DWS, a Deutsche Bank Subsidiary, Agrees to Pay $25 Million for AML Violations and ESG Misstatements

The Securities and Exchange Commission (SEC) has taken action against registered investment adviser DWS Investment Management Americas Inc. (DIMA or DWS), a subsidiary of Deutsche Bank AG, for multiple violations related to Anti-Money Laundering (AML) programs and misrepresentations regarding Environmental, Social, and Governance (ESG) investments. As part of the settlement, DWS will pay a total of $25 million in penalties.

Anti-Money Laundering Violations:

In the AML enforcement action, the SEC's order determined that DIMA caused mutual funds under its advisement to fail in developing and implementing an AML program consistent with the requirements of the Bank Secrecy Act and applicable Financial Crimes Enforcement Network regulations. The order further highlighted that DIMA also caused these mutual funds to neglect the adoption and implementation of policies and procedures designed to detect money laundering activities and provide AML training tailored to their business.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the significance of these AML obligations, particularly regarding mutual funds, stating that they require the establishment of individualized programs to prevent money laundering and terrorism financing.

Environmental, Social, and Governance Misstatements:

In the second enforcement action, the SEC's order revealed that DIMA made materially misleading statements regarding its processes for integrating ESG factors into research and investment recommendations for ESG integrated products. These products encompassed actively managed mutual funds and separately managed accounts. DIMA portrayed itself as an ESG leader with specific policies for ESG integration; however, between August 2018 and late 2021, it failed to adequately implement key elements of its global ESG integration policy as advertised.

Additionally, the order stated that DIMA fell short in adopting and executing policies and procedures reasonably designed to ensure the accuracy of its public statements concerning ESG integrated products.

Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, stressed the importance of consistency between advisers' representations and actions. In this case, DWS had marketed itself as deeply committed to ESG considerations, yet its investment professionals did not fully adhere to the ESG investment processes they had advertised.

As part of the settlements, without admitting or denying the SEC’s findings, DIMA consented to a cease-and-desist order and a $6 million penalty for the AML violation. For the ESG misstatements, DIMA agreed to a cease-and-desist order, censure, and a $19 million penalty.

These enforcement actions underscore the SEC's commitment to ensuring that investment advisers adhere to their fiduciary duties, comply with AML regulations, and provide accurate and transparent information to investors, especially in the context of ESG investments.