WASHINGTON • The US Federal Reserve is examining how Deutsche Bank handled billions of dollars in suspicious transactions from Denmark's leading lender, according to people familiar with the matter, further intensifying what could be one of the biggest money-laundering scandals ever.
The Fed's probe is in an early stage as it scrutinises whether Deutsche Bank's US operations adequately monitored funds from an Estonian branch of Danske Bank, according to two people briefed on the situation, who asked not to be named because the inquiry is not public.
Danske, which used correspondent banks such as Deutsche Bank to move money abroad, has admitted that much of about US$230 billion (S$312.6 billion) that flowed through the tiny Estonian outpost may have been dirty. A Wall Street Journal report in November said Deutsche Bank may have handled about US$150 billion of the total amount of potentially suspicious transactions tied to Danske.
The United States requires banks operating under its jurisdiction to scrutinise clients and their dealings to detect potential money laundering and alert the authorities to suspicious transactions. The Fed is among regulators that ensure banks have adequate systems in place to fulfil those duties.
A Danske Bank whistle-blower who outlined the illicit flow of cash through that firm has said much of it passed through Deutsche Bank in the US, and one of the people said the Fed is focusing on the German lender's trust bank. Deutsche Bank has been cooperating with the Fed, the people said.
A spokesman for Deutsche Bank declined to comment on talks with regulators, and a spokesman for the Fed said it does not publicly discuss confidential probes.
ACTING AS CORRESPONDENT
Deutsche Bank chief executive officer Christian Sewing said last week he has launched a further internal investigation into the lender's role as a correspondent bank for Danske, even though he said he has not seen any evidence of wrongdoing.
A Wall Street Journal report in November said Deutsche Bank may have handled about US$150 billion of the total amount of potentially suspicious transactions tied to Danske.
The bank had previously reviewed its actions in the case, Mr Sewing said at an event in Berlin. He urged people not to "prejudge" the bank or its employees, presuming their innocence unless proven guilty.
The US Department of Justice and criminal authorities from other countries have launched investigations into Danske Bank's business in Estonia amid accusations it became a European hub for money launderers from the former Soviet Union.
The Danish bank was ordered by its domestic regulator to stockpile an extra US$1.5 billion in capital to deal with the costs of potential penalties.
Danske relied on the global presence of Deutsche Bank, Bank of America and JPMorgan Chase to handle conversions of foreign currencies into US dollars on behalf of its clients from 2007 to as recently as 2015, people familiar with the arrangement have said.
Bloomberg reported in November that Deutsche Bank had been contacted by the Justice Department and was thought to have handled the bulk of the transactions under scrutiny. There was no sign at the time that the three firms were themselves targets of the Justice Department's investigation.
Deutsche Bank said that month it has controls in place when acting as a correspondent for other banks, but its ability to know about their clients is limited.
As a correspondent, "your only relationship is with the bank and the bank itself has the responsibility to check its own client to monitor the transaction", a company representative said at the time.