On September 25, the U.S. Securities and Exchange Commission (SEC) announced settled charges against the registered investment adviser DWS Investment Management Americas Inc. (DWS), a subsidiary of Deutsche Bank. DWS agreed to pay $25 million to settle the charges in two separate enforcement actions, one related to alleged anti-money laundering violations and one related to misstatements regarding its Environmental, Social, and Governance (ESG) investment process.
In regards to the ESG violations, the SEC alleges that DWS “made materially misleading statements about its controls for incorporating ESG factors into research and investment recommendations for ESG integrated products, including certain actively managed mutual funds and separately managed accounts.”
$19 million of the overall $25 million to be paid by DWS stems from this enforcement action: the largest ever penalty issued by the SEC for ESG greenwashing violations.
“Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words,” said Sanjay Wadhwa, Deputy Director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force. “Here, DWS advertised that ESG was in its “DNA,” but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed.”
The Financial Times reports that the SEC “launched its greenwashing investigation two years ago, prompted by a whistleblower complaint from DWS’s former head of ESG, Desiree Fixler. Following the SEC’s announcement Fixler told the paper that “‘Greenwashing is harmful — to investors, communities and overall financial stability.’”
Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily report original information that leads to a successful enforcement action, are entitled to monetary awards of 10-30% of the funds collected by the government in the enforcement action. Since it was established in 2010, the program has recovered over $6.3 billion in sanctions from fraudsters and awarded over $1.5 billion to whistleblowers.
Under the leadership of then-Acting Chair Allison Herren Lee, the SEC placed ESG issues at the forefront of its agenda. Among other things, Lee hired a senior policy adviser for ESG and launched an enforcement task force to evaluate and pursue tips, referrals, and whistleblower complaints on ESG-related issues. She was also champion for stronger whistleblower protections while at the SEC and then joined the whistleblower defense firm Kohn, Kohn & Colapinto after leaving the Commission.
In the AML enforcement action, the SEC alleges that DWS “caused mutual funds it advised to fail to develop and implement a reasonably designed AML program to comply with the Bank Secrecy Act and applicable Financial Crimes Enforcement Network regulations.”
“The SEC’s order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Importantly, those AML obligations require mutual funds to establish and implement individualized programs to detect and prevent money laundering and terrorism financing. I congratulate the Asset Management Unit for bringing this important mutual fund AML enforcement action.”
