PricewaterhouseCoopers Regulatory Advisory Services has been fined $25 million and will be suspended for 24 months from accepting consulting engagements at financial institutions regulated by the New York State Department of Financial Services.
According to DFS Superintendent Benjamin Lawsky, who announced the penalties Monday, an investigation revealed PricewaterhouseCoopers had altered historical transaction reports, or HTRs, submitted to regulators on behalf of its client, Bank of Tokyo Mitsubishi, to hide evidence the bank was transferring money for sanctioned entities, including the nations of Iran and Sudan.
“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,” Lawsky said in a press release.
The investigation by the department determined Bank of Tokyo Mitsubishi executives pressured PricewaterhouseCoopers to improperly alter an historical transaction review report submitted to regulators on wire transfers the bank performed on behalf of sanctioned countries and entities, according to the press release.
One local expert in financial regulation questioned the timing of the enforcement efforts.
“In my discussions with regulators, there”™s an indication that from the very top, it”™s politically appropriate to be damn tough on banks and the people who do business with banks,” said John Alan James, chairman emeritus of the Center for Global Governance, Reporting and Regulation at Pace University”™s Lubin School of Business. “These types of sanctions aren”™t new. They started with the embargo against Cuba in 1958. So why pick a ”˜Big Four”™ audit firm now? I”™m not saying they”™re wrong to do so, but why now?”
In 2008, while the company was consulting for Bank of Tokyo Mitsubishi, the accounting and consulting firm learned that special instructions had been issued to bank employees to strip messages of information that would have triggered sanctions compliance alerts ”“ a policy that the bank had earlier denied to regulators, DFS said. The accounting firm inserted into an earlier draft of the report an express acknowledgement informing regulators that “had PwC know(n) about these special instructions at the initial Phase of the HTR then we would have used a different approach in completing this project.”
This finding called into question whether PricewaterhouseCoopers had sufficient information to undertake a thorough review. However, according to DFS, at the bank”™s request, the accounting firm took out the warning language from the final report that was submitted to regulators and inserted a passage stating an opposite conclusion, reading “(W)e have concluded that the written instructions would not have impacted the completeness of the data available for the HTR and our methodology to process and search the HTR data was appropriate.”
In addition, according to Lawsky’s announcement, PricewaterhouseCoopers whitewashed other information from the historical transaction report, including the English translation of the bank”™s wire stripping instructions, which referenced the bank doing business with “enemy countries” of the U.S.; deleting a regulatory term of art that PricewaterhouseCoopers used throughout the report in describing Bank of Tokyo Mitsubishi”™s wire-stripping instructions (“Special Instruction”) and replacing it with a nondescript reference that lacked regulatory significance (“Written Instruction”); and deleting a section of the historical transaction report that discussed the appearance of special characters (such as “#” “-” and “,”) in wire transfer messages, which disabled the accounting firm”™s filtering system from detecting at least several transactions involving Sudan and Myanmar.
Three PricewaterhouseCoopers employees, two of whom are now retired, were cited specifically in the press release, though not by name, of having been significantly involved in the relationship between the accounting firm and the bank that resulted in the investigation and subsequent penalties. On numerous occasions, the one employee who is still with PricewaterhouseCoopers made statements in emails to the accounting firm”™s partners and employees that elevated his apparent concern for client satisfaction over the need for objective inquiry, Lawsky’s announcement said.
“I”™m not advocating looking for anything in the cases deemed allowable because if you find something at this point it will open up a whole other can of worms at this point,” the unnamed director who led the firm”™s technology and data collection team told fellow employees. The unnamed director is a PricewaterhouseCoopers partner, according to the DFS announcement.
“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,” said Miles Everson, U.S. advisory leader for PricewaterhouseCoopers, in a statement emailed to the Business Journal by the firm”™s public relations office.
PricewaterhouseCoopers has offices on Madison Avenue in Manhattan and Stamford, Conn.
This story has been updated to include a comment from PwC’s U.S. advisory leader.
