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NYDFS suspends PwC consultation activity

20 August 2014

NYDFS suspends PwC consultation activity - Read more

The New York Department of Financial Services (NYDFS) has suspended PwC’s consultation activity for two years for falsification of data.

According to the NYDFS, PwC altered a report regarding sanctions and anti-money laundering compliance, which was submitted to the regulator.

Under pressure from the Bank of Tokyo Mitsubishi (BTMU) executives, PwC removed a warning in an objective report to NYDFS about the bank’s scheme to falsify wire transfer information for Iran, Sudan and other sanctioned entities.

As a result, the firm’s regulatory advisory service has been suspended from accepting consultation engagements from financial institutions for two years; has been ordered to pay a fine of $25 million (£15 million); and ordered to implement a series of reforms to address conflicts of interest in consulting.

Superintendent Lawsky said: ‘We are continuing to find examples of improper influence and misconduct in the bank consulting industry. 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.’

Pressured into criminal activity

As part of an investigation spanning more than a year, NYDFS alleges it uncovered that during the 11th month (May 2008) of a 12-month engagement (June 2007 to June 2008), PwC found that BTMU had issued special instructions to its employees to strip wire messages of information that would have triggered sanctions compliance alerts – after BTMU denied having such a policy only weeks before in a meeting with regulators.

PwC inserted into an earlier draft of the report an express acknowledgement informing regulators that ‘had PwC know[n] about these special instructions [initially] then we would have used a different approach in completing this project.’ Specifically, PwC would have conducted a more in-depth, forensic investigation into BTMU’s scheme, rather than simply a more rote, mechanical review of the transactions provided.

However, at BTMU’s request, PwC ultimately removed the original warning language from the final report the bank submitted to regulators and, in fact, inserted a passage stating the exact opposite conclusion: ‘[W]e have concluded that the written instructions would not have impacted the completeness of the data available … our methodology to process and search the [data] was appropriate.’

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