Deloite Sanctioned by New York State

June 19th, 2013
in econ_news, syndication

Econintersect:  There is another black eye for independent accountancy.  The Department of Financial Services (DFS) for New York State has extracted an agreement for a one year suspension from business with New York banks and a $10 million fine for Deloite's advisory practices at Standard Chartered.  The suspension applies only to Deloite's consulting business and not to it's auditing operations, which are in a separate branch of the company.


Follow up:

Standard Charter reached settlement agreements with New York State ($340 million) and other U.S. agencies ($327 million) in two separate events in 2012.  The bank agreed to those settlements of charges that it violated U.S. sanctions against Iran.

Standard Charter has a long history of illegal activities in the area of money-laundering.  The advisory arrangement between the bank and Deloite was set up in 2004 as part of an agreement with New York State to address money-laundering control at the bank.

At the heart of the allegations against Deloite was a "watered-down version" of an advisory report.  The firm apparently removed at Standard Charter's request some specific material related to how wire messages on transactions could be manipulated by banks to evade money-laundering controls.  If the report had not been changed, Standard Charter would have received explicit internal control instructions that would also have been read by DFS regulators.

By changing the report Deloite did not disclose that the bank needed to implement improved internal controls actions, the bank could then continue such actions if they had so engaged and the DFS would not have been made aware of the needed controls.

The actions had been interpreted last August by DFS as "apparently aiding" money-laundering.  That allegation was not present in the settlement.  From Reuters:

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.

The report modification was an abrogation by Deloite of their terms of engagement which was to provide consultancy to the bank on how to fulfill all requirements of the law.  According to Reuters the agreement reinforces what the function should have been and will be henceforth:

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.

An article in the Financial Times summarized the state's view of the matter:

“At times, the consulting industry has been infected by an ‘I’ll scratch your back if you scratch mine’ culture and stunning lack of independence,” said Ben Lawsky, superintendent of DFS. He added that the regulator’s work “investigating and reforming the consulting industry is far from over”.

Mr Lawsky said the Deloitte agreement was a model that DFS intended to use to govern other independent consultants, an area he identified this year as a “vital concern to DFS”. It comes amid broader scrutiny of the independence of consulting firms.


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