Deutsche Bank paid US$1.1m to secure the wealth management business of a senior Saudi royal, according to an internal probe that led to two former staff being reported to criminal prosecutors.
The scandal in the wealth management division, which involved payments to the wife of the royal's financial adviser, highlights the legal and reputational risks to a unit that is central to the German bank's turnaround hopes.
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The money transfers were arranged in 2011 and 2012 alongside other perks for the adviser's family, including an internship and a seminar at a Swiss ski resort, according to the results of the probe, seen by the Financial Times.
The internal investigation between 2014 and 2016, codenamed Project Dastan, found the Deutsche employees involved were trying to retain the wealthy client and win additional business.
Some of the pay and perks violated Deutsche's policies on anti-corruption and gifts and entertainment, the probe found.
Six employees left after the investigation; some of them have since taken senior roles at Barclays, UniCredit and Union Bancaire Privée. Twelve staff had their bonuses suspended.
Deutsche reported two former Germany-based employees to criminal prosecutors in Frankfurt for suspected bribery and embezzlement. Prosecutors told the FT that their investigation was ongoing.
However, both employees challenged their dismissals in court. One won and Deutsche settled the other case.
Adviser's daughter invited to ski resort seminar
The internal review found that between December 2011 and December 2012, the lender transferred $1.1m in four tranches to an offshore company based in the British Virgin Islands that was owned by the adviser's wife and set up by Deutsche's subsidiary in Mauritius. One of the transfers was called an "exceptional retrocession payment", while another was labelled a "goodwill payment".
Deutsche's inquiry found that the lender had not been required to pay any "retrocession" fees, a controversial yet common practice in wealth management involving commission payments to a person who finds and introduces a new rich client.
Seeking internal approval to pay such a finder's fee, Swiss-based Deutsche employees incorrectly described the woman as a key intermediary who introduced the client to the bank, the probe found.
In one internal email, a Deutsche employee argued that the money may help to "persuade the client to upsell / invest existing large cash balances".
Deutsche also gave an internship in its London legal department to a niece of the royal's financial adviser. The bank found it had paid for her travel and accommodation, in violation of its policies.
The bank made the internship offer after the Saudi adviser warned not doing so would "jeopardise the whole client relationship" and implied the client's cash might be moved elsewhere.
Deutsche also invited the adviser's daughter to a "Next Generation Seminar" for children of the super-rich held in the luxury Swiss ski resort of St Moritz. The daughter did not meet the age requirements of the meeting, the probe found, and Deutsche — again contrary to its own guidelines — funded her travel.
"This was an action by a small number of individuals who acted in breach of the bank's policies," Deutsche told the Financial Times. "We caught it, reported it ourselves to regulators and the affected clients, dealt appropriately with the individuals, and made improvements to avoid something similar happening again."
The House of Saud, which counts around 2,000 members in its inner circle, is one of the richest global families. The unnamed royal was a Deutsche wealth management client from 2010 to 2016, bringing up to €500m in assets.
Trouble in a 'beautiful' business
Today, Deutsche's wealth management unit is one of the core pillars of its attempted overhaul, which aims to refocus the lender on such relatively stable areas. Claudio de Sanctis, who has been running the unit since late last year, has described it as a "beautiful business".
However, wealth management has been dogged by repeated compliance foul-ups. Last year it agreed to pay €15m to German law-enforcement authorities for "shortcomings in its control environment", which the bank said had already been addressed.
Senior Deutsche executives stress that since 2015 the unit has pulled out of about 60 high-risk countries, cut ties with more than 4,000 questionable clients and sold operations based in offshore tax havens.
The contentious payments to the Saudi financial adviser's wife predate such changes and were discovered during the Project Dastan probe, which initially focused on so-called "relationship hires" — the controversial practice of hiring friends and relatives of wealthy clients, which had come under scrutiny from global regulators.
Last August, Deutsche agreed to pay US$16.2m to settle civil allegations that for years it hired relatives of Chinese and Russian government officials in return for business. Hiring people connected to the Saudi royal family was not mentioned in the US Securities and Exchange Commission's "cease and desist" order.
JPMorgan in 2016 settled a US probe into similar practices for US$264m. Two years later, Credit Suisse paid US$77m to settle two US investigations.
Five employees suspended
Five senior Deutsche Bank employees were suspended over their different levels of involvement in the Saudi matter and left the company. The bank cancelled their outstanding deferred bonuses.
Switzerland-based Serene El Masri, the then-head of wealth management for the Middle East and Africa, and another wealth manager resigned a few days after their suspension.
Danny Bower, head of business strategy and development at Deutsche Bank Suisse, also left the bank.
The bank sacked two unnamed senior executives in Germany and reported them to Frankfurt prosecutors for suspected bribery and embezzlement, although they successfully challenged their dismissal in civil cases.
Ms El Masri, now the head of the Monaco branch of Swiss private bank Union Bancaire Privée, confirmed that she resigned from her role at Deutsche almost four years ago. Her lawyer said that "it has been confirmed that she did not commit any fraud. No legal action has been filed against her," adding that no regulator had opened an investigation or issued a sanction against her.
Mr Bower now works as chief risk officer at Barclays Private Bank in Switzerland. Barclays declined to comment on his behalf. The British bank was aware of the controversy at Deutsche and made the appropriate disclosures to the Swiss regulator when it hired Mr Bower, according to a person briefed on the matter.
Deutsche also significantly cut the 2015 bonus of Marco Bizzozero, then head of wealth management for Europe, the Middle East and Africa, arguing he should have been more critical of certain information presented to him by colleagues. However, the bank decided not to undertake any disciplinary process against him.
Mr Bizzozero, who left a few months after the probe, is now chief executive of group wealth management at UniCredit. He declined to comment, citing confidentiality agreements.
Another former employee involved said that the wife of the adviser was a proper client "finder" and a legitimate payments contract had been approved by more senior executives at the bank.
German regulator BaFin and Swiss regulator Finma declined to comment. The Saudi government media office did not respond to a request for comment.
- Additional reporting by Simeon Kerr in Dubai.
Written by: Olaf Storbeck, Stephen Morris and Arash Massoudi
© Financial Times 2019