Japan's securities market watchdog is investigating whether Deutsche Bank employees provided excessive entertainment to Japanese pension fund executives in breach of regulations, according to sources with knowledge of the matter.
The Securities and Exchange Surveillance Commission (SESC) found evidence of potential infractions during a regular audit of Deutsche Securities, the German bank's investment banking arm in Tokyo, said the sources, who spoke on condition they not be identified because the investigation was continuing.
The employees had booked large expenses for entertainment involving pension fund executives, they said. This raised red flags for the regulators, because the pension fund executives involved are legally considered public employees, subject to anti-bribery statutes, since they handle part of the national pension scheme.
Deutsche had already started its own investigation into the matter before the SESC began its audit in May and has stopped marketing directly to such pension funds as part of a review of its sales and compliance practices, the sources said.
The bank's efforts to address the problem could be a mitigating factor when the SESC makes a decision in coming weeks on what action to take. It was possible the regulator would not pursue public sanctions, which could range from an order to improve compliance to harsher penalties, the sources said.
Details of the alleged expenses, including the amounts spent and the identities of the pension fund executives, were not immediately available. The sources said the expense reports of a handful of Deutsche employees who market products and strategies to pension funds were being scrutinised.
The SESC was also checking the entertainment of pension fund clients in a regular inspection at Goldman Sachs that began last month, the sources said.
Deutsche Bank, Goldman Sachs and the SESC declined to comment.
Given the risk of regulatory and criminal sanctions, companies should in principle never pick up the bill for a public official, said Tomoki Debari, a partner at Anderson Mori & Tomotsune.