New York’s Superintendent of Financial Services, Benjamin Lawsky, said Monday that PwC Regulatory Advisory Services will be suspended from accepting consulting engagements at financial institutions regulated by the New York State Department of Financial Services (NYDFS) for 24 months; it will pay US$25 million to the state of New York; and, agrees to implement a series of reforms; after the firm was found to have improperly altered a report to regulators regarding sanctions and anti-money laundering compliance at Bank of Tokyo Mitsubishi (BTMU).
The regulator says that PwC bowed to pressure from bank executives and removed a warning in what was supposed to be an objective report to regulators about the bank’s scheme to falsify wire transfer information for Iran, Sudan, and other sanctioned entities. Specifically, the DFS says that its investigation found that PwC discovered that BTMU issued special instructions to its employees to strip information that would have triggered sanctions compliance alerts from wire messages; after the bank denied having this policy in a meeting with regulators.
A draft of the report indicated that PwC would have conducted a more in-depth, forensic investigation into the bank’s scheme, if it had uncovered this information earlier. However, at the bank’s request, PwC ultimately removed the warning language from the final report; and, it says that PwC removed other key information from drafts of the report, also at the bank’s request.
“We are continuing to find examples of improper influence and misconduct in the bank consulting industry,” said Lawsky. “As a regulatory community, it may well be advisable for us to take a hard look in the mirror and ask whether we are doing enough to root out and investigate this troubling web of conflicts. When bank executives pressure a consultant to whitewash a supposedly ‘objective’ report to regulators – and the consultant goes along with it – that can strike at the very heart of our system of prudential oversight.”
The regulator says that, during the two-year suspension PwC will work to implement a series of reforms to help address conflicts of interest in the consulting industry. “These reforms are modeled on a similar agreement DFS reached with Deloitte Financial Advisory Services in 2013 when DFS suspended that company for 12-months from accepting consulting engagements at DFS-regulated institutions,” it notes.
PwC issued a statement on the settlement from Miles Everson, U.S. Advisory Leader, saying, “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.”
Everson added, “… the firm is committed to improving continuously and meeting changes in regulatory expectations. This resolution reinforces that commitment.”