Should Banks do more to stop Fraudulent Transactions
The head office of Deutsche Bank (together with other Deutsche Bank locations) was subject to a police raid this week. 170 police and accompanying tax investigators targeted Deutsche Bank in connection with the Panama Papers money-laundering scandal in 2016. Deutsche Bank is suspected of assisting some of their clients to set up offshore companies in tax havens for the purpose of evading tax. The tax investigators are believed to be looking into the possibility that Deutsche Bank failed to monitor and report suspicious transactions. Germany’s biggest bank has a clearly defined regulatory duty to “know your customer” and is also subject to BaFin regulations which oblige banks to have policies and procedures in place aimed at countering the risk of financial crime.
Deutsche Bank insists that they have furnished the authorities with all relevant information relating to the Panama Papers and will work with the police and investigators to clarify the situation. The shadow of the fraud investigations hangs over Deutsche Bank and is proving to be damaging. Following the police raid shares in Deutsche Bank dropped more than 3%, bringing the overall slump to 47% so far this year. Deutsche Bank is finding it hard to restore confidence in the bank and is currently undergoing a root and branch overhaul under the new CEO, Christian Sewing. The German bank should be focussing on its fraud prevention procedures following the scrutiny it underwent in connection with the Panama Papers scandal due to the revelation that its British Virgin Islands subsidiary of Deutsche Bank served more than 900 customers, doing €311 million ($353 million) worth of business in 2016 alone. The bank’s past misdeeds have been very expensive, a $7.2 billion deal was struck in January 2017 with the US government to settle claims relating to its sale of toxic mortgage products and in the same month it was also fined $630 million over a Russian money laundering scheme. Despite such excruciating penalties, as recently as September this year the regulating authorities had to tell the bank to sharpen their procedures and controls to prevent money laundering and terrorist financing.
Financial fraudsters operate by spiriting away stolen funds, usually using a complex series of transactions until they have hidden the theft sufficiently well that it becomes all but impossible to find. They cannot succeed without the banking system and the lawyers within Giambrone’s finance and banking department strongly believe that bankers should and could do more to prevent fraud and also should do far more assist their customers who have been defrauded, especially if they have facilitated the fraud by failing to act on suspicious transactions. Giambrone frequently tackles bankers who have exhibited a careless attitude by failing to protect our clients who have been scammed out of their money by fraudsters. Deutsche Bank is fully aware that it is obliged to carry out due diligence aimed at preventing money laundering schemes. It is hard not to conclude that the value of servicing the illegal movement of money is greater than the ensuing fines and they are never party to the possibility of criminal charges, therefore there is no incentive to carry out effective monitoring.
Whilst the regulating bodies are trying to take a hard line with financial fraudsters they can only step in after the event; whereas the bankers can prevent the crime from taking place by diligent monitoring. Once a bank has allowed a suspicious transaction to take place it is not unreasonable to judge the bank to be culpable and should, therefore, compensate the fraudsters’ target.
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