A subsidiary of Deutsche Bank, DWS Investment Management Americas, has agreed to pay a $25 million penalty in two separate settlements with the Securities and Exchange Commission (SEC), addressing alleged misstatements in environmental, social, and governance (ESG) investments and anti-money laundering (AML) violations.
The SEC has announced that DWS had been fined $19 million as part of the ESG action and $6 million for the AML lapses. The bank has previously faced penalties over its AML controls, while the ESG matter attracted significant attention last year following the resignation of then-DWS Chief Executive Asoka Woehrmann amid an investigation by German officials into allegations of greenwashing.
The SEC found that DWS marketed itself to clients and investors as a leader in ESG, using terms like "top of mind" to describe its attitude toward the subject, despite not properly adopting and implementing policies and procedures to ensure such public representations were not misleading. The alleged issues occurred from August 2018 until late 2021. Communication lapses were also noted; some DWS senior portfolio managers were not aware of the firm’s ESG integration policy.
"DWS advertised that ESG was in its 'DNA,' but, as the SEC's order finds, its investment professionals failed to follow the ESG investment processes that it marketed," said Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement and head of its Climate and ESG Task Force.
In terms of the AML violation, DWS was faulted for failing to develop and implement a reasonably designed AML program to comply with the Bank Secrecy Act. From January 2017 until December 2021, DWS did not have an AML compliance program specifically for mutual funds. Instead, it adopted an incompatible AML program designed for the U.S. operations of Deutsche Bank.
"The SEC's order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement.
In response to these charges, DWS settled and agreed to pay the fines without admitting or denying the allegations. The company also agreed on cease and desist orders on both counts and additional censure on the ESG infringement.
DWS has since modified its relevant processes, policies, procedures, and controls related to ESG and adopted a standalone AML compliance program specific for its mutual funds business in December 2021. By April 2022, DWS ceased using its problematic transaction monitoring system and overhauled its AML training program for relevant employees by late 2022.
"We are pleased to have resolved these matters that relate to certain historic processes, procedures, and marketing practices the firm has since addressed," said DWS in a statement. The firm noted that the ESG matter did not allege misstatements in relation to financial disclosures.
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