Deutsche Bank’s ties to Trump dominate hearing on AML reform

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WASHINGTON — Deutsche Bank's alleged failure to submit suspicious activity reports on transactions by companies associated with President Trump and son-in-law Jared Kushner loomed over a Senate Banking Committee hearing Tuesday meant to discuss efforts to reform anti-money laundering laws.

Democrats pressed regulators to investigate Deutsche Bank's risk management and internal controls following a New York Times article that said senior bank executives had squashed SARs prepared by compliance staff related to Kushner Companies, the Trump Foundation and other entities.

“Even state regulators or House Financial Services Committee subpoenas to Deutsche Bank can’t get at suspicious activity reports that are never filed — that are effectively quashed within the bank and never conveyed to the experts at Fincen in the Treasury Department and the financial watchdogs that are supposed to assess these transactions,” said Sen. Sherrod Brown, D-Ohio, the ranking member of the Senate Banking Committee. “We need to get to the bottom of what happened here. Everyone has to follow anti-money laundering laws and rules — you don’t get an exemption if you have a rich and powerful client.”

Kenneth Blanco, the director of the Financial Crimes Enforcement Network, said he was briefed on the article, but did not read it. When asked by Brown whether he was aware of the transactions at Deutsche Bank, he said he would not comment on whether Fincen is investigating.

“I’m not telling you I’m going to look at it, I’m not telling you I’m looking at it now, I’m not telling you I won’t look at it,” Blanco said. “I’ve read the information, Senator, and we’ll take whatever appropriate action needs to be taken, if action needs to be taken at all. I’m not going to say whether we’re doing something or not. I think that would be inappropriate. I think that’s unfair to the individuals. I think it’s unfair to the institution.”

Sen. Chris Van Hollen, D-Md., pushed Blanco even further, arguing that it would be “gross negligence” by Fincen if it has not been in contact with the whistleblower cited by the New York Times report.

“We don’t know the full accuracy of this report, but we have allegations from a whistleblower, who is now on the record,” Van Hollen said. “And I would just point out, if Fincen has not already been in touch with that whistleblower, in my view, that’s gross negligence, because the facts are in plain sight, or the alleged facts are in plain sight.”

Van Hollen also called on Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Brown to seek more information from Deutsche Bank on its anti-money laundering regime at the panel level, potentially on a confidential basis.

“I would suggest, Mr. Chairman and ranking member, this committee has a direct interest in protecting, making sure the anti-money laundering laws are obeyed,” Van Hollen said. “That is why this is a timely hearing. I would hope we would make arrangements on a confidential basis, if necessary, to get information regarding to enforcement of those money laundering laws.”

Sen. Elizabeth Warren, D-Mass., who was not in attendance at the hearing, submitted questions for the record about the article. Her questions to the witnesses ranged from whether it would be consistent with the Bank Secrecy Act to decline to file a warranted SAR to maintain a relationship with a lucrative client, to whether any of the Trump administration’s political appointees discussed or received any non-public information about Deutsche Bank, or financial transactions associated with Trump or Kushner.

The hearing came as the House and Senate are negotiating reforms to anti-money laundering laws. House Democrats, with the support of some Republicans, are pushing legislation to require companies to report their true owners at corporation, known as beneficial ownership. Sens. Doug Jones, D-Ala., Mark Warner, D-Va., Thom Tillis, R-N.C., and Tom Cotton, R-Ark., are separately negotiating legislation.

Regulators and law enforcement largely supported the creation of a centralized, national repository for beneficial ownership information.

“We support legislative action to improve the regime’s effectiveness,” said Grovetta Gardineer, senior deputy comptroller for bank supervision policy at the Office of the Comptroller of the Currency. “One suggestion is for Congress to establish a consistent, nationwide requirement that legal entities provide and update accurate beneficial ownership information. Such a requirement would ensure that financial institutions have a resource, such which they can verify beneficial ownership data provided when a company opens a bank account. Alternatively, Congress could consider creating a centralized database for the maintenance of the beneficial ownership information.”

Steven D’Antuono, financial crimes section chief at the Federal Bureau of Investigations, suggested that the central repository be kept at Fincen. Blanco said he would be open to having that repository at Fincen, as long as the agency is “resourced appropriately to take in that new data.”

Some Republicans have raised concerns that requiring companies to disclose their beneficial owners, rather than banks, would be overly burdensome to small businesses. But Blanco said Congress could create a regime that would impose minimal burdens.

“I think whatever regime, it should be simple, it should be concise,” Blanco said. “For example, if you mirror what the [Customer Due Diligence rule] does, it’s six questions, seven questions at best. It’s the information, it’s very basic information — date of birth, address, phone number, who are the beneficial owners. Very simple and we can make it work.”

Sen. Pat Toomey, R-Pa., said he was concerned businesses would be penalized if they inaccurately reported their beneficial ownership information, without realizing they didn’t report the information properly. He also questioned how reliable beneficial ownership information would be.

“I worry that would the owner be guilty of a crime or subject to civil penalty for having an inaccurate, portraying an inaccurate picture to the best of his ability,” Toomey said. “I also wonder if criminals would simply lie on the form. … Why couldn’t bad guys simply use an alias or otherwise disguise their true identity?”

Blanco said that even if criminals lie on the beneficial ownership information, the information provided would still help law enforcement track criminals down.

And Sen. Jack Reed, D-R.I., said a beneficial ownership requirement would be an investment in national security, despite some burdens on business owners.

“This rather than being kind of an annoyance for all of these upstanding citizens that are just forming these shell companies, this is really an investment in national security that would protect everyone,” Reed said.

As Congress mulls changes to anti-money laundering laws, the banking industry has also pushed for legislation to raise reporting thresholds for currency transaction reports and suspicious activity reports. Though law enforcement has urged Congress not to raise the reporting thresholds, saying the information they currently collect is useful.

Neither the witnesses nor the senators at the hearing discussed raising CTR and SAR thresholds, but Jones said in an interview that the thresholds are being debated.

“I’m not sure exactly where we are on all that,” Jones said. “It’s being discussed. There’s pros and cons to doing that.”

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