Confidential documents reveal the troubled German bank’s brazen campaign to win business in China by charming and enriching the political elite. Here are six key takeaways.
Foreign companies have long clamored for access to China, the world’s most populous country and second-biggest economy. But when Germany’s biggest lender, Deutsche Bank, set its sights on China nearly two decades ago, it was late to the game and faced fierce competition.
An investigation by The New York Times and the German newspaper Süddeutsche Zeitung found that, for Deutsche Bank, playing catch-up meant cutting corners and bending rules. It paid millions of dollars to Chinese consultants with access to politicians, hired dozens of relatives of China’s ruling Communist Party and showered some members of the political elite with lavish gifts, according to confidential bank documents that contain spreadsheets, emails, transcripts of interviews with top executives and internal investigative reports.
A spokesman for the bank did not respond to specific questions about the documents. In a written statement, Deutsche Bank said that it 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.”
“These events date back as far as 2002 and have been dealt with,” the statement said.
Here are six takeaways from the investigation.
Like other investment banks, Deutsche Bank learned early on that relationships were crucial to securing deals in China, particularly with the Communist Party elite who controlled most of the country’s assets.
Joseph Ackermann, who led Deutsche Bank from 2002 to 2012, turned to Lee Zhang, who had been running the Beijing office of a rival, Goldman Sachs, to help play catch-up. When Mr. Zhang joined Deutsche Bank, he quickly moved to get the bank a seat at the table for some of the biggest public offerings of China’s state-owned companies.
Mr. Zhang led a fast turnaround. Two years after having had virtually no presence in China, Mr. Ackermann was meeting with China’s president at the time, Jiang Zemin. The bank also footed the bill for golfing sojourns with high-profile guests, including the son of Wen Jiabao, then China’s premier.
“He introduced me to all sorts of people,” Mr. Ackermann said in an interview.
By 2006, Deutsche Bank played a leading role in the initial public offering of Industrial and Commercial Bank of China, the world’s biggest offering at the time. This not only brought the bank a windfall, but also gave it fresh bragging rights in China. By 2011, it topped Bloomberg’s rankings for banks managing initial public offerings in China and Asia, outside of Japan.
Deutsche Bank handed out gifts totaling more than $200,000 to Chinese officials, their relatives and the executives of top state-owned companies, the documents show.
Mr. Jiang, the president at the time, received a Bang & Olufsen sound system. The premier, Mr. Wen, was given a crystal horse, his Chinese zodiac animal. Other gifts included a bottle of 1945 Château Lafite Rothschild wine, cashmere coats, golf clubs and stays at luxury hotels. There was even a car seat, valued on internal documents as $3,977, that went to a top executive at the state-owned oil giant PetroChina.
“They said that’s what Goldman and JPMorgan are doing, so we should do it,” Mr. Ackermann said in the interview. “I don’t think Wen Jiabao would be somehow influenced by a gift of a few thousand.”
When Deutsche Bank wanted to buy a big stake in a Chinese bank in 2005, it hired a consultant named Huang Xuhuai. Mr. Huang helped provide information about competing bids, enabling Deutsche Bank to come in with the winning bid. Mr. Huang was paid more than $2 million. Though the bank knew Mr. Huang had close ties to the family of the premier, Mr. Wen, which might raise red flags, Mr. Huang was hired again and paid $3 million.
The bank made payments worth more than $14 million to seven consultants who helped it win deals with state-owned companies.
Deutsche Bank hired aggressively. Dozens of these new hires were young, inexperienced and very well connected, according to spreadsheets produced by lawyers for the bank. One was deemed “probably one of the worst candidates” by a senior bank executive. Nevertheless, he got the job. His parents were top executives at big state-owned companies.
Another applicant “cannot meet our standard,” an employee wrote in an email to colleagues. The candidate, the son of Liu Yunshan, China’s propaganda minister at the time, got an offer.
Even the candidates who were qualified were often assessed based on their connections. One banker noted that another candidate, Wang Xisha, whose father is now a member of the top Politburo Standing Committee, would “have access” to a state-owned automaker in Guangdong, where her father was a top official.
An internal bank investigation of 19 of these so-called relationship hires found that they helped bring the bank $189 million in revenue.
“It’s a relationship country,” Mr. Ackermann said in the interview. “Of course we cultivated these people.”
The internal bank documents show that while Deutsche Bank’s compliance officials didn’t put a stop to certain practices, some senior executives were uneasy.
When discussing whether to hire Mr. Huang as a consultant, for example, the bank’s head of compliance raised questions in an email. “My concern is this individual is fronting for someone else,” Polly Lee, head of compliance in Hong Kong, wrote to a senior executive, Till Staffeldt.
Mr. Staffeldt went on to become Deutsche Bank’s global chief operating officer in charge of compliance, regulation and preventing financial crime, a job he still holds.
Others were worried about the ties that Mr. Zhang cultivated, too. The head of Deutsche Bank’s investment banking at the time wrote to lawyers that he was “scared of how Lee Zhang was doing business and whether there was money being passed around in envelopes,” according to the documents.
A law firm hired by the bank later found that the circumstances around Mr. Huang’s hiring raised “red flags” that could have violated the Foreign Corrupt Practices Act.
In August, Deutsche Bank paid $16 million to settle allegations by the United States Securities and Exchange Commission that it used corrupt means to secure business in China and Russia. The bank was not required to admit wrongdoing. The bank’s internal documents show its legal counsel had warned executives that it could face penalties of more than $250 million from the S.E.C. related to China alone.
Asked about the previously undisclosed Deutsche Bank documents, Chandler Costello, an S.E.C. spokeswoman, said, “The S.E.C. does not comment on details of any investigation, but, as always, the S.E.C. is committed to pursuing violations of federal securities law, wherever or by whomever they may occur.”
In written responses to questions from The Times, Süddeutsche Zeitung and the German public broadcaster WDR, Mr. Ackermann, the former chief executive, said he had cautioned the bank’s staff that “no business is worth risking the bank’s reputation.” Though he pushed employees to increase revenue and profits in China, he said, “feeling pressure cannot excuse violating compliance rules and regulations or the law of the land.”