(Adds announcement of settlement)
By Karen Freifeld
Aug 18 (Reuters) - PricewaterhouseCoopers has agreed to pay $25 million and its regulatory advisory unit will be suspended from certain consulting work for New York-regulated banks for two years after being accused of improperly altering a report to regulators on sanctions compliance at Bank of Tokyo-Mitsubishi UFJ Ltd.
New York's Department of Financial Services, which regulates banks in the state, announced the settlement with the consulting firm on Monday.
In June 2013, Bank of Tokyo-Mitsubishi agreed to pay $250 million to New York State for deleting information from $100 billion in wire transfers that authorities could have used to police transactions with Iran and other sanctioned countries.
At issue with Bank of Tokyo-Mitsubishi, one of the world's biggest banks, were 28,000 transactions the bank processed through New York between 2002 and 2007.
PricewaterhouseCoopers was engaged as a consultant to the bank for a year starting June 2007, according to a statement from the regulator. In May 2008, the firm found that the bank had a policy to strip out wire information for sanctioned clients including Iran, Sudan and other sanctioned entities.
PwC said it would have done a more in depth investigation rather than a "rote, mechanical review of the transactions provided to it by the bank" had it known of the "bank's scheme to falisfy wire transfer information," the statement said.
But under pressure from bank lawyers and executives, the consulting firm diluted its report to regulators about the bank policy and stated its review was appropriate, a person familiar with the matter told Reuters on Sunday.
Information that the report was watered down could cause the New York regulator to revisit the Bank of Tokyo-Mitsubishi settlement, the person said.
"This matter relates to a single engagement completed more than six years ago in which PwC searched for and identified relevant transactions that were self-reported to regulators by PwC's client. PwC's detailed report also disclosed the relevant facts that PwC learned subsequent to its search process," Miles Everson, PwC's U.S. Advisory leader said in a statement.
"The firm is committed to improving continuously and meeting changes in regulatory expectations," he added.
A Bank of Tokyo-Mitsubishi spokesman told Reuters on Sunday that the bank did not have detailed information on the matter.
The action against PwC is part of a crackdown on so-called independent consultants by New York's financial regulator, led by Department of Financial Services superintendent Benjamin Lawsky.
In June 2013, Deloitte LLP's financial advisory unit agreed to pay $10 million and refrain for one year from new business with New York-regulated banks to settle accusations it watered down a report on money laundering controls at Standard Chartered Bank.
Earlier, the British bank agreed to pay New York $340 million over its dealings with Iran and other sanctioned countries after the regulator threatened to revoke its license to operate in the state.
As part of its settlement, PwC agreed to not take any new engagements for 24 months that would require the New York regulator to approve its advisory unit as an independent consultant or to authorize the disclosure of confidential banking information.
(Additional reporting by Arnab Sen in Bangalore and Taiga Uranaka in Tokyo; Editing by Matt Driskill and Tom Brown)