Deloitte Financial Advisory Services (FAS) is to refrain from offering consulting work for up to a year at certain finance firms in New York State and pay a $10m fine as part of a voluntarily agreement with the New York Department of Financial Services (DFS), which found "misconduct, violations of law, and lack of autonomy" in Deloitte’s consulting work at Standard Chartered on anti-money laundering issues.
A New York Department of Financial Services (DFS) investigation found Deloitte failed to demonstrate the necessary autonomy required of consultants performing regulatory work.
Based primarily on Standard Chartered’s objection, Deloitte had removed a recommendation aimed at rooting out money laundering from its final written report on the matter to the DFS. The recommendation discussed how wire messages or ‘cover payments’ on transactions could be manipulated by banks to evade money laundering controls on US dollar clearing activities.
Deloitte was also found to have violated New York Banking Law 36.10 by disclosing confidential information of other Deloitte clients to Standard Chartered. A senior Deloitte employee sent emails to Standard Chartered employees containing two reports on anti-money laundering issues at other Deloitte client banks. Both reports contained confidential supervisory information, which Deloitte FAS was legally barred by New York Banking Law 36.10 from disclosing to third parties.
As a result of the misconduct Deloitte has agreed to implement a set of reforms designed to help address conflicts of interest in the consulting industry. The DFS said it intends to use the reforms as a model that will govern all independent consulting firms that seek to be retained or approved by DFS. It also said the reforms could potentially serve as a template for other government agencies that retain independent consultants in regulatory work.
New York state governor Andrew Cuomo said: "The state’s agreement with Deloitte will serve as a new model for reforming the financial services consulting industry in New York as well as across the country. When tasked by government agencies to undertake regulatory work at financial institutions, it’s critical for these consultants to remain autonomous and avoid conflicts of interest. Our homeowners, investors and economy are protected when independent consultants are truly ‘independent."
Benjamin Lawsky, DFS superintendent of financial services, said: "At times, the consulting industry has been infected by an ‘I’ll scratch your back if you scratch mine’ culture and a stunning lack of independence. Today, we are taking an important step in helping ensure that consultants are independent voices – rather than beholden to the large institutions that pay their fees. Our aggressive work investigating and reforming the consulting industry is far from over and will continue in the days, weeks, and months ahead."
In response Deloitte said: "Deloitte FAS has voluntarily entered into an agreement with the New York Department of Financial Services that resolves DFS’ inquiry into Deloitte FAS’ role in the 2004-2005 Standard Chartered Bank matter.
We are pleased that, as the agreement states, a thorough investigation by DFS found no evidence that Deloitte FAS knew of, or aided, abetted or concealed any alleged violation of law by SCB."
The statement also drew attention to the fact that the agreement did not affect the engagement of any entity other than Deloitte FAS, and that the agreement and its terms were not a reflection of any other practises of Deloitte-affiliated entities.
Deloitte also added it is only refraining from independent consultant engagements which require DFS approval for a period of six to 12 months. Adding that the majority of work carried out by Deloitte FAS does not require DFS approval.