June 18, 2013 / 3:57 PM / 7 years ago

Deloitte to pay NY $10 million for misconduct over Standard Chartered

NEW YORK (Reuters) - Deloitte LLP’s financial advisory unit will pay $10 million and refrain for one year from new business with certain New York banks to settle accusations over its review of money laundering controls at Standard Chartered Bank.

The Deloitte Company logo is seen on a commercial tower at Gurgaon, on the outskirts of New Delhi August 9, 2012. REUTERS/Parivartan Sharma

Deloitte Financial Advisory Services also agreed to reforms designed to address potential conflicts of interest, the state Department of Financial Services said on Tuesday.

The head of the state regulator said the case was just the start of a crackdown “investigating and reforming the consulting industry.”

The ban on new business and the reforms apply only to Deloitte’s financial services advisory group, which is separate from its auditing arm.

In August, Standard Chartered agreed to pay New York $340 million for breaking U.S. sanctions against Iran and other countries. Last December, it agreed to another $327 million to resolve similar allegations by other U.S. agencies.

Deloitte, which was working as a consultant to Standard Chartered, omitted critical information in a report to regulators on its independent review of the bank, the Department of Financial Services said. The department oversees New York banks and New York branches of foreign banks.

The agency said Deloitte also violated New York banking law giving Standard Chartered confidential reports involving suspicious activity the firm had prepared for other client banks.

The settlement agreement said the regulator found no evidence the consultant intentionally helped or conspired with the bank to launder money. In August, it had said the unlawful conduct by Standard Chartered was “apparently aided” by Deloitte.

Deloitte said it was pleased the agency found no evidence it “knew of, or aided, abetted or concealed any alleged violation of law” by Standard Chartered.

Benjamin Lawsky, superintendent of the state banking regulator, said the action against Deloitte was the agency’s opening salvo against monitors and consultants hired by banks at the behest of the agency.

He said the reforms could also serve as a template for other government agencies that retain independent consultants for regulatory work.

“Today we are taking an important step in helping ensure that consultants are independent voices - rather than beholden to the largest institutions that pay their fees,” Lawsky said in a statement. “Our aggressive work investigating and reforming the consulting industry is far from over.”

In the Standard Chartered case, Deloitte had been retained as part of a 2004 agreement between the bank’s New York branch and banking regulators following other compliance failures involving anti-money laundering policies.

At one point, Standard Chartered asked Deloitte to delete from its draft report a recommendation that discussed how wire messages on transactions could be manipulated by banks to evade money-laundering controls, the agency found.

In an email about the draft report cited by Lawsky last summer, a Deloitte partner said “we agreed” to the request because “this is too much and too politically sensitive for both Standard Chartered Bank and Deloitte. That is why I drafted the watered-down version.”

As part of its reforms, Deloitte agreed to certain safeguards when it is engaged by a financial institution as part of an agreement with the New York regulator.

The firm said it would disclose all work done for the institution for the past three years, sign an engagement letter requiring it to exercise independent judgment, hold monthly meetings between the monitor and the regulator, and provide a list of those who review its findings.

According to the agreement, Deloitte won’t accept new engagements in New York that would require the regulator’s approval or access to confidential bank supervisory information. The New York regulator could agree to end the ban after six months.

The $10 million payment to New York is roughly twice the fees the firm received for its work for Standard Chartered, according to a person familiar with the matter.

The person said the one-year ban would affect only a handful of potential engagements for Deloitte Financial Advisory Services, which accounted for 5 percent of Deloitte LLP’s $13 billion in revenues for the fiscal year ending June 2012.

U.S. Senate Democrats in April urged federal regulators to rethink the way they use outside consultants to help fix problems at banks, after consultants reaped $2 billion in fees for conducting botched reviews of home foreclosures.

An official at the Office of the Comptroller of the Currency also said in April the federal agency was evaluating its use of independent consultants and exploring ways to improve the process.

Reporting By Karen Freifeld; additional reporting by Dena Aubin and Emily Stephenson; Editing by David Gregorio

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