How Deutsche Bank’s ‘Wiz’ kid fell to earth14 min read . Updated: 05 Oct 2016, 01:18 AM IST
Mastermind or scapegoat, Tim Wiswell was at the heart of Deutsche Bank's $10 billion mirror-trade scandal
Just off the Connecticut shoreline where he grew up, Tim Wiswell leaned forward in the cockpit of his sleek, all-white 50ft yacht. It was 9 August 2015, and, dressed in shorts, a polo shirt, and mirrored shades, his hair tousled by the breeze, the 36-year-old was a picture of health and happiness. Natalia, the Russian artist he had married five years earlier, lay by his side. Their two small children played nearby.
Nothing in the scene, captured in photographs uploaded to Facebook, hinted at the turmoil surrounding Wiswell, the clean-cut trader at the centre of Deutsche Bank AG’s $10 billion Russian scandal. Four months earlier, he had been summoned into a roomful of lawyers and told he was being suspended from his job as head of equities for Deutsche Bank in Moscow. An internal investigation dubbed Project Square had determined Wiswell’s desk helped Russians divert billions of dollars out of the country using transactions known as mirror trades. Now, the US justice department and the UK’s Financial Conduct Authority are investigating whether trades that flowed through Wiswell’s desk violated anti-money-laundering rules, according to people with knowledge of the matter. Wiswell hasn’t been charged, and both agencies declined to comment.
Deutsche Bank has said it could face penalties relating to the Russian debacle by the end of the year. The timing couldn’t be worse. Shares in the bank slumped last week to their lowest level in two decades following reports the Frankfurt-based lender faces as much as $14 billion in fines to resolve a separate US probe into the sale of mortgage-backed securities—more than twice the amount it has set aside for all litigation. The bank said it has no intention of paying anything close to that sum, while CEO John Cryan has rebuffed suggestions it might seek fresh capital from investors or require a state rescue.
The fallout from Project Square was precipitous. In June 2015, weeks after news reports of events on Wiswell’s desk surfaced, Cryan’s predecessors Anshu Jain and Juergen Fitschen announced they would be stepping down, their positions made untenable by a list of scandals that also included probes into rigging interest rates and foreign exchange. In Russia, Deutsche Bank adopted the nuclear option and shut its Moscow investment bank. A trading floor that once employed 200 people and generated $500 million a year in revenue is dark.
It’s a tragic end to a once-glittering jewel in Deutsche Bank’s fading empire. Wiswell, meanwhile, has hunkered down with his family on a surfers’ beach in Indonesia as he comes to terms with his own personal tragedy. Once touted as a rising star, he’s now being blamed for the destruction of the investment bank in Russia. He didn’t respond to calls, messages sent via social media or requests for comment made through his lawyer, Ekaterina Dukhina.
If you asked a stranger to think of the archetypal young banker, he’d probably picture someone like Wiswell. Handsome but non-threatening; popular but easily forgettable; diligent, courteous, upbeat; competent but never the smartest guy in the room. Of the two dozen current and former Deutsche Bank employees and friends interviewed by Bloomberg, only a handful said they believed Wiswell was even capable of doing what the bank says he did. Many struggled to come up with much in the way of distinguishing features. One former colleague described him as ordinary. Another said he was a bit of a “himbo".
On the surface, Wiswell makes an unlikely “mastermind", which is how a Deutsche Bank lawyer described him during Wiswell’s unsuccessful 2015 unfair-dismissal hearing. But behind the sunny, wholesome exterior there’s another side to the man they called “Wiz"—at least according to some who knew him.
Long before he was pulled off the trading floor, rumours circulated in Moscow’s banker bars and nightclubs about the way Wiswell operated and the company he kept. In 2011, Russian authorities suspended the licence of one company he was trading for as part of a money-laundering sting. And when Deutsche Bank investigators looked at transactions in an offshore account belonging to Wiswell’s wife, they found $3.8 million in unaccounted funds, including $250,000 traced to a company that was a beneficiary of the mirror trades, according to an in-house report on the bank’s investigation seen by Bloomberg.
The report outlines in forensic detail how Wiswell’s desk, which never had more than a dozen or so employees, carried out thousands of mirror trades over a four-year period. The mechanism itself was pretty straightforward. A company would buy securities from Deutsche Bank in Moscow for rubles at the same time as another entity owned by the same people in an offshore place like Cyprus, would sell the same shares for dollars via Deutsche Bank’s London office. The shares would then be transferred between the entities, completing the circle. The trades spirited money out of Russia at $10 million to $15 million a clip, according to the report. The end-users of the service weren’t revealed. Mirror trades, which aren’t illegal, can be used to aid money laundering and tax avoidance, or to violate sanctions.
Painting Wiswell as the Machiavellian figure behind Deutsche Bank’s woes may be a convenient narrative for the bank to spin, but it’s one that some former employees object to. For one thing, each new counter-party Deutsche Bank took on had to be vetted by the sales team and, if any issues were identified, by compliance in Moscow and London. Beyond that, a list of the biggest equity trades was distributed among management in Russia and London at the end of each day. In his wrongful-dismissal hearing, Wiswell said at least 20 of his bosses and colleagues, including two supervisors in London, knew about the trades because they were carried out so routinely and openly. So far, only Wiswell and two junior members of the equities business have been dismissed.
Deutsche Bank said in its 2015 annual report that it was dealing with regulators around the world and had “taken disciplinary measures with regards to certain individuals in this matter and will continue to do so with respect to others as warranted". Adrian Cox, a spokesman for the bank, declined to comment further.
One thing to appreciate, say those who have worked in banking in Russia for any length of time, is that Moscow isn’t like Wall Street or the City of London, where rules are more clearly defined and enforced. To thrive in such an environment requires you to adapt.
Front-running—placing personal side bets using knowledge gleaned from your job—was so commonplace among the fast-living expat crew Wiswell ran with that it was considered a legitimate way to bump up your pay, two of Wiswell’s former colleagues said. Among his friends, one left the country in a hurry after a deal with an oligarch went south and another quit after skimming $1 million during the break-up of a state-owned monopoly that Deutsche Bank assisted, according to former colleagues.
The group lived a gilded existence, dropping thousands of dollars on wild nights out, splurging on fast cars and yachts, and burning off steam by heli-skiing and jumping out of planes.
“We lived like rock stars," Will Hammond, a former equity sales executive who started at Deutsche Bank shortly after Wiswell, wrote in an as-yet-unpublished memoir about his time in Moscow titled The Devil’s Doorstep. “Russia was guzzling down economic prosperity at full tilt. Back then we all drank way too much and smoked cigars way too often. Videos shot inside nightclubs looked like modern versions of what went on behind closed doors during prohibition. Money was thrown around like Monopoly dollars."
The Russian connection
It all seems a long way from Old Saybrook, Connecticut, the picture-postcard town 160km north-east of New York where Wiswell was raised in a modest, three-bedroom house a short sprint from the beach. Wiswell spent his childhood sailing and playing sports. He got decent enough grades in high school but wasn’t one of the dozen or so kids singled out for the highest honours.
His parents separated, and Wiswell and his sister often flew to Russia to stay with their dad, an entrepreneur with business interests across the former Soviet Union. As a skinny 17-year-old, Wiswell spent a year at the Anglo-American School of Moscow, where he picked up the language. On returning to the US, he went to Colby College in Maine.
After graduating, Wiswell moved to Moscow and landed a job at a brokerage called United Financial Group (UFG), the precursor to Deutsche Bank’s Russian securities business. A former manager, who requested anonymity, recalled interviewing him. Wiswell laid out a plan to get oil-industry executives to invest in the Russian market. It never would have worked because most of them weren’t well-paid, the manager said, but it showed initiative. The bank offered Wiswell a position on the equities desk.
UFG was founded in 1994 by another adventurous young American, Charlie Ryan. A Harvard University graduate, Ryan had worked briefly on Wall Street before landing a job in St. Petersburg with the European Bank for Reconstruction and Development, which was helping Russia transition from communist state to market economy. There, still in his 20s, he met future finance minister Boris Fyodorov and an ambitious deputy mayor named Vladimir Putin. Fyodorov had the local connections, Ryan the Wall Street chops. A trout-fishing financial savant named Ilya Sherbovich rounded out the team. They hit up BNP Paribas SA for seed money, and UFG was born. Ryan didn’t respond to requests for comment.
Executives who witnessed the birth of the Russian securities industry paint a picture of a vodka-soaked financial gold rush. Companies were formed, utilities privatized and fortunes easy to come by. At first Wiswell was, in the language of a Russian trading floor, a “desk bitch". Former colleagues say he ran errands, fetched breakfast, and loaded Jay Z tracks onto his boss’s iPod. When the other dozen or so bodies on the equities desk headed off for the night, Wiswell stayed late, reconciling the day’s trading documentation. He worked hard, never complained and, with his sunny disposition, people liked having him around. Wiswell sailed effortlessly though the corporate ranks. His job was to help attract Western investors, and for a while it was easy. Putin was now in charge and, between 2000 and 2007, the economy averaged more than 7% annual growth on the back of a global commodities boom. The graph of the Russian share index over the period resembles the north face of Everest. And, compared with Wall Street, margins were outstanding.
One of UFG’s most successful tactics in winning business, according to half a dozen former employees, was showing Western investors a better time than anyone else. Fund managers from Europe, Asia and the US were flown into Moscow fresh-faced and sent home again three days later, dishevelled but happy. Bosses sometimes doled out wads of rubles to be spent on the parts of Moscow’s nightlife best left off company credit cards, recipients said. The client party circuit included strip joints with private rooms and nightclubs that, for $1,000, would offer table service and a chance to bypass Moscow’s legendary “face control" that kept all but the most beautiful huddled outside the security cordon, breathing fumes from 2am Bentley and Maybach traffic jams. Inside, Cirque du Soleil-style acrobats would trapeze over swimming pools full of topless dancers.
“They expect us to take clients out, to outcompete with the local brokers in showing them a good time," Hammond wrote in his memoir. “We’re essentially the black ops. We’re the ones putting our livers at risk. We’re the boots on the whorehouse ground that our organization is not supposed to be in."
Deutsche Bank’s presence in Russia dates back more than 100 years. In the early 2000s, looking to expand, it bought Ryan’s shop, which, in less than a decade, had grown into the biggest equities house in the country. In 2004, Deutsche Bank acquired a 40% stake for $68 million and the right to complete the purchase. Two years later, as earnings skyrocketed, it paid $400 million for the rest.
Traders and salespeople in their 20s were making double, even triple what their better-educated peers were pulling down in New York and London. Wiswell embraced the high life. He bought a flat in central Moscow and rented a dacha near Barvikha, one of the city’s priciest suburbs, according to friends. His life seems to have resembled a never-ending frat party. At one gathering, his crew held a drunken pellet-gun competition in which contestants ran around trying to shoot targets. On a work-funded trip to Turkey, Wiswell stripped naked and jumped into the Bosphorus after losing a bet, only to be stung by jellyfish, an attendee said. He met a Russian artist named Natalia at a dinner party, and a few years later they married.
Then, in 2008, VTB Capital poached almost 100 of the firm’s best employees, decimating the trading floor. As the financial crisis bit, management in London was reluctant to replace them. Clients defected, corporate activity stalled and trading failed to recover to pre-crisis levels as Putin abandoned his early promise to pursue a pro-market agenda. That year, amid scant competition, Wiswell was promoted to run equities in Russia. He was 29.
Bridging the gap
Wiswell’s role evolved into that of a cheerleader. He was loyal and reliable, and had the ear of the equities management team in London who appreciated having a straightforward Western presence on the ground to bridge the cultural gap. By now, the Russian market was moribund and the attention once lavished on the office had dissipated. Executives, at least from the equities side, rarely took the flight from Frankfurt or Heathrow anymore, according to one former senior member of the Moscow management team. As the economic situation deteriorated, wealthy Russians became desperate to find novel ways to get their money out of the country. The roots of Wiswell’s problems, colleagues said, can be traced back to a 2011 meeting when Sergey Suverov, a burly, gruff-talking equities salesman, introduced Wiswell to Andrey Gorbatov. Gorbatov was a serial entrepreneur who at the time was a candidate for parliament. Before long, one of his firms, Westminster Capital, was selling large quantities of Russian blue-chip stocks through Deutsche Bank’s equities desk.
As a rule, trades that only go in one direction should set off alarms, but Wiswell and his colleagues asked few questions until November 2011, when the authorities suspended Westminster’s licence alongside a handful of other brokerages as part of a clampdown on money laundering. An uncleared Westminster trade remained frozen for months, leaving a multimillion-dollar hole in Deutsche Bank’s books to the consternation of management.
That could have been the end of the story. But when Westminster’s personnel moved en masse to a new company called Financial Bridge, Deutsche Bank’s know-your-customer unit, whose job is to guard against high-risk customers, approved the firm as a counter-party. In 2013, the Russian authorities caught up and Financial Bridge’s license was annulled, but by then a network of small companies with offshore ownership and overlapping employees had been set up, allowing the transactions to continue. From 2012 to 2015, about $10 billion worth of mirror trades and other suspicious transactions were used to divert cash out of Russia, according to the bank’s internal probe, representing as much as 14% of Wiswell’s desk’s business.
The alleged schemes began to unravel in 2014, when a bank in Cyprus contacted Deutsche Bank in London to flag some unusually large transactions. Later that year, Russia’s central bank warned the lender to avoid dealing with a handful of small brokers, including Rye, Man & Gor, a firm Gorbatov would subsequently buy.
Alexei Kulikov, a business acquaintance of Gorbatov’s currently in jail in Russia on suspicion of fraud, met with a Deutsche Bank compliance officer in a café below the bank’s Moscow office, according to testimony provided by the employee to Russian police and seen by Bloomberg. There, Kulikov offered the compliance officer a bribe to allow him and his associates to continue trading, indicating how much he was willing to pay by writing a number on the screen of his mobile phone, the employee said. The compliance officer declined the bribe and reported it to Deutsche Bank, according to the internal report.
Gorbatov denied that his companies were involved in illegal transactions, calling mirror trades “a cheap way to exchange currency". Kulikov, who’s contesting the unrelated fraud charges, acknowledges meeting a Deutsche Bank employee but says he didn’t offer a bribe, according to his lawyer Dmitry Chesnov.
Today, Wiswell’s boat floats empty at its mooring. After heading to Indonesia, he now finds himself in limbo. If he returns to the US, he could face questioning or arrest. But going back to Moscow, with all that he knows, carries its own dangers.
A friend of Wiswell’s had lunch with him in Indonesia earlier this year. He said the former trader looked good and seemed happy. But with Wiswell, it’s always hard to tell. Bloomberg