Commerzbank AG (CRZBY)

[Enterprising Investor]

Commerzbank Said Poised for U.S. Settlement to End Probes (3/09/15)

By Keri Geiger and Greg Farrell

(Bloomberg) -- Commerzbank AG is poised to put a half-decade of legal woes behind it as it prepares to settle parallel U.S. investigations into sanctions violations and allegations about the bank’s role in one of Japan’s biggest accounting scandals, according to two people familiar with the matter.

The bank is prepared to enter this week into an agreement with the Justice Department to avoid at least three criminal prosecutions, one of the people said. It will pay as much as $1.45 billion in settlements with nearly a half-dozen government agencies, which also include the Manhattan District Attorney, the Federal Reserve and the U.S. Treasury Department.

New York’s Department of Financial Services will require the bank, Germany’s second-largest lender, to install a monitor and will seek senior executives’ resignations, said the two people familiar with the investigation, who asked not to be named because the discussions aren’t public.

Duncan King, a company spokesman, and spokesmen for the government agencies, all declined to comment.

The settlement is notable for combining investigations of two distinct areas into one deferred-prosecution agreement, a deal that puts pressure on the bank to overhaul its compliance and regulatory functions.

Blacklisted Countries

In one of the probes, officials have investigated whether the bank violated U.S. sanctions laws by doing business with countries blacklisted by the Treasury Department, including Iran. Commerzbank is among more than a dozen banks that have been under scrutiny for sanctions violations over the past decade.

In the second case, it had been scrutinized for failing to report suspicious activities at Olympus Corp., whose $1.7 billion accounting scandal shook Japan in 2011.

Commerzbank last year bolstered the money it reserves for legal issues. Record low interest rates and faltering economic growth in Europe have made it harder for the company to hit its targets, Chief Executive Officer Martin Blessing has said.

Germany’s federal government still has a 17 percent stake in the bank after bailing it out in 2009 in the wake of the financial crisis.

The U.S. Attorney for the District of Columbia is expected to file Commerzbank’s deferred-prosecution agreement as early as Tuesday, according to the people. The firm will pay at least a combined $1.45 billion to the Justice Department, the Federal Reserve, the Manhattan District Attorney’s office and New York’s DFS.

Accounting Fraud

The firm had been under investigation by the Manhattan District Attorney for years over potential sanctions violations when federal prosecutors in Manhattan opened a separate probe over violations related to the $1.7 billion accounting fraud at the Japanese maker of cameras and endoscopes.

In 2012 three former Olympus executives including ex-Chairman Tsuyoshi Kikukawa pleaded guilty for covering up losses for 13 years starting in the 1990s. A former Commerzbank banker admitted in court in 2013 to aiding the conspiracy. He has cooperated with the government’s probe in hopes of leniency.

Of the total settlement, $610 million will go to New York’s DFS, of which $300 million for money-laundering violations and $310 million for sanctions breaches, one of the people said. An additional $300 million will go to the U.S. Attorney for the Southern District of New York for money laundering violations, $170 million to the Justice Department for sanctions violations and $170 million to the District Attorney of New York, also for sanctions violations, the person said.

Finally, $200 million will go to the Federal Reserve and the penalty due the Office of Foreign Assets Control, which is part of the Treasury Department, will be satisfied by the bank’s payment to the Justice Department, the person said.

Big European financial firms including HSBC Holdings Plc, Deutsche Bank AG and Barclays Plc have consented to monitors in accords with U.S. authorities in recent years. In December, U.S. prosecutors said Standard Chartered Bank Plc’s oversight from a 2012 settlement would be extended for three years and include an independent monitor for its sanctions-compliance program after investigators got new information on how the firm handled certain international transactions.

http://www.bloomberg.com/news/articles/2015-03-09/commerzbank-said-poised-for-u-s-settlement-to-end-probes