e-mail archives so they could be consulted in enforcement actions. In 2003 the SEC penalized Deutsche Bank $750,000 for violating conflict of interest rules by failing to disclose its role in advising Hewlett-Packard on the acquisition of Compaq Computer at the same time that its asset management arm was voting its clients’ proxies in favor of the deal.
In 2004 Britain’s Financial Services Authority fined Deutsche Bank’s Morgan Grenfell unit £190,000 for violating rules relating to program trading. Shortly thereafter, NASD fined Deutsche Bank $5.29 million for taking excessive commissions in the allocation of shares of initial public offerings and later that year fined the bank $5 million for corporate high-yield bond trading violations. Also in 2004, the SEC announced that Deutsche Bank would pay $87.5 million to settle charges of conflicts of interest between its investment banking and its research operations.
In 2005 the Federal Reserve and the New York State Banking Department announced that Deutsche Bank had agreed to take steps to improve its policies designed to prevent money laundering by customers. In 2006 the Financial Services Authority fined Deutsche Bank £6.3 million for “failing to observe proper standards of market conduct” in transactions involving shares of Scania and Cytos Biotechnology. That same year, Deutsche Bank agreed to pay $208 million to U.S. federal and state agencies to settle charges of market timing violations.
During this period, Deutsche Bank chief executive Jose Ackermann personally paid 3.2 million Euros to settle criminal charges that he and other directors of the German telecommunications company Mannesmann awarded excessive bonuses to Mannesmann executives.
In 2007 Deutsche Bank agreed to pay $25 million (and give up $416 million in unsecured claims) to settle litigation relating to its dealings with bankrupt energy trader Enron Corporation.
In 2009 the SEC announced that Deutsche Bank would provide $1.3 billion in liquidity to investors that the agency had alleged were misled by the bank about the risks associated with auction rate securities. Also that year, Deutsche Bank came under sharp criticism in the wake of revelations that it had used a private detective to spy on activist investors as well as some people inside the bank. Several executives were fired amid the scandal.
In 2010 FINRA fined Deutsche Bank Securities $575,000 for violating rules relating to short sales and then $7.5 million for “negligently misrepresenting delinquency data” in connection with the subprime mortgage securities.
Later that year, the U.S. Attorney for the Southern District of New York announced that Deutsche Bank would pay $553.6 million and admit to criminal wrongdoing to resolve charges that it participated in transactions that promoted fraudulent tax shelters and generated billions of dollars in U.S. tax losses.
In July 2014 the U.S. Senate Permanent Subcommittee on Investigations accused Deutsche Bank and Barclays of helping hedge funds use dubious financial products to avoid paying more than $6 billion in taxes.
In December 2014 federal prosecutors brought suit alleging that Deutsche Bank had fraudulently used shell companies to evade taxes on a transaction that had taken place in 2000. The suit claimed that the bank owed the federal government $190 million in taxes, penalties and interest.
Dealing in Toxic Securities
In 2011 the Financial Services Authority fined Deutsche Bank’s DB Mortgages unit £840,000 for “irresponsible lending practices and unfair treatment of customers in arrears”; the agency also secured redress of approximately £1.5 million for DB Mortgages’ customers. That same year, a German appeals court ruled that Deutsche Bank had to compensate a small-business customer for losses incurred as the result of an interest-rate swap. The court concluded that the bank had a “grave conflict of interest” in its dealings with the customer. Also in 2011, the Federal Housing Finance Agency sued Deutsche Bank and other firms for abuses in the sale of mortgage-backed securities to Fannie Mae and Freddie Mac (the case was settled for $1.9 billion in late 2013).
In 2012 U.S. Attorney for the Southern District of New York announced that Deutsche Bank would pay $202.3 million to settle charges that its MortgageIT unit had repeatedly made false certifications to the U.S. Federal Housing Administration about the quality of mortgages to qualify them for FHA insurance coverage.
In late 2012 and early 2013 there were reports that Deutsche Bank was being investigated by U.S. prosecutors for violating sanctions against doing business with countries such as Iran and by prosecutors in several countries for participating in the efforts to manipulate the LIBOR interest rate index. At the same time, German authorities were stepping up an investigation of the bank’s role in tax evasion linked to carbon credits. Deutsche Bank’s offices were raided by prosecutors in late 2012 as part of the probe.
In January 2013 Deutsche Bank agreed to pay a $1.5 million fine to the U.S. Federal Energy Regulatory Commission to settle charges that it had manipulated energy markets in California in 2010.
In February 2013 the bank had to delay the publication of its annual report and call an extraordinary shareholder meeting to respond to challenges by shareholders angry about the company’s legal problems.
In March 2013 Massachusetts fined Deutsche Bank $17.5 million for failing to inform investors of conflicts of interest during the sale of collateralized debt obligations.
In December 2013 Deutsche Bank was fined $983 million by the European Commission for LIBOR manipulation. Later, in April 2015, it had to agree to pay $2.5 billion to settle LIBOR allegations brought by U.S. and UK regulators.
In February 2014 Deutsche Bank agreed to pay the equivalent of about $1 billion to settle a longstanding lawsuit in which the bank had been accused of contributing to the collapse of the Kirch media group in Germany.
In December 2014 FINRA fined Deutsche Bank Securities $4 million as part of a case against ten investment banks for allowing their stock analysts to solicit business and offer favorable research coverage in connection with a planned initial public offering of Toys R Us in 2010.
In May 2015 the SEC announced that Deutsche Bank would pay $55 million to settle allegations that it overstated the value of its derivatives portfolio during the height of the financial meltdown.
The following month, co-chief executives Anshu Jain and Jurgen Fitschen unexpectedly resigned, reportedly under pressure from German regulators unhappy with the way they handled the investigation into alleged manipulation of benchmark interest rates by bank employees.
In November 2015 the investigation of Deutsche Bank's sanction violations resulted in payments of $200 million to New York State regulators and $58 million to the Federal Reserve.
In December 2016 Deutsche Bank agreed to pay a total of $37 million to settle allegations by the SEC and the New York Attorney General that it mislead clients about order routing.
In January 2017 the bank reached a $7.2 billion settlement of a Justice Department case involving the sale of toxic mortgage securities during the financial crisis.
That same month, Deutsche Bank was fined $425 million by New York State regulators to settle allegations that it helped Russian investors launder as much as $10 billion through its branches in Moscow, New York and London.
Other Information Sources
Violation Tracker summary page
Watchdog Groups and Campaigns
Deutsche Bank Risk Alert (site maintained by the union UNITE HERE, which represents workers at Deutsche Bank-owned casinos in Las Vegas)
Key Books and Reports
A Big Deal? Corporate Social Responsibility and the Finance Sector in Europe (CORE Coalition, December 2005).
Abuse of Structured Financial Products (Senate Permanent Subcommittee on Investigations,July 2014).
Dividend Tax Abuse: How Offshore Entities Dodge Taxes on U.S. Stock Dividends (Senate Permanent Subcommittee on Investigations, September 2008).
Farming Money: How European Banks and Private Finance Profit from Food Speculation and Land Grabs (Friends of the Earth Europe, January 2012).
Investing Responsibly: A Financial Puzzle (SOMO, September 2010).
Undue Diligence: How Banks Do Business with Corrupt Regimes (Global Witness, March 2009).
Last updated February 4, 2017