Ahead of the bank’s annual general meeting on 18 May, ISS has put out a briefing which says it supports proposals originally put forward by shareholder Marita Lampatz for three special audits at Deutsche Bank.

Two of these audits would investigate manipulation of Libor/Euribor, for which the bank was forced to pay a total of $2bn (£1.55bn) in fines and penalties in 2016; the third audit would investigate the bank's activities aiding Russian investors to launder $10bn in the period from January 2011 to December 2015, for which Deutsche Bank paid a $425m fine to the NY State Department of Financial Services and £163m to the FCA, in January 2017.

The ISS note states: ‘Deutsche Bank continues to deal with a number of legal proceedings and regulatory investigations that could have a significant impact on shareholder value.

‘While last year we believed that three of the four proposed investigations did not appear to add significant value for shareholders, the special audits this year would specifically examine potential management and supervisory board breaches of duty in connection with the aforementioned legal and regulatory matters, and warrant support, particularly in light of questions about how the bank is handling internal investigations into these matters.’

On the FCA investigation of the Libor and Euribor manipulation, which culminated in a £100.8m fine, the special audit would investigate whether the penalty was imposed by authorities because Deutsche Bank management obstructed and/or misled investigations, and/or provided inaccurate and misleading statements to the authorities;  and whether they created or did not eliminate an environment that allowed for failures during the course of the authority's investigation.

It would also look at whether the bank’s management  failed to provide accurate information to the authorities regarding audio recordings and to produce documents in an appropriate timeframe, as well as whether they knowingly destroyed documents despite the FCA’s preservation notice.

Lampatz, who first brought the shareholder resolution, has noted that the report of the bank's internal investigation has not yet been published, thus failing to clarify the surrounding concerns in connection with the breach that led to the penalty imposed by the FCA.

She adds that the group's internal investigation only covered the period between August 2013 and February 2014, while the breaches indicated by the FCA occurred during the period from 4 February 2011 to 1 May 2014.

In her view, this makes the special audit necessary in order to examine the appropriateness of the measures taken by the incumbent members during the whole period indicated by the FCA.

The money laundering special audit would investigate what conduct by management and/or supervisory board members led to the resulting fines; whether they knew, or should have known, that material duties relating to conduct were breached; and why no adequate anti-money laundering program was established and observed in order to hinder and/or prevent money laundering in Russia.

Lampatz’s argument in favour of an independent investigation by a special auditor appointed by the annual meeting is that Deutsche Bank has admitted to conducting business in an unsafe and prohibited manner, failing to establish an effective and compliant anti-money laundering program, failing in its bookkeeping, and failing to establish an effective and compliant risk assessment system.

ISS outlines its reasons for supporting her proposals for special audits by saying: ‘While Deutsche Bank's management has become increasingly apologetic, and while a number of programs with regard to financial crime, as well as risk and control systems, are indeed in place (and are improving), we nonetheless remain concerned about the bank's ability to internally investigate matters of compliance and control, especially when it comes to the involvement of individual supervisory and management board members.

‘Of note are the management and supervisory boards' parallel investigations into the role of each in the Libor scandal.

'Neither of the investigations were discussed in the company's annual report, nor made public for shareholders to scrutinize. Similarly, the internal investigation into the money laundering scandal has not been detailed for shareholders, nor have the names of the individuals involved been made public. It is unclear on what basis the bank concluded that violations occurred.’

ISS says that this ‘overwhelming lack of clarity’ means that it is backing the special audits on the basis that these ‘will, once and for all, put all these allegations and uncertainties at the bank's top leadership level to rest.’

The advisory group does not, however, support other shareholder proposals to vote against the re-election of the Deutsche Bank chairman or in favour of discharging other members of the bank’s board.

Report by Pat Sweet