"I have a billion rouble today ... Will you be able to find a security for this size?" a client representative told a Deutsche Bank trader in Moscow, according to New York's Department of Financial Services (DFS consent order, 30 January 2017, paragraph 13). The client did not care which shares it bought, only that a match existed. A payment by payment check misses that match; transaction monitoring across accounts and desks can see it.
What is a mirror transaction?
In the FCA's description, a Russian customer of DB Moscow "bought highly liquid Russian securities" and paid in rubles (the Moscow Side), while at the same time a customer outside Russia sold "the same number of the same securities" to Deutsche Bank for US dollars (the London Side) (FCA final notice, 30 January 2017, paragraph 4.17). With connected customers and matching amounts, the evident purpose was to turn rubles into dollars and move them out of Russia (2.9).
Each leg looks like an ordinary trade through a Western bank; only the pair shows the transfer. That makes it a layering technique, one of the money laundering methods that break the trail to the source.
Is mirror trading illegal, and is it the forex strategy?
Not in itself. The DFS order says that while "offsetting trades are not inherently illegal", those that lack an obvious economic purpose are "highly suggestive of financial crime" (paragraph 16). In forex, mirror trading means something else: copying another trader's positions automatically, which is an investment strategy. Transaction laundering is a third, separate idea, in which an approved merchant's account carries the card sales of a business its acquirer never approved.
How does a mirror trade move money?
Table 1. The legs of a Deutsche Bank mirror trade, from the FCA and DFS findings.
| Stage | Where | Currency | Who sees it | What it hides |
|---|---|---|---|---|
| Orders | DB Moscow's front office takes both orders and executes both sides at the same time (FCA 4.18) | None yet | Moscow traders | That buyer and seller are connected (4.21) |
| Moscow Side | A Russian client buys Russian blue chip shares from DB Moscow | Rubles | DB Moscow's books | Nothing unusual on its own |
| London Side | A connected client outside Russia sells the same number of the same shares, booked remotely into Deutsche Bank's UK books (4.18) | US dollars | The London trading book, run for aggregate positions, not individual trades (4.81) | The match with the Moscow buy |
| Cash leg | The seller is paid in dollars cleared through DBTCA, Deutsche Bank's New York subsidiary (DFS 15), to accounts in Cyprus, Estonia, Latvia and elsewhere (FCA 2.4) | US dollars | The payment and clearing teams | That the money began as rubles in Moscow |
Every one of those dollar payments went through DBTCA, which conducts correspondent banking and dollar clearing for the bank's customers, other banks included (DFS paragraphs 30 and 31).
From Ufuk Gürdaş, reviewer of this entry: "Feed the trading book into AML monitoring as well as the payments: at Deutsche Bank both sides of the mirror trades were visible in the trading systems the bank used, which the FCA says were 'not used for the monitoring of money laundering risks', and the DFS found a reporting tool that could have shown both legs with the right filter."
What were Deutsche Bank's mirror trades?
The orders were large. A typical one was worth 2 to 3 million dollars, paid in rubles in Moscow and matched in London, sometimes the same day (DFS paragraphs 10 and 11). The FCA counted more than 2,400 mirror trades from April 2012 to October 2014, moving more than 6 billion dollars out of Russia. A further 3.8 billion dollars of one sided trades, over 99 percent sales, took its estimate, if most were mirror trades too, to about 10 billion dollars (2.10). The DFS dates the scheme from 2011 to early 2015, with at least 12 entities.
The penalties were separate: the FCA fined Deutsche Bank £163,076,224, including £9,076,224 of disgorgement, for breaches from 1 January 2012 to 31 December 2015, and the DFS imposed 425 million dollars. The FCA's press release of 31 January 2017 said the bank "lacked automated AML systems for detecting suspicious trades".
How can mirror transactions be detected?
Seven red flags come from the FCA and DFS findings. None proves a mirror trade on its own, though together they help an analyst decide what to ask the client:
- Same security and size on two desks. A buy in one market and a matching sale in another at the same time (FCA 4.17).
- Connected buyer and seller. Common "directors, owners, employees, or addresses" (4.21).
- No economic purpose. Clients "frequently lost money" on fees (DFS 12).
- Any security will do. Told no Sberbank shares were available, one client switched to Gazprom (DFS 14).
- Offshore seller paid in dollars. Sellers were registered in Cyprus or the British Virgin Islands (DFS 15), and the FCA faulted AML country risk ratings that "underestimated the money laundering risk" (2.13). The free AML country risk index scores a country from its FATF status, Basel AML Index and sanctions intensity.
- Intermediaries for hidden clients. Trading "on behalf of undisclosed underlying clients" (4.22).
- One sided sales and no commission. Sales with no visible buy, often by the same clients (2.10); trading with no commission prompted "missing another leg to those trades?" (4.29).
Which rules apply to mirror trades?
Table 2. The rules a mirror trade engages, by jurisdiction.
| Jurisdiction | Rule | Words of the rule | What it asks of a firm |
|---|---|---|---|
| United Kingdom | MLR 2017 regulation 28(11)(a) | Scrutiny of transactions "throughout the course of the relationship", checked against what the firm knows of the customer | Read each trade against the client file |
| United Kingdom | MLR 2017 regulation 33(1)(f)(iii) and 33(4) | Enhanced due diligence where transactions "have no apparent economic or legal purpose", "examining the background and purpose of the transaction" | Ask why a loss making pair exists |
| United Kingdom | FCA Principle 3 | "Take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems" | Breached by Deutsche Bank (final notice 1.1) |
| United Kingdom | FCA SYSC 6.1.1R and 6.3.1R | Policies and procedures against financial crime (6.1.1R), with systems and controls that "identify, assess, monitor and manage money laundering risk" (6.3.1R) | Breached by Deutsche Bank (final notice 1.1) |
| European Union | AMLR (EU) 2024/1624 Article 26(1), from 10 July 2027 | Group entities "shall take into account information relating to those other business relationships" | One group view of a client booked in two countries |
| European Union | AMLR Article 34(2)(d) | Examine origin, destination and purpose where a transaction lacks "an apparent economic or lawful purpose" | The same question as regulation 33 |
| United States | 31 CFR 1023.320 | Broker dealer SAR where a transaction (or a pattern it is part of) "involves or aggregates funds or other assets of at least $5,000" and "has no business or apparent lawful purpose"; filed "no later than 30 calendar days" after initial detection | A pattern of trades can be the reason to file |
| International | FATF Recommendations 10(d) and 20 | Ongoing "scrutiny of transactions"; suspicions reported "promptly" | The standard behind every row |
The FCA found Deutsche Bank in breach of Principle 3 and the SYSC rules. The Money Laundering Regulations 2017 came later, so their rows are the duties a UK firm carries today for the same check.
How to avoid mirror trading: who catches it?
Avoiding mirror trading starts at onboarding. KYC that records directors, owners and addresses shows when a Moscow buyer and a London seller belong together. Monitoring then reads the trading book as well as the payments, matching buys and sells by security, size and date across desks: know your transaction applied to securities.
Open questions need an owner: London asked about the clients in December 2012, July 2013 and January 2014, then did not follow up (FCA 4.28). Where an answer still leaves the trades unexplained, the MLRO weighs whether to file a suspicious activity report.
complead, formerly Sanction Scanner, builds transaction monitoring software with a scenario library and rules a team writes itself, each one backtested on the firm's own transaction history before it is published. The analyst decides each alert.
The Moscow client who had "a billion rouble today" asked only for a security of that size. Had Deutsche Bank been "more persistent in its enquiries", the FCA concluded, it "could have discovered the existence of the mirror trades sooner" (4.30).
Related terms
- Transaction laundering. Card sales of an unapproved business hidden inside a legitimate merchant's processing.
- Know your transaction (KYT). The per transaction check against the customer file.
- Correspondent banking. One bank holding accounts and clearing payments for another.
- Structuring. Splitting cash or transfers to stay under a reporting line.
