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Why Little Can Be Done About the Alleged $227 Billion Deutsche Bank Money Laundering Scheme

- By Matt Winkler

The news around Deutsche Bank (DB) would be comical if it wasn't so serious. The German bank, according to the International Monetary Fund, is the single most systemically important bank of the global financial system. This is old news, but it hasn't changed. What's new is that Deutsche now has the Federal Reserve on its tail for what could turn out to be the most massive case of global money laundering in financial history.


Suspecting of shuttling over $227 billion illegally over eight years through an Estonian intermediary, the suspect transfers allegedly began in 2007, a year before the outbreak of the last financial crisis. Now Deutsche is getting embroiled in some of the seedier aspects of American politics. It has been a significant lender to the Trump Organization, and now it has senior congressional Democrats rooting around looking for connections to Russia in order to feed findings through to the ongoing Mueller investigation.

The current situation surrounding the embattled lender is akin to a snake eating its own tail. This is because the Fed, Congress, and the most systemically important bank in the world by the IMF's own admission all drink from the same trough. Consider, if we are to assume that the current probe by the Fed has credibility and that $227 billion in transactions were indeed dirty, then what exactly is supposed to be done about it? Any penalty imposed could seriously endanger the bank's eroding position.

Deutsche has been racking up losses for so long that its stock has collapsed 94% since 2007, and 50% in the last year alone. Shares are trading for 20% below book value. As of its last annual report, Deutsche reportedly had 72 billion euros worth (see page 104) of exposure to the eurozone PIIGS countries, those perpetually overleveraged sovereigns drowning in debt despite negative deposit rates throughout the eurozone. Its biggest European credit exposures outside of its native Germany are the U.K. and Italy, the former on the brink of crashing out of the European Union and the latter currently the epicenter of the ongoing though at-the-moment quiet European sovereign debt crisis. This snippet from Deutsche's previous annual report (see link above) is particularly revealing:


"We may be required to take impairments on our exposure to the sovereign debt of European and other countries if the sovereign debt crisis reignites. The credit default swaps into which we have entered to manage sovereign credit risk may not be available to offset these losses."



The latest eyebrow-raising news for Deutsche is a vague commitment for investment from the sovereign wealth fund of Qatar, something of a Middle Eastern loan shark. The country is currently suffering through a military blockade initiated by Saudi Arabia in addition to a diplomatic boycott by most of its gulf neighbors. To add insult to injury for Deutsche stockholders, Qatar reestablished full diplomatic relations with Iran back in August 2017, which adds another complication that could eventually expose Deutsche Bank to accusations of violating U.S. sanctions against Iran. The Trump Administration has already used this argument with Canada in spurring its arrest of Huawei Chief Financial Officer Meng Wanzhou late last year.

As the most systemically important bank in the world, there isn't much to be done about Deutsche's alleged $227 billion money laundering scheme. Like the Austrian Creditanstalt collapse of 1931 that helped spurred the global Great Depression, a Deutsche Bank collapse could end up being just as consequential. The institutions currently probing the bank then have virtually no choice but to give it a slap on the wrist at the very most.

As history rhymes, the ironic thing about all this is that Creditanstalt was taken over by none other than Deutsche Bank back in 1938 after Hitler united Germany and Austria. Now here we are 80 years later, it's the most systemically important bank in the world, and we're discussing the largest suspected money laundering operation in history by the same bank.

Disclosure: No positions.

This article first appeared on GuruFocus.