Deutsche Bank has also been fined $425m (£340m) fine by the New York state department of financial services (DFS), which conducted a jointed investigation with the FCA.

The UK regulator said its £163,076,224 penalty for failing to maintain an adequate AML control framework between 1 January 2012 and 31 December 2015 was the largest ever imposed by the FCA, or its predecessor the Financial Services Authority (FSA), for AML failures.

The FCA said Deutsche Bank exposed the UK financial system to the risks of financial crime by failing to properly oversee the formation of new customer relationships and the booking of global business in the UK.

It found that over the four-year period, Deutsche Bank’s corporate banking and securities division (CB&S) in the UK performed inadequate customer due diligence and failed to ensure that its front office took responsibility for the CB&S division’s know your customer obligations.

The FCA said the bank used flawed customer and country risk rating methodologies, had deficient AML policies and procedures and an inadequate AML IT infrastructure, and lacked automated AML systems for detecting suspicious trades. The bank failed to provide adequate oversight of trades booked in the UK by traders in non-UK jurisdictions.

These failings allowed the front office of Deutsche Bank’s Russia-based subsidiary (DB Moscow) to execute more than 2,400 pairs of trades that mirrored each other between April 2012 and October 2014.

The mirror trades were used by customers of Deutsche Bank and DB Moscow to transfer more than $6bn from Russia, through Deutsche Bank in the UK, to overseas bank accounts, including in Cyprus, Estonia, and Latvia. The orders for both sides of the mirror trades were received by DB Moscow, which executed both sides at the same time.

The customers on the Moscow and London sides of the mirror trades were connected to each other and the volume and value of the securities was the same on both sides. The purpose of the mirror trades was the conversion of roubles into US dollars and the covert transfer of those funds out of Russia was highly suggestive of financial crime, the regulators found.

A further $3.8bn in suspicious ‘one-sided trades’ also occurred. The FCA believes that some, if not all, of an additional 3,400 trades formed one side of mirror trades and were often conducted by the same customers involved in the mirror trading.

Mark Steward, director of enforcement and market oversight at the FCA, said: ‘Financial crime is a risk to the UK financial system. Deutsche Bank was obliged to establish and maintain an effective AML control framework. By failing to do so, Deutsche Bank put itself at risk of being used to facilitate financial crime and exposed the UK to the risk of financial crime.’

DFS found that Deutsche Bank and several of its senior managers missed key opportunities to detect, intercept and investigate the scheme, while the bank’s AML and compliance units were understaffed and ineffective. Its investigation with the FCA of the mirror trades found that the counterparties involved were always closely related, often linked by common beneficial owners, management or agents.

The trades were routinely cleared through the bank’s Deutsche Bank Trust Company of the Americas (DBTCA) unit. The selling counterparty was typically registered in an offshore territory and would be paid for its shares in US dollars. At least 12 entities were involved, and none of the trades demonstrated any legitimate economic rationale.

Deutsche Bank agreed to settle at an early stage of the FCA’s investigation and therefore qualified for a 30% discount. This discount does not apply to the £9.1m in commission that Deutsche Bank generated from the suspicious trading, which has been disgorged as part of the overall penalty meaning that the firm has received no financial benefit from the breach. Were it not for the 30% discount the financial penalty would have been £229,076,224.

The FCA described Deutsche Bank as ‘exceptionally cooperative’ during the investigation and said the bank has committed significant resources to a large scale remediation programme to correct the deficiencies in its AML control framework and customer files.

As well as imposing a $425m penalty, DFS has ordered Deutsche Bank to engage an independent monitor, approved by DFS, to conduct a comprehensive review of the bank’s existing AML compliance programs, policies and procedures that pertain to or affect activities conducted by or through its DBTCA subsidiary and the New York branch.

The FCA final notice regarding Deutsche Bank is here.

The New York state department of financial services consent order is here.