• Thursday, March 28, 2024
businessday logo

BusinessDay

Deutsche Bank glitch blocked reporting of suspicious transactions

Deutsche Bank glitch blocked reporting of suspicious transactions

A software glitch at Deutsche Bank has for almost a decade prevented some potentially suspicious transactions from being flagged to law enforcement authorities, Germany’s biggest bank has discovered.

The revelation is a further blow to the reputation of Deutsche, which has paid hundreds of millions of dollars in fines for breaching money laundering and sanction rules and is still being investigated by authorities around the world for alleged similar wrongdoing.

It comes a day ahead of a potentially tumultuous shareholder meeting, where some investors will call for the ousting of Deutsche chairman Paul Achleitner after the bank’s share price this week fell to a new all-time low.

A Deutsche spokesman said one of the bank’s several anti-financial crime systems had been affected. The software, which was put in place around 2010, was designed to retrospectively to look for suspicious patterns of payments processed by clients of the corporate and investment bank.

“Two of 121 parameters [of the IT application] were defined incorrectly,” said the bank on Wednesday, adding that the fault was discovered by employees of its anti-financial crime unit after it started work to improve its internal processes last autumn.

“Deutsche Bank is working on correcting the error as quickly as possible and is in close contact with the regulators,” it said.

A person familiar with the matter said the lender was assessing the potential fallout of the software glitch, which was first reported by Süddeutsche Zeitung, and so did not know how many, if any, suspicious transactions were not flagged to authorities.

As the bank has several overlapping systems in place, it is possible that dubious transactions missed by one were still caught by another.

Hermes EOS, an investment adviser, warned on Wednesday that while Deutsche had improved its control and compliance functions in recent years, there has not been “enough focus and investment in this area”.

Roland Bosch at Hermes EOS stressed that “more needs to be done to ensure that Deutsche Bank finally gets to grip with historic issues and can demonstrate that it has put in place effective controls and compliance management”.

Last September, German banking watchdog BaFin publicly rebuked Deutsche for poor anti-money laundering systems. In an unprecedented step, the regulator appointed an independent auditor to check the lender’s progress in improving its internal processes for three years.

In February, BaFin widened the auditor’s remit and commissioned him to also look into Deutsche’s role in the Danske Bank Estonia money-laundering scandal.

Deutsche was one of several correspondent banks used by Danske’s Estonian branch, with the German lender clearing more than €160bn of potentially suspicious cross-border payments for the unit — many of them for Russian entities.

Deutsche’s chief regulatory officer Sylvie Matherat is likely to be replaced over the coming months, according to people familiar with the lender’s supervisory board.

Ms Matherat has a contract until 2023 but the former French central bank official has been under pressure as criticism from regulators has intensified. Replacing Ms Matherat “is just a question of when, rather than if”, according to one person close to the supervisory board.