The scheme illegally moved $10 billion out of Russia, using so-called mirror trades among the bank's Moscow, London and New York offices, authorities said. The US Justice Department also is investigating the matter.
The fines were the latest development in the string of legal woes for the German banking giant, coming less than two weeks after the bank finalized a $7.2 billion settlement with the US Justice Department over its role in the 2008 global financial crisis.
The New York authorities said in a statement they were joined by Britain's Financial Conduct Authority in penalizing the bank after finding pervasive weaknesses in Deutsche Bank's internal safeguards for money laundering and client risk.
DFS fined the bank $425 million, while FCA's fine was 163 million pounds, or about $204 million.
"This Russian mirror-trading scheme occurred while the bank was on clear notice of serious and widespread compliance issues dating back a decade," DFS Superintendent Maria Vullo said in the statement.
Bank units tasked with legal compliance and preventing money laundering were understaffed and ineffective, the DFS said.
In "mirror" trades, clients would purchase stocks in rubles in Moscow while other clients who were related or even had the same owner would sell the same stock at the same price through the bank's London branch.
"By converting rubles into dollars through security trades that had no discernible economic purpose, the scheme was a means for bad actors within a financial institution to achieve improper ends while evading compliance with applicable laws," according to the legal document detailing the settlement with DFS.
In addition to paying the fines, Deutsche Bank also will be required to hire an outside monitor to review its internal compliance measures.