The Financial Conduct Authority (FCA) has fined Deutsche Bank £163m for failing to prevent 'Russian mirroring' trades between 2012 and 2015.
In addition, the bank agreed to pay US state banking regulator, the New York Department of Financial Services, $425m for the same failings.
Deutsche Bank failed to prevent transfers of about $10bn of unknown origin from Russia to offshore bank accounts in a way that was "highly suggestive of financial crime" to the regulator.
As a result it exposed the UK financial system to the risks of financial crime, the FCA said.
FCA director of enforcement and market oversight Mark Steward 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."
He added: "The size of the fine reflects the seriousness of Deutsche Bank's failings. Other firms should take notice of today's fine and look again at their own AML procedures to ensure they do not face similar action."
The FCA said it found problems throughout Deutsche Bank's AML control framework. This allowed the front office of Deutsche Bank's Russia-based subsidiary (DB Moscow) to execute more than 2,400 pairs of trades that mirrored those carried out in London between April 2012 and October 2014, the regulator said.
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 customers on the Moscow and London sides of the mirror trades were connected to each other and the volume and value of the transfers was the same on both sides, the FCA said.
The purpose of the mirror trades was the conversion of Roubles into US Dollars and the covert transfer of those funds out of Russia, it added.
A further $3.8bn in suspicious "one-sided trades" also occurred. The FCA said it believes some 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.
Deutsche Bank was "exceptionally cooperative with the FCA" and agreed to settle at an early stage of the FCA's investigation and therefore qualified for a 30% discount, the FCA said.
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