A judge in Frankfurt on Monday singled out Deutsche Bank’s risk management controls as totally inadequate in sentencing a former senior Deutsche Bank trader to three years in jail, and five others to suspended sentences, for helping international investors cash in €220 million ($249 million) in illegal tax refunds from the German government.
In delivering his verdict, the regional court judge in Frankfurt, Martin Bach, criticized the bankers and the bank’s internal controls system for failing to recognize and stop a sophisticated scheme in 2009 and 2010 to bilk the German Finance Ministry through the sale of CO2 carbon dioxide emissions trading certificates. An attorney for the bankers said he would appeal the court’s decision.
The bankers were convicted of structuring trades for six foreign investors that were specifically designed to trigger tax refunds from German authorities, even though the investors through sales of CO2 emissions trading certificates never paid any taxes. The illegal trading took place in 2009 and 2010 and the bank has since repaid the refunds to the German government.
The 55-year-old head of the bank’s CO2 emissions trading desk, identified in the German media as Heinz H., was sentenced to prison as the ringleader of the scheme, and his subordinates received suspended sentences. One other employee was acquitted.
Deutsche Bank is struggling under the weight of hundreds of investigations and fines, most incurred in and around the global financial crisis in 2008. The largest penalty so far, $2.5 billion, was imposed by British and U.S. regulators on the German bank for its role in an international ring to manipulate Libor interest rate benchmarks to generate illicit profits on trades.