Deutsche Bank Puts Epstein Spotlight On JPMorgan

German lender settled with Epstein’s victims for $75 million.

Paul J. Davies

18 May 2023, 11:24 PM IST

NEW YORK, NY - JULY 15: The exterior of the residence owned by Jeffrey Epstein on the Upper East Side is seen on July 15, 2019 in New York City. A judge is prepared to rule on Jeffrey Epstein’s bail status after it was delayed by his lawyers arguing he should be able to reside in his mansion pre-trial. Epstein is charged with sex trafficking of minors and it has been alleged that he paid underage girls for sexual acts. (Photo by Kevin Hagen/Getty Images)

(Bloomberg Opinion) -- Deutsche Bank AG’s $75 million settlement of a lawsuit from victims of sex trafficker Jeffrey Epstein ends a grim chapter for the German bank, but intensifies the spotlight on JPMorgan Chase & Co. The US lender will very likely also pay up, but only once some extra wrinkles in its cases have been ironed out.

The reasons to settle are obvious. Embarrassing revelations and unsavory headlines would accompany any trial, while senior executives could also be forced to testify. That has “public-relations disaster” written all over it. But any suggestion that a bank accepts direct liability for the actions of its clients could set an extremely costly precedent.

Banks regularly face penalties for failings related to money-laundering controls, especially when those are linked to criminal activity or terrorism. But that is different from being liable for the actual crimes or terror. Several US lawsuits have been launched in recent years claiming banks have aided and abetted terrorist acts, but with little success.

In the Epstein case, Deutsche Bank faced a lawsuit led by an anonymous victim who accused the lender of facilitating Epstein’s sex-trafficking operation by providing him with financial services. JPMorgan faces two similar suits from another anonymous plaintiff and from the US Virgin Islands. The pressure on JPMorgan to follow Deutsche’s example is likely to grow. The US bank won’t want to stand trial alone or risk executives up to Chief Executive Officer Jamie Dimon being put on the stand. It already failed to stop him being deposed ahead of a trial that is due to open in October.

JPMorgan’s costs to settle both lawsuits could run to as much as $150 million, according to Elliott Stein, Bloomberg Intelligence’s senior litigation analyst. Stein put the chances of both banks settling at about 70% this month when a court ruled that the suits could proceed. For JPMorgan he now puts that probability at 80%.

Deutsche Bank didn’t admit any wrongdoing as part of its settlement and will pay up to $75 million to victims that come forward and demonstrate a claim. JPMorgan is fighting its lawsuits still and opposing class action status for the suit led by an anonymous plaintiff. Both banks declined to comment on settlements. Deutsche Bank has said it has been investing heavily in compliance. JPMorgan said it regrets ever dealing with Epstein, but that it doesn't believe it broke any laws.

The US bank will likely to want to clear up two open questions before settling, according to Stein. It has sued its former executive, Jes Staley, for his role in vouching for Epstein’s character when compliance teams raised questions about his activities. Staley has filed to dismiss that suit, a motion JPMorgan’s lawyers will fight on Friday in US District Court in New York. The following week, the court is also set to rule on class action status for the anonymous victim’s suit.

Once those two questions are answered JPMorgan will have a clearer idea of how many claimants it faces and whether it has a chance of getting Staley to pay a share of the costs. Staley went on to become CEO of Barclays Plc of the UK in 2015. He left in 2021 after UK regulators investigated what the CEO had told the Barclays board about his prior relationship with Epstein while he worked at JPMorgan. Barclays hasn't been sued in relation to Epstein.

There are questions to answer beyond these cases. Lawyers have been testing the boundary of how far banks and other companies can be held responsible for the actions of their clients, mainly related to terrorist acts. Banks have faced claims from the families of US soldiers in Iraq and Afghanistan that their financing activities aided and abetted terrorism, but rulings so far have suggested the lenders were too far from the acts to be held liable. On Thursday, the Supreme Court ruled that Twitter Inc. and other social media didn’t aid terrorism when their platforms were used by members of ISIS.

The law allows for banks and other companies to be held liable for broad knowledge of the kinds of crime their clients commit rather than specific instances of actual crime. That is part of why the Epstein cases were allowed to proceed.

Banks have to have robust compliance and know-your-customer processes in place and they must follow up on red flags. The lawsuits against JPMorgan show that after Epstein had been convicted in 2008 for soliciting a child for prostitution, there were concerns raised internally because of news reports that linked him to further sex trafficking. If the bank settles its suit, it will still owe shareholders an explanation about why those concerns weren’t acted on — and how its processes have been tightened up since.

A recent series of reports in the Wall Street Journal have illustrated just how many wealthy and famous people still trusted and consulted with Epstein in the years following his conviction. Banks around the world continue to be caught out handling funds for crooks and bad actors.

The problems of dealing with the super-rich were summed up recently by who had asked Epstein for fundraising help. “You cannot pick and choose, because among the very rich is a higher percentage of unpleasant and not very attractive people. Capitalism is a rough system,” he said.

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