Deutsche Bank Subsidiary DWS Settles with SEC for $25M over Violating AML and ESG Investment Regulations

DWS Investment Management Americas Inc. (DIMA or DWS), a subsidiary of Deutsche Bank AG and a registered investment advisor, was charged by the U.S. Securities and Exchange Commission (SEC) in two separate enforcement actions. One of the actions addresses DIMA's lack of effort in developing a mutual fund Anti-Money Laundering (AML) program, while the other pertains to inconsistencies in its ESG investment process. DIMA has agreed to pay $25 million in total fines to settle the charges.

In the first enforcement action, the regulator found that DIMA was responsible for the failure of mutual funds under its guidance to establish an adequately designed AML program in accordance with the Bank Secrecy Act and relevant regulations set by the Financial Crimes Enforcement Network. Additionally, SEC stated that the company was also responsible for the mutual funds' failure to adopt and implement policies and procedures that could effectively identify suspicious activities related to money laundering and provide AML training tailored to the specific needs of the mutual funds' operations.

Gurbir S. Grewal, Director of Division of Enforcement at SEC, said: "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. Importantly, those AML obligations require mutual funds to establish and implement individualized programs to detect and prevent money laundering and terrorism financing. I congratulate the Asset Management Unit for bringing this important mutual fund AML enforcement action."

In the ESG action, DIMA has been accused by the SEC of making significant misrepresentations regarding its controls for incorporating ESG factors into its research and investment recommendations for ESG integrated products, such as certain actively managed mutual funds and separately managed accounts. DIMA positioned itself as a leading ESG entity and claimed to follow specific policies for integrating ESG considerations into its investments. However, between August 2018 and late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy, contrary to what it had conveyed to clients and investors. The regulator also stated that DIMA did not adopt and implement policies and procedures that would ensure the accuracy of its public statements about the ESG integrated products.

Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement and head of its Climate and ESG Task Force, commented: "Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words. Here, 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."

According to the SEC, DIMA’s failure in AML issues violates Rule 38a-1 under the Investment Company Act, while its failure in ESG issues violates Sections 206(2) and 206(4) of the Investment Advisers Act and Rules 206(4)-7 and 206(4)-8 thereunder. DIMA, without admitting or denying the SEC's findings, has agreed to a cease-and-desist order and a penalty of $6 million in the AML action; and to a cease-and-desist order, censure, and a $19 million penalty in the ESG misstatements action.

SEC enforcement is becoming increasingly strict. Over the past month, the regulator has taken enforcement actions against dozens of securities firms or funds, including Virtu​ and Citigroup Global Markets​, and has continuously formulated and revised new rules to adapt to the evolving and increasingly complex financial markets.