By Samuel Rubenfeld And Eyk Henning
German lender Commerzbank AG will pay $1.45 billion in the U.S.
to settle allegations of sanctions and money-laundering
violations.
The settlement resolves separate sanctions and money-laundering
investigations by U.S. and New York state regulators and law
enforcement, who were looking into allegations that Commerzbank
violated laws barring transactions on behalf of Iran, Sudan, Cuba
and had abetted a multibillion-dollar securities fraud at
Japan-based Olympus Corp.
Documents released Thursday show years of wrongdoing at
Commerzbank that continued despite warnings from managers inside
the bank.
Commerzbank processed thousands of transactions, over the course
of several years, through U.S. financial institutions involving
sanctioned parties, and engaged in practices, such as stripping out
identifying information, that prevented the payments from being
blocked, the documents show. The bank admitted Thursday in a
deferred-prosecution agreement that its conduct continued even
though senior management warned that the bank's practices for
Iranian clients "raises concerns."
Deficiencies in Commerzbank's anti-money-laundering compliance
program allowed Olympus Corp. to operate a corporate-accounting
fraud using special purpose vehicles, some of which Commerzbank
created at Olympus's direction using Commerzbank funds, the
documents said. Over the life of the fraud, numerous Commerzbank
employees in Singapore raised concerns about the Olympus business
and related transactions, but those concerns didn't lead to an
effective investigation and they weren't shared with staff in New
York responsible for compliance, the documents said.
The bank entered into settlements with the Federal Reserve, the
U.S. Department of Justice, the U.S. Department of Treasury's
Office of Foreign Assets Control, the U.S. Attorney for the
Southern District of New York, the New York Department of Financial
Services and the Manhattan District Attorney's office.
Under the settlement with New York's financial regulator,
Commerzbank will install an independent monitor and fire several
employees, including the head of anti-money-laundering, fraud and
sanctions compliance at the New York branch.
"When there was profit to be made, Commerzbank turned a blind
eye to its anti-money-laundering compliance responsibilities," said
Benjamin Lawsky, superintendent of the New York Department of
Financial Services, in a statement Thursday.
Commerzbank, in its statement, said the settlement will dent
fourth-quarter earnings by an additional EUR338 million ($360
million). That will see the bank swing to a loss in last year's
final quarter, for which the bank reported a preliminary net profit
of EUR77 million in February. That compares with EUR64 million a
year earlier and analyst forecasts for EUR36 million.
"We take these violations very seriously and deeply regret the
actions that led to today's announcements," said Commerzbank Chief
Executive Martin Blessing.
He said that the bank, which had cooperated with U.S. and New
York authorities, will continue to make changes to its systems,
training and personnel to address the deficiencies identified, and
noted that the bank plans to more than double its U.S.-based
compliance staff by 2016.
"The U.S. dollar business remains a central component of our
product suite to companies and financial institutions world-wide.
As an international bank, we have a keen interest in maintaining
the highest industry standards everywhere we do business," he
said.
Commerzbank will pay a total of $1.45 billion in penalties under
the settlement. The bank will pay $610 million to the Department of
Financial Services, $300 million to the U.S. Attorney's Office for
the Southern District of New York, $200 million to the Federal
Reserve, $172 million to the Manhattan District Attorney's office
and $172 million to the U.S. Department of Justice, according to a
statement from the New York regulator. A $258.6 million fine
assessed by the Treasury Department's Office of Foreign Assets
Control will be satisfied by the bank's payment to the U.S. Justice
Department, Treasury said in a statement.
Write to Samuel Rubenfeld at samuel.rubenfeld@wsj.com and Eyk
Henning at eyk.henning@wsj.com
Commerzbank's settlement over anti-money-laundering and
breaching sanctions against embargoed countries marks the third
largest of its kind for a European bank. In similar cases, France's
BNP Paribas SA in June agreed to pay nearly $9 billion and the UK's
HSBC PLC put down nearly $2 billion late 2012 for turning a blind
eye to money-laundering.
For the second-largest German bank by market value, the
settlement fine and the resulting additional burden for the
fourth-quarter profit is in line with what analysts had previously
expected. But the charge is still curbing Commerzbank's efforts to
reach an equity-capital ratio, a measure how well it can absorb
losses, of 10% of risk-weighted assets by the end of 2016.
A charge of around $1.4 billion would reduce the ratio to around
9.2% from 9.5% previously, analyst Matthew Clark from Nomura said
in a note published earlier in March.
Commerzbank's finance chief Stephan Engels in February said that
even after a U.S. settlement, the bank would meet capital-adequacy
requirements, allaying analysts' concerns that the lender looks
thinly capitalized compared with its European rivals. "I am not
concerned" about reaching a target of capital at 10%, he said at
that time.
Commerzbank shares barely reacted on the news, closing flat at
EUR11.99.
Write to Eyk Henning at eyk.henning@wsj.com
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