By Karen Freifeld
NEW YORK (Reuters) - Commerzbank AG (DE:CBKG) is nearing an agreement to pay U.S. authorities more than $1.4 billion to settle allegations it violated U.S. sanctions and a separate investigation that stemmed from the Olympus Corp (T:7733) accounting scandal, according to two people close to the case.
The accord, which would suspend criminal charges in a deferred prosecution, could come as soon as next week, the sources said on Thursday, asking not to be named because the matter is not public.
One of the sources said the final number was expected to be $1.45 billion. The other source cautioned that the deal was not yet final and details could still change.
Margarita Thiel, a spokeswoman for Commerzbank, Germany's second-largest lender, declined to comment.
The U.S. Justice Department and other U.S. authorities involved also declined to comment. The other agencies include the U.S. Department of Treasury, the Federal Reserve, the Manhattan District Attorney's office, the U.S. Attorneys in Washington, D.C. and Manhattan, and New York's financial regulator, the Department of Financial Services.
Commerzbank told investors on Feb. 12 that negotiations with U.S. authorities had intensified and that it had put aside 1.4 billion euros ($1.6 billion) in total for legal costs, related in part to the U.S. probes.
A combined tally of more than $1.4 billion would be about double what the bank was set to pay last fall under a previous accord with U.S. authorities over sanctions violations in dealings with Iran and Sudan from about 2002 to 2011.
That agreement was put on hold, however, in light of a separate probe sparked by transactions at the German bank in connection with accounting fraud at Japan's Olympus Corp, Reuters previously reported.
OLYMPUS
The potential $1.4 billion-plus settlement includes the coordinated resolution of the separate Olympus-related investigation, the sources said.
Olympus, a camera and medical equipment maker, admitted in 2011 that it had used improper accounting to conceal investment losses over more than a decade, in one of Japan's biggest corporate scandals.
Commerzbank handled more than $1 billion in transactions related to the fraud, much of which went through New York, according to a separate person familiar with the matter.
The source said an investigation showed the bank did not comply with the Bank Secrecy Act, which requires the monitoring and flagging of suspicious transactions to combat money laundering.
Commerzbank in recent years has focused on improving its controls after it entered into an agreement in 2012 with the Federal Reserve Bank of New York to improve compliance with BSA/anti-money laundering laws and regulations.
The New York branch still failed to maintain adequate controls, the Federal Reserve found in 2013, and issued a cease and desist order.
SANCTIONS VIOLATIONS
The bank, which is 17 percent owned by the German government, is expected to pay $718 million in connection with the probe of sanctions-related violations, one source said.
Commerzbank was accused of knowingly banking for the Islamic Republic of Iran Shipping Lines, a state-sponsored shipping line designated for economic sanctions by the U.S. in 2008 for supporting Iran's proliferation of weapons of mass destruction, Reuters previously reported.
The Justice Department would split $342 million with the Manhattan District Attorney's office over the sanctions-related case, the source said, while New York's Department of Financial Services would receive $310 million, and the Federal Reserve $66 million.
Penalties imposed by the Treasury Department's Office of Foreign Assets Control would be deemed satisfied by the $342 million, the source said.
Commerzbank will likely pay another $600 million over the Olympus-related probe of Bank Secrecy Act violations, the source said, split equally between Manhattan U.S. Attorney Preet Bharara and the New York banking regulator.
The Federal Reserve would get another $134 million from the Olympus-related probe, the source said.
With the impending settlement, Commerzbank would join more than a half dozen foreign banks that have already settled with U.S. authorities.
French lender BNP Paribas SA (PA:BNPP) agreed to pay a record-breaking $8.9 billion for sanctions violations last year. In 2012, Amsterdam-based ING bank paid $619 million, then the highest penalty, followed by British bank Standard Chartered Plc (L:STAN), which paid $667 million.
Authorities have said the banks stripped identifying information from incoming wires to avoid red flags that would have helped police the transactions.
Italy's UniCredit SpA (MI:CRDI), France's Credit Agricole SA (PA:CAGR) and Societe Generale (PA:SOGN), and Germany's Deutsche Bank AG (DE:DBKGn), also are under investigation by U.S. authorities for sanctions-related violations, sources have told Reuters previously. A Deutsche Bank spokeswoman said the bank is cooperating with U.S. authorities. The other banks declined to comment.