Deutsche Bank Spy Scandal - Case Study Example

Running head: DEUTCHE BANK The Secret Life of Deutsche Bank: The Spying Affair In 2009 the international financial world wasshocked at allegations that Deutsche Bank, which employs over eighty-thousand people in seventy-six countries, had suspended its security chief after allegations that Germanys largest bank had spied not just on its employees but also on people outside the financial institution. The radical and at times careless investigation methods employed by the bank raised a myriad of serious legal issues, not the least of which were data protection and privacy concerns. Although Deutsche Banks snooping was deemed sporadic, the affair struck at the heart of a country still struggling with its past identity where spying on citizens in the Communist East was a matter of course. How the bank will weather these latest charges is one question. What impact the investigations will have on stakeholders is another that affects not only the future of Deutsche Bank but also its reputation and credibility as a major player on the world financial stage. The Background The four cases of surveillance concern a nuisance shareholder, an investigative journalist, a supervisory board member suspected of leaking information, four senior bank managers and a private person who sent threatening letters to Deutsche Bank board members. Among the targets of the surveillance were Gerald Herrmann, a former union leader and supervisory board member who was suspected of leaking sensitive company information to the media. Michael Bohndorf, an activist shareholder who has been critical of the bank; and Hermann-Josef Lamberti, Deutsche Banks chief operating officer. The Bank launched its own investigation in the spring of 2009 and by mid-summer the affair had been turned over to BaFin, the German financial regulator. The investigative results were passed to the German data protection authority who has in turn submitted them to the German public prosecutors office. Tactics employed by the bank included media reports that detectives hired by Deutsche Bank were instructed to test Lambertis security consciousness by trying to plant a GPS tracking device in his car and sending a bouquet of flowers containing an inactive microphone to his home. Bohndorf, the activist shareholder, said that private investigators posed as vacationers and spied on his home on the Spanish island of Ibiza after he asked a number of provocative questions at a Deutsche Bank shareholders meeting in 2006. His contention was that detectives tried to determine if he had a weakness for women by setting up a "honey trap" operation that involved a chance meeting with an attractive twenty-three-year-old Brazilian woman (DW World-DE, 2009: 5-6). Deutsche Bank’s problems were signs to many that the issue of corporate spying was endemic in Germany. In the past year others had been reported for suspicious dealings. Telecommunications giant Deutsche Telekom and the discount retail chain Lidl. National rail operator, Deutsche Bahn “was also caught in a data protection scandal earlier this year [2009]” (DW World-DE, 2009: 12-13). By July of that year several managers and staff personnel had been let go, a harbinger of the embarrassing and serious legal maelstrom brewing for Deutsche Bank. By August it was reported that the investigation had widened to corporate spying on twenty people inside of and outside of the organization. Tentacles of the Investigation Helped on by the Cleary Report, in October of 2009, finding “no systematic misconduct,” (Kirschfeld and Battinga, 2009) prosecutors said they would not be prosecuting supervisory and management board members on the basis that no wrongdoing had been found by them as top officials at the bank. (ID:nL8120827). The report, filed by the law firm Cleary, Gottlieb, Steen & Hamilton LLP for the bank, came to the conclusion of no wrongdoing based on confusion over dates when certain information was exchanged. In that same month courts said the bank might only be fined for digital photos taken in the spy scandal that led to the firing of its two top executives. “A government data protection agency in Darmstadt, Germany, which reviewed the 2006 spying on dissident shareholder Michael Bohndorf, concluded that the only reason for it to investigate was the fact that detectives had taken pictures of the man’s [Bohndorf’s] house...” (Matussek, 2008) The 150-page Cleary report, portions of which previously have been reported by the Wall Street Journal and other news organizations, deviates from Deutsche Banks official representation of the affair on two major points: the genesis of the spying operation against the shareholder, retired lawyer Bohndorf, and whether it is possible that senior bank officials authorized the activities. Wolfram Schmidtt, a twenty-year employee of the bank who was fired along with other executives over the incident, sought a settlement from Deutsche Bank. He would not accept the report’s findings and continued to press his law suit. Judge Ursula Schmidt agreed, saying “Deutsche Bank will [would] have to explain why it thinks Schmitt’s actions violated German laws or the company’s internal rules” (Matussek, 2009). The report leaves open the question of who authorized the operation against the shareholder and the timing of certain officials knowledge, while concluding that a number of senior officials, including Clemens Böersig and the banks top legal staff, knew about it. Head of corporate security for Germany, Rafael Schenz, was let go along with Schmitt. To complicate matters, Deutsche Bank hired a private detective agency in 2006 after its supervisory board chairman, Boersig, asked to know if troublesome shareholder Michael Bohndorf could be linked to media magnate Leo Kirch [KRCH.UL] (EV4G.DE). Kirch has for years waged a legal campaign against Deutsche Bank, saying it caused the collapse of his empire by publically calling his creditworthiness into question. Bank officials have indicated that the incident of spying on a troublesome shareholder "originated" from a conversation between Boersig and the global head of investor relations. [ID:nLM598901] In November, 2009, Kirsch filed criminal fraud charges against Rolf E. Breuer, the former chief executive and chairman of Deutsche Bank, saying the legal battle with the bank had contributed to the later collapse of his media empire. In 2006, a German civil court ruled that Mr. Kirch, who argued that the banks investigations and statements violated client confidentiality, was entitled to seek damages that would be specified in a separate trial. Courts are currently considering the damage claims, which Mr. Kirch says could reach billions of dollars. Ethical Questions and Public Fallout Though the spying activity originated in Germany, the implications for Deutsche Bank are global. The bank earns most of its profit outside of Germany at its bases in London and the U.S., where bank officials have found themselves trying to explain the affair to clients with questions and aggressive regulators, including the Securities and Exchange Commission. As for Deutsche’s internal problems, Bernd Bühner, a contractor who played a key role in most of the operations under scrutiny, went so far as to tell The Wall Street Journal in an interview that he received a list [hit list] of names in 2006 at a meeting with Deutsche Bank representatives, and that it [even] included members of the banks legal department. The German public, sensitive to STASI tactics of the former East German secret police, were bound to flinch at the allegations. The revelations also raised new questions about how far the bank’s spying program had gone, and why its senior management, although cleared, hadn’t known about it. Questions and concerns also arose regarding the ethical appropriateness of hiring a former German army officer, Buhner, to monitor people from 2001-2007. Buhner admitted “...the plan was to spy on each individual on the list [aforementioned]” (GeoPolitical, 2009). Questioning Deutche’s motives, Burghardt (2008) proposed, “As if illegal spying and dirty tricks by state agencies werent threat enough to democratic institutions and grassroots activist organizations, hundreds of corporate spy outfits are doing their part--to defend the "homeland" and the bottom line--for the multinational grifters who plunder the worlds wealth.” The reference could be construed as being related to 2001 charges that a German foreign intelligence agent was hired by a firm to spy on the environmental group, Greenpeace “at the behest of oil giants BP and Shell” (Burghardt, 2008). Burghardt’s tongue in cheek description of the operative surely indicates the degree of distaste he [and undoubtedly others, including the public] feel about the unethical level of Deutsche’s activity. Speaking of the hired agent, Burghardt (2008) writes, “His [the agent’s] political credentials seemed impeccable: he had once been chairman of the Munich branch of the German Communist party and the bookshelves of his office held the works of Bertolt Brecht, the Marxist playwright and poet.” The fallout from the scandal has even far greater implications for the international community. Esterl (2008) quoting Klaus-Peter Schöppner, who tracks sociopolitical trends at TNS Emnid, a polling and research company, writes, “In the U.S., its more individuals who are questioned. In Germany, the system is questioned...The fallout already has begun. Five years ago, polls showed that business leaders enjoyed roughly twice the level of public trust as politicians. Now business leaders are at the bottom rung, with just 15% of those polled saying business leaders are trustworthy.” Conclusion: Lessons Learned and Testing the Hypothesis Hearings were supposed to start this month [March, 2010] but have been pushed back for undisclosed internal reasons. The most conclusive result of all of the legal actions, civil and criminal, has been a begrudging apology from Deutsche Bank to Bohndorf and the offering of humble explanations about how it became involved in other possible violations of privacy. The current status of the all the complaints awaits further hearing and action by German courts. The point may be, however, what has been learned by this infringement on privacy and on the protection of data security of large institutions? Regarding the Kirsch suit, apparently nothing. As state courts have already determined that Kirsch has the right seek damages for infringements on client confidentiality under the law, yet, in an immature move to deflect attention away from wrongdoing, Deutsche claims Kirsch is only trying to get even for past disagreements, which effectively have nothing to do with his suit."Mr. Kirch is attempting to distract attention from his own business failures" (Crawford, 2009) The most serious and immediate investigation has resulted in a proposed indictment and criminal fraud charges filed against former Deutsche Bank German Rolf Breuer, in Munich, alleging that the executive gave false testimony during a high-stakes lawsuit brought against him and the bank by a former client (Kirsch)—a criminal charge of perjury if proven. The court has not yet confirmed the indictment. Regarding data processing concerns, EU regulations are clear (Directives 2002/58/ECOJ L 105 13.04.2006 & 32009L0136) Protections are provided and indeed over the past six years have been amended to address the growing concern with large corporations such as Deutsche Bank holding and using personal data for corporate use and advantage. (Insert opinion and info on “film”. Works Cited Burghardt, T. (September 30, 2008) When corporations spy. Retrieved from: http://www.globalresearch.ca/index.php?context=va&aid=10333 Crawford, D. (November 19, 2009). “Former chief of Deutsche faces fraud case.” Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB10001424052748704533904574544132281928204.html DW World-DE. (July 21, 2009). State Prosecutors Examine Deutsche Bank Spy Scandal. Retrieved from: http://www.dw-world.de/dw/article/0,,4507539,00.html Esterl,M. (March, 2008). “In Germany, scandals tarnish business elite.” Wall Street Journal. Retrieved from: http://online.wsj.com/article/SB120430723414203311- search.html EU Directive 2006/24/EC. (15 March 2006). Retention of data generated or processed in connection with the provision of publicly available electronic communications services or of public communications networks/amending Directive 2002/58/EC OJ L 105 13.04.2006 p. 5. Retrieved from http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32006L0024:EN:NOT EU Directive 2009/136/EC:32009L0136. (25 November, 2009). Protection of privacy concerning the processing of personal data and privacy/amending Directive 2002/22/EC. Retrieved from: http://eurlex.europa.eu/Result.do?direct=yes&lang=en&where=EUROVOC:0028 28&whereihm=EUROVOC:protection of privacy Geopolitical Monitor. (August 3, 2009). German bank spy scandal widens. Retrieved from: http://www.geopoliticalmonitor.com/german-bank-spy-scandal-widens/ Kirschfeld, A. & Battinga, J. (Dec. 17, 2008). Deutsche Bank had no ‘systematic misconduct,’ BaFin report says. Bloomberg.com. Retrived from: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afyzeRyPOBRY Matussek, K. (Oct. 2008). Deutsche Bank spies may only be liable for photos, lawyers say. Bloomberg.com. Retrieved from: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=amV83kVGlRBc Matussek, K. (Sept 2009) Ex-Deutsche Bank manager says boss knew of spy case (Update2). Bloomberg.com. Retrieved from: http://www.bloomberg.com/apps/news?pid=20601100&sid=anpwFPP.NDG4 Reuters. (January 12, 2010). Court Document: (ID:nL8120827). “Deutsche Bank spy court case delayed til March.” Retrieved from: http://in.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idINLDE6 0B17K20100112 Reuters. (January 12, 2010). Court Document: [KRCH.UL] (EV4G.DE) “Deutsche Bank spy court case delayed til March..” Retrieved from: http://in.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idINLDE6 0B17K20100112 Reuters. (July 28, 2009). Court Document: [ID:nLM598901]. Retrieved from “Duetsche Bank chairman faces spying affair questions.” Retrieved from: http://www.reuters.com/article/idUSB28536120090727 Read More