Deutsche Bank Violated Deferred Prosecution Deal With U.S. (2)

Deutsche Bank AG breached a deferred prosecution agreement with the U.S. Department of Justice after it was slow in reporting allegations by a whistleblower, dealing a setback to the firm’s attempts to resolve its legal issues.

Both parties agreed to extend an existing monitorship until February 2023 after the DOJ found Deutsche Bank in violation of the deal over its “untimely reporting” of accusations that it’s asset management arm DWS Group overstated its ESG credentials. The German lender detailed the finding in its annual report on Friday.

The monitor’s extended term adds to a number of legal headaches hanging over Chief Executive Officer Christian Sewing just as he emerges from a successful restructuring of Germany’s largest bank. Deutsche Bank on Thursday set higher mid-term targets for profitability and shareholder payouts, and said it’s counting in part on savings it hopes to reap from past investment in controls to keep costs in check.

Sewing’s compensation for last year jumped almost 20%, the annual report also showed, while the overall bonus pool increased by 13%. That’s after the bank reported its highest profit in a decade.

Read also: Deutsche Bank Raises Bonuses 13% After Best Year in Decade

The original deferred prosecution agreement concerned the bank’s hiring of finders and consultants. As part of its obligations in the January 2021 deal, Deutsche Bank agreed to pay approximately $80 million.

Other legal and regulatory challenges include an internal probe into staff’s widespread use of private communication channels, a lawsuit alleging mis-selling of foreign-exchange derivatives, and criticism from U.S. and German regulators of the bank’s deficient controls.

“The whole management team has been very attentive to ensure that we operate within the framework set by laws, regulatory requirements and our own policies,” Sewing said on Thursday while unveiling a new four-year plan. “We will not let up on this issue and aim to invest further in making our controls more robust, efficient and secure.”

The Justice Department told the Frankfurt-based bank late last year that it may have violated a criminal settlement by failing to inform prosecutors about an internal complaint tied to DWS, Bloomberg reported at the time.

Read more: DWS to Drop ESG System Slammed by Whistleblower

Desiree Fixler, the former head of sustainability at the asset manager, has alleged the firm had overstated its ESG commitments. U.S. prosecutors learned of the allegations only after they were made public in August by the Wall Street Journal.

DWS is now phasing out an ESG classification system criticized by Fixler, it said in its annual report, also published Friday. The decision means it will impose stricter limits on the kinds of financial products deemed to meet environmental, social or governance standards, in accordance with guidelines laid out under Europe’s Sustainable Finance Disclosure Regulation.

(Updates with compensation in fourth paragraph, DWS phasing out classification system in last.)

To contact the reporter on this story:
Steven Arons in Frankfurt at sarons@bloomberg.net

To contact the editors responsible for this story:
Dale Crofts at dcrofts@bloomberg.net

Christian Baumgaertel

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