Big Setback

Commerzbank Faces Record U.S. Fine

blessing-afp
Mr. Blessing faces up to a hefty fine.
  • Why it matters

    Why it matters

    Commerzbank is on the verge of agreeing to a settlement that would require it to pay a hefty fine of $1.45 billion in the United States.

  • Facts

    Facts

    • Commerzbank has allegedly violated U.S. sanctions and is being accused of having lax money-laundering rules.
    • The DFS has the authority to deprive banks of their licenses, giving the agency substantial influence.
    • DFS threatened to withdraw British bank Standard Chartered’s license for not being sufficiently cooperative.
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  • Audio

    Audio

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It looked as if Martin Blessing, the chief executive of Germany’s second-largest bank, was off to a good start this year.

His new retail strategy was beginning to pay off. Net income from retail banking in 2014 was at its highest in four years, and Mr. Blessing even considered paying a dividend – for the first time in his seven years in office.

But now the bank in Frankfurt must deal with its past once again.

Commerzbank is under pressure to reach a costly financial settlement with U.S. authorities — estimated to be $1.45 billion (€1.35 billion)  — for allegedly doing business with an Iranian shipping company in violation of U.S. sanctions.

If the bank agrees, the fine would be the highest in the bank’s history. The potential fine comes at a bad time for Commerzbank, which was saved from bankruptcy during the financial crisis through an €18 billion cash injection from the German government, which still owns an 18 percent stake in the institution and is its largest single shareholder.

Although Commerzbank has disclosed no details, participants in the talks say an agreement is imminent.

For the five American agencies involved, the fine is intended as punishment for Commerzbank having allegedly violated U.S. sanctions on doing business with Iran. The allegations involve business relationships between the bank and the Iranian shipping company IRISL from 2002 to 2007. The bank is also accused of violating money-laundering rules.

Money alone isn’t enough for the U.S. authorities, however.

Benjamin Lawsky, the head of the New York Department of Financial Services, or DFS, wants Commerzbank to dismiss several executives as well. According to sources, the bank already released two managers in its shipping division amid U.S. investigations a few years ago.

Mr. Lawsky also wants to send members of his team as overseers to ensure Commerzbank sticks to the rules.

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