The U.S. advisory unit of Deutsche Bank AG is being sanctioned by the U.S. Securities and Exchange Commission (SEC) for violations involving alleged greenwashing and deficient anti-money laundering (AML) controls at its mutual funds.
Without admitting or denying the regulator’s charges, DWS Investment Management Americas Inc. agreed to pay US$25 million to settle the charges: US$19 million for the greenwashing allegations and US$6 million for AML violations.
In one settlement, the SEC’s order alleged the firm made “materially misleading statements” about the ESG investment processes used for certain actively managed mutual funds and separately managed accounts.
The regulator charged that the firm billed itself as a leader in ESG, but that it didn’t fully implement certain provisions of its global ESG integration policy, and failed to adopt policies and procedures to ensure that its public statements about its ESG integrated products were accurate.
“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,” said Sanjay Wadhwa, deputy director of the SEC’s enforcement division and head of its climate and ESG task force, in a release.
“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.”
Separately, the SEC also alleged that the firm didn’t ensure the mutual funds it advised had adopted adequate AML policies.
“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 Grewal, director of the SEC’s enforcement division.
“Importantly, those AML obligations require mutual funds to establish and implement individualized programs to detect and prevent money laundering and terrorism financing.”
In a statement following the settlements, DWS said it was “pleased to have resolved these matters that relate to certain historic processes, procedures and marketing practices the firm has since addressed.”
The firm stressed that the regulators did not uncover any misstatements in its financial disclosures or mutual fund filings.
“The [SEC’s] order also makes clear that there was no intent to defraud, and the weaknesses identified by the SEC are in relation to processes and procedures that the firm has already taken steps to address,” it said.
“The order also does not find that DWS Investment Management Americas (DIMA) staff were not integrating ESG factors into the investment process. Instead, the order focuses on the fact that DIMA lacked processes and procedures to evidence that such integration was documented in a consistent manner,” it added.
The firm also noted that it has bolstered AML procedures in its U.S. mutual fund business since 2020.
“We have learned many lessons from the ever-evolving regulatory environment and are fully committed to continuing to improve,” it said.