Deutsche Bank's strategy to become a major player in China began nearly two decades ago when it had virtually no presence there. And it worked. By 2011, the German company would be ranked by Bloomberg as the top bank for managing initial public offerings in China and elsewhere in Asia, outside Japan.
The strategy: to win business in China by charming and enriching the country's political elite.
The bank gave a Chinese president a crystal tiger and a Bang & Olufsen sound system, together worth $18,000. A premier received a $15,000 crystal horse, and his son got $10,000 in golf outings and a trip to Las Vegas. A top state banking official, a son of one of China's founding fathers, accepted a $4,254 bottle of French wine.
Millions of dollars were paid out to Chinese consultants, including a business partner of the premier's family and a firm that secured a meeting for the bank's chief executive with the president. And more than 100 relatives of the Communist Party's ruling elite were hired for jobs at the bank, even though it had deemed many unqualified.
The bank's rise to the top was chronicled in confidential documents, prepared by the company and its outside lawyers, that were obtained by German newspaper Suddeutsche Zeitung. The previously undisclosed documents, shared with The New York Times, cover a 15-year period and include spreadsheets, emails, internal investigative reports and transcripts of interviews with senior executives.
The documents show that Deutsche Bank's under-the-table deal-making in China was far more extensive than authorities in the United States have publicly alleged. And they show that the bank's top leadership was warned about the activity but did not stop it.
Josef Ackermann, the bank's chief executive until 2012, said in an interview with The Times and separately in answers to written questions that he was not familiar with many of the details contained in the documents. But he defended the bank's broader practices.
"This was part of doing business in this country," Ackermann said.
For years, Deutsche Bank has been a poster child for misconduct in the finance industry. Regulators and prosecutors around the world have imposed billions of dollars in penalties against the bank for its role in a wide range of scandals. Most recently, the bank has been under investigation for the facilitation of money laundering in Russia and elsewhere.
Deutsche Bank -- which for two decades was the primary lender to President Donald Trump -- also has been under scrutiny by two congressional committees and by state prosecutors in New York who are investigating Trump's finances.
In August, the bank agreed to pay $16 million in a settlement with the U.S. Securities and Exchange Commission related to allegations that it had used corrupt means to win business in both China and Russia, violating anti-bribery laws, though it did not admit wrongdoing.
That penalty, the documents show, amounted to a small fraction of the revenue gained in China from business stemming in part from the activities. The bank's outside lawyers had warned executives in 2017 that they could face a penalty of more than $250 million from the SEC related to China. There is no evidence German regulators investigated the bank's activities in China, though they were alerted to some of it, according to the documents.
Reasons for concern appear throughout the documents, which include internal investigations conducted by two law firms, Gibson, Dunn & Crutcher and Allen & Overy, at the time of the SEC's action.
Deutsche Bank, the documents show, dispensed hundreds of thousands of dollars to secure meetings for top executives with China's leadership. An obscure company received $100,000 to arrange a 2002 meeting between Ackermann and Jiang Zemin, then the country's president.
In all, the documents show, the bank paid seven consultants more than $14 million, including for help buying a stake in a Chinese bank and winning coveted assignments from state-owned companies. Some of the payments were flagged internally as problematic but allowed to go through.
The bank, at least in part through its hiring of people with political connections, won hundreds of millions of dollars in Chinese deals. Such hires can be illegal if they are done in exchange for business. The bank's outside lawyers calculated that just 19 of its so-called relationship hires helped bring in $189 million in revenue, including a plum assignment in 2006 managing a state bank's market debut, then the biggest initial public offering in history.
Tim-Oliver Ambrosius, a spokesman for the bank, did not respond to specific questions about the documents. In a written statement, he said the company had "thoroughly investigated and reported to authorities certain past conduct," adding that the bank had "enhanced our policies and controls, and action has been taken where issues have been identified."
When Ackermann was picked in 2000 as the next chief executive, his ambition was for Deutsche Bank to be universally recognized as a global leader. A first step for the bank was poaching Lee Zhang, head of Goldman Sachs' Beijing office. Zhang was fluent in the ways of both China and Western business.
Zhang began hiring aggressively. Many of his recruits were young, inexperienced and well-connected. They came to know him as Uncle Zhang.
"It's a relationship country," Ackermann said in the interview. "Of course we cultivated these people."
Business on 10/17/2019
Print Headline: Documents detail bank's pay-to-play strategy in China