While Germany’s Deutsche Bank regularly makes headlines, it has usually not been for good reason.
Among its controversies are: billions of dollars of dirty Russian money funneled through the bank and questionable ties to U.S. President Donald Trump. Deutsche Bank also appeared in the Panama Papers, the 2016 disclosures that revealed how high-profile figures hid their wealth through difficult-to-trace companies and tax havens.
German authorities raided Deutsche Bank’s offices last year after employees allegedly helped clients set up the offshore companies found in the Panama Papers.
While the scandals made the bank’s name synonymous with financial fraud and shady banking, Deutsche Bank has denied some of the allegations of wrongdoing and is also taking drastic measures to improve its reputation.
In July, its new chief executive, Christian Sewing, announced a wholesale withdrawal from private equities and a return to its roots: retail and commercial banking.
The price of such down-scaling was painful — that same month the bank took investors by surprise when it announced layoffs of 18,000 employees.
But Deutsche Bank Ukraine has forged a different reputation, Joerg Bongartz, the bank’s CEO for central and eastern Europe, and Bernd Wurth, the bank’s branch chief officer in Ukraine, told the Kyiv Post in an interview.
Despite modest successes, Deutsche Bank Ukraine still faces challenges in the country.
Big bank, small branch
Deutsche Bank came to Ukraine in 2009, just a year after the financial crisis that rattled the global economy. Its headquarters had already been bailed out and faced heavy criticism for involvement in toxic loans and risky assets.
The idea was to “focus on corporate banking exclusively, from day one,” Wurth said.
After a complicated first year spent building the financial institution from scratch, the bank faced an unforeseen challenge when the 2014 EuroMaidan Revolution and Russia’s war in Donbas threw Ukraine into a severe recession.
While Ukraine was close to a technical default, the small size of the Ukrainian branch saved the bank.
“The bank was big enough to do business but small enough to be flexible in front of complex situations,” said Wurth.
Deutsche Bank Ukraine has around 40 employees and is considered a niche bank in the Ukrainian market, Wurth said. By comparison, Ukraine’s largest bank, Privatbank, employs 30,000 people in the country.
Deutsche Bank was also able to deliver hard currency to its clients, which helped build the Ukrainian branch’s credibility despite the turmoil surrounding the bank’s reputation.
A troubled history
Between 2010 and 2014, Russian criminals with ties to the Kremlin and the FSB used Deutsche Bank to move money to the West, laundering at least $20 billion in an operation called the Global Laundromat.
In a 2017 report, the bank claimed it was entirely unaware of the scam until its revelation by media and anti-corruption watchdogs.
The case was a further blow to Deutsche Banks’s reputation, already stained by disclosures in the Panama Papers investigation, which revealed in 2016 how offshore tax havens were used to hide billions of dollars.
Earlier this year, the bank also faced scrutiny in Washington over its financial dealings with Donald Trump. Trump borrowed more than $2 billion from Deutsche over two decades and sued the bank in 2008 after defaulting on a $45-million payment.
Deutsche is still in the crossfire between Trump and the Democrats, who issued a subpoena last April demanding the bank provide its documents related to the loans.
But that’s hardly where the controversies end. Between 2011 and 2018, Deutsche Bank paid $14.5 billion in fines in a case linked to Russian money.
If that wasn’t enough, the bank is also under investigation for its role in the most prominent banking scandal in European history. Denmark’s Danske Bank is accused of laundering €200 billion in Russian money through its branch, a sum transfer that Deutsche failed to report.
To its credit, a Deutsche Bank report leaked to the Guardian says the bank has stopped doing business with banks involved in the Laundromat scandal.
The report also states that it has “reduced its footprint” across the post-Soviet region and scaled down business activities in Russia.
Cleaning up
Asked about the bank’s troubled past, the pair sighed.
Bongartz was the first to speak after a brief silence, saying the bank has improved its anti-money laundering system thanks to an internal control security system and teams specialized in controlling transactions.
Wurth went further, stressing the crucial role of double regulators. Deutsche Bank Ukraine, he said, is under the scrutiny of both German regulators and the National Bank of Ukraine, and because Ukrainian regulations are more demanding, they take precedence.
The bank also says it now requires corporate business transaction recipients to be thoroughly reviewed, especially when dealing with “politically exposed persons” — or clients with shady pasts — in a program called Know Your Customer (KYC).
Keeping the shop clean
Deutsche Bank has also been involved in allegedly spying on its critics, including alleged snooping on journalists and whistleblowers, a practice that reportedly continued until the story broke in 2009 and the individuals responsible were sacked.
The situation has changed since then, Wurth said. Whistleblowers became “an essential tool to keep the shop clean.” At Deutsche Bank Ukraine, the whistleblower policy is now a cornerstone of anti-money laundering compliance, they said.
The two men added that Deutsche Bank has implemented a system that allows whistleblowers to draw attention to wrongdoing without fear of consequences, but they admitted that the clean-up appears to stop at the bank’s exit. Worth believes that even if the “financial system can identify the case,” the judicial system shouldn’t be involved.
Blueprint for the future
Both Bongartz and Wurth argued that retail and corporate banking has always been in the DNA of Deutsche Bank, so narrowing the bank’s focus and dropping equities was the most logical step to save the bank’s reputation.
Wurth summed up the spirit of the Ukrainian branch as: “Do what you preach, follow the rules and don’t forget the client.”
The two men also said that commercial banking is best adapted in developing countries and hope that the bank’s Ukrainian headquarters will serve as a model for expansion to other countries.
Wurth said they are working on a blueprint to replicate the model, “not as a copy and paste,” but as a roadmap for future branches of Deutsche Bank around the world. Bongartz mentioned Poland, where the bank’s branch is also switching from retail to commercial banking.
Virtuous circle
But Graham Barrow isn’t entirely convinced.
A British financial crime specialist and the co-host of “The Dark Money Files” podcast, Barrow works with emerging regulatory technology and non-governmental organizations to make financial controls more effective. Barrow also once worked in Deutsche Bank to address its failures.
While praising the exit from equities and high-risk Russian clients, Barrow believes Deutsche is simply ceasing to be a “correspondent” bank for dirty money.
Even though the bank is going back to retail and corporate banking, it will still need a bit of investment to function on a global scale, he said.
Asked about Deutsche Bank Ukraine, he confirmed that the bank’s clean-up is the result of a constant struggle between the global policy of the bank and the intense scrutiny Ukraine is facing for its high-level corruption.
The uneasy environment and the bad press about Deutsche over the past decade have created a virtuous circle, where the bank has to comply with stringent rules.
Lesson learned?
The struggle is not over yet. Deutsche Bank plans to set up a “bad bank” to hold tens of billions of euros in toxic assets — a revamp expected to cost up to 5 billion euros.
It will take time to recover, and Deutsche Bank is unlikely to clear a profit in 2019. Experts say shareholders will have to put up with no dividend payments for this year and 2020, but at least there will be no decreases in the value of their shares.
Wurth summed it up this way: “We learned our lessons, period. We went through very rough waters.
“Fortunately, that’s passed. Whatever you see in the press nowadays, that’s cases from the past reappearing for some reason. Being straight, honest, and following the rules, I think that’s the best attitude we can show. Now it’s up to us to live that.”
