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New York regulator announces settlement with bank consultant PwC

By Ben Protess
New York Times

New York state’s financial regulator announced a settlement deal Monday with the consulting firm PricewaterhouseCoopers, capping an investigation into the firm’s cozy ties with one of the world’s biggest banks.

The regulator, Benjamin Lawsky, extracted a $25 million fine from PricewaterhouseCoopers. Under the deal, first reported by The New York Times on Sunday, Lawsky will also bar the firm’s regulatory consulting unit from performing certain assignments on behalf of New York-regulated banks for two years.

The settlement stems from the consulting firm’s work for Bank of Tokyo-Mitsubishi UFJ, the giant Japanese bank. In 2007, as the bank was facing regulatory scrutiny for doing business with countries blacklisted by the United States, it hired PricewaterhouseCoopers to conduct a review of transactions with Iran and other sanctioned countries, including some transfers routed through its New York branch.

The firm, which eventually submitted a report to regulators detailing the illicit transactions, claimed its work was objective and impartial.

But in the settlement, Lawsky accused the firm of “improperly altering” the report.

In an initial draft of the report, PricewaterhouseCoopers included paragraphs from a bank manual outlining “special instructions” employees should follow to ensure that transactions with Iran and other countries sanctioned by the U.S. did not draw attention. But under pressure from the bank, the consulting firm deleted those paragraphs in the version of the report sent to regulators.

The firm also deleted - or watered down - a number of other important issues.

The firm was not accused of a legal violation. Lawsky, who took a similar action against Deloitte last year, accused the firm of failing to demonstrate the objectivity and integrity expected of bank consultants.

The case is part of a broader examination of conflicts of interest that plague the consulting industry. The consultants are handpicked and paid by the banks they are supposed to examine.

“We are continuing to find examples of improper influence and misconduct in the bank consulting industry,” Lawsky said in a statement. “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.”

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