Putin allies said to be behind scrutinized Deutsche Bank trades: Bloomberg

The U.S. Department of Justice is investigating whether Germany’s biggest bank properly vetted as much as $6 billion in transactions that may have masked the flow of money out of Russia, people familiar with the matter have said, Bloomberg reports.

The bank, which is carrying out its own review of the transactions, is looking into accounts connected to roughly a dozen entities for which it conducted so-called mirror trades between Moscow and London, said people with knowledge of the matter. In several cases, they said, assets in these accounts were said to belong to Putin associates, including a relative of the president and two of his longtime friends, Arkady and Boris Rotenberg, who grew rich fromcontracts with state-run firms and who are now under U.S. sanctions.

There’s no indication that the Rotenbergs or other individuals allegedly linked to the accounts are under investigation for the trades. The transactions -- in which a client can use money in one market to buy securities, while cashing out of similar securities in another market -- can be done legally. What U.S. prosecutors want to know is whether the bank violated U.S. banking laws, including whether it failed to comply with anti-money-laundering reporting practices.

Deutsche Bank declined to provide specifics of its review. It said it’s keeping regulators in the U.S. and Europe informed of its findings. The developing investigation casts a longer shadow over Deutsche Bank and its Moscow office, Bloomberg reports. In recent months, amid a broader slowdown in business in Russia, the bank has cut staff and closed its securities unit there.

Besides, the Frankfurt-based bank is already grappling with at least three other criminal probes in the U.S. and turnover in its executive suite. It expects to post billions of dollars in charges in part for mounting legal costs.

Any suspicion that prominent presidential allies sought to get cash out of the country would also clash with Putin’s frequent calls for Russians to invest at home. In late 2011, he began urging his country’s business elite to repatriate billions of dollars held offshore. The trades under review span 2011 to early 2015, people familiar with the matter have said.

Mirror trades trades are at the heart of the Russia issue. In a mirror trade, a client could buy securities in rubles through Deutsche Bank in Russia and then sell identical ones for foreign currency through the bank’s London office. Banks widely conduct these transactions legally, industry officials say, including on behalf of investors such as mutual funds that have limits on where they can hold securities.

Mirror trades could also be used in lieu of converting rubles to foreign currency and wiring the money abroad, potentially facilitating capital flight and circumventing money-laundering controls. 

It’s unclear whether any such trades violated Russian central bank rules governing currency transactions. The central bank, in an e-mail, declined to comment on a functioning bank.

In addition to the U.S. Justice Department, Britain’s Financial Conduct Authority and New York state’s Department of Financial Services are looking into the trades, people familiar with the matter have said.