NEW YORK – A financial advisory unit of Deloitte LLP has agreed to pay $10 million and accept other New York state penalties to settle accusations of misconduct related to an investigation of money laundering at Standard Chartered Bank.
Deloitte Financial Advisory Services also agreed to a one-year ban on doing consulting work for financial institutions regulated by New York state, and to reforms designed to address 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 agreement only applies 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, the agency could agree to an early termination of the firm's suspension after six months.
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)