Inside a German bank’s brazen Scheme to Woo China: Gifts, Golf and a $4,254 Wine
It was a brazen campaign to win business in China by charming and enriching the country’s political elite by Germany’s largest bank, funded by millions of dollars in baubles, electronic fineries and luxury trips – efforts that won in one area, but ultimately failed because they banked on bolstering revenues by bribery.
The bank gave a Chinese president a crystal tiger and a Bang & Olufsen sound system, together worth $18,000. A premier received a $15,000 crystal horse, his Chinese zodiac animal, and his son got $10,000 in golf outings and a trip to Las Vegas.
A top state banking official, a son of one of China’s founding fathers, accepted a $4,254 bottle of French wine — Château Lafite Rothschild, vintage 1945, the year he was born.
Millions of dollars were paid out to Chinese consultants, including a business partner of the premier’s family and a firm that secured a meeting for the bank’s chief executive with the president. And more than 100 relatives of the Communist Party’s ruling elite were hired for jobs at the bank, even though it had deemed many unqualified.
This was all part of Deutsche Bank’s strategy to become a major player in China, beginning nearly two decades ago when it had virtually no presence there. And it worked. By 2011, the German company would be ranked by Bloomberg as the top bank for managing initial public offerings in China and elsewhere in Asia, outside Japan.
The bank’s rule-bending rise to the top was chronicled in confidential documents, prepared by the company and its outside lawyers, that were obtained by the German newspaper Süddeutsche Zeitung.
The previously undisclosed documents, shared with The New York Times, cover a 15-year period and include spreadsheets, emails, internal investigative reports and transcripts of interviews with senior executives.
The documents show that Deutsche Bank’s troubling behavior in China was far more extensive than the authorities in the United States have publicly alleged. And they show that the bank’s top leadership was warned about the activity but did not stop it.
Josef Ackermann, the bank’s chief executive until 2012, said in an interview with The Times and separately in answers to written questions that he was not familiar with many of the details contained in the documents. But he defended the bank’s broader practices.
“This was part of doing business in this country,” Mr. Ackermann said. “At the time, this was the way things were done.”
For years, Deutsche Bank has been a poster child for misconduct in the finance industry. Regulators and prosecutors around the world have imposed billions of dollars in penalties against the bank for its role in a wide range of scandals.
Most recently, the bank has been under investigation for the facilitation of money laundering in Russia and elsewhere.
In August, the bank agreed to pay $16 million in a settlement with the United States Securities and Exchange Commission related to allegations that it had used corrupt means to win business in both China and Russia, violating anti-bribery laws, though it did not admit wrongdoing.
That penalty, the documents show, amounted to a small fraction of the revenues gained in China from business stemming in part from the activities.
The bank’s outside lawyers had warned executives in 2017 that they could face a penalty of more than $250 million from the S.E.C. related to China.
There is no evidence that German regulators investigated the bank’s activities in China, though they were alerted to some of it, according to the documents, (via the NY Times).
Monroe’s Musings: This story has played out several times with different banks engaging in similar activities in recent years.
Just more than a month ago, the SEC penalized one of London’s largest banks more than $6 million for broad corruption failings by illicitly trying to boost its investment banking business by hiring the friends and relatives of powerful foreign government officials – bringing the total number of banks to fall for similar actions to nearly a half-dozen.
In the penalty order, the SEC stated Barclays PLC would pay $6.3 million to settle charges that it violated the U.S. Foreign Corrupt Practices Act (FCPA) by hiring the relatives and friends of foreign government officials in a bid improperly influence them in connection with its investment banking business.
In recent years, some half-dozen of the world’s largest banks – including Credit Suisse, Societe Generale, JPMorgan Chase and others – have paid regulatory and investigative agencies hundreds of millions of dollars for offering coveted internships and similar instruments to get an edge in certain business deals, colloquially dubbed the “princelings” scandal.
As in other past cases, the graft gaffes occurred in Asia, where some countries still consider bribery and influence peddling as part and parcel of standard business practices.
Until banks realize they can’t use graft to win business in regions where corruption is commonplace, like China, which is going through its own spasms to counter longstanding corruption in its ranks, these actions will continue to occur, tempting business lines to engage in illicit practices and hurting the reputation of the banks they work.