The New York State Department of Financial Services claimed that Promontory Financial Group “exhibited a lack of independent judgment” in connection with its review of Standard Chartered Bank’s compliance with anti-money laundering requirements. The NYSDFS also claimed that certain testimony by Promontory witnesses during the course of the department’s investigation into the firm’s conduct “lacked credibility.”
Promontory was retained by SCB in 2010 after the bank reported to various regulators, including the New York State Banking Department, that, from at least 2001 through 2007, it had engaged in conduct related to the evasion of sanctions against certain foreign nationals designated by the Office of Foreign Asset Control of the US Department of Treasury.
Subsequently, in 2012, SCB agreed to pay US $340 million to the NYSDFS for providing US dollar clearing services to prohibited Iranian customers with respect to approximately 59,000 transactions through the bank’s New York branch. Later, SCB agreed to pay an additional US $300 million penalty to NYSDFS for certain failures in its anti-money laundering monitoring system that the bank did not disclose prior to its 2012 settlement.
The NYSDFS claimed it relied on Promontory’s review of SCB at least in part to evaluate the bank’s conduct for the purpose of assessing the 2012 penalty. Because of Promontory’s alleged wrongful conduct, the NYSDFS said it would deny all requests to provide the firm with confidential supervisory information “until further notice.” No monetary penalty was assessed. (Click here for further information on the prior NYSDFS actions against SCB in the article, “Standard Chartered Bank Agrees to Pay NYS Department of Financial Services US $300 Million for Failing to Fix AML Problems” in the September 1, 2014 edition of Bridging the Week.)
In its Report of Investigation related to this matter, the NYSDFS cited multiple occasions “where Promontory, at the direction of the Bank or its counsel, or at its own initiative, made changes to ‘soften’ and ‘tone down’ the language used in its reports, avoid additional questions from regulators, omit red flag terms or otherwise make the reports more favorable to the Bank.” The NYSDFS also provided examples of answers that Promontory employees provided to questions posed by NYSDFS staff that “were directly contradicted by the plain language of the documents they were shown in [depositions] – in many cases emails that they had themselves written.”
Promontory said it will seek a court stay of the NYSDFS action against it, “and defend [itself] against this regulatory overreach.”
Last year, the NYSDFS fined PricewaterhouseCoopers LLP US $25 million and required it to implement certain practice reforms for allegedly failing to “demonstrate the necessary objectivity, integrity, and autonomy that is now required of consultants performing regulatory compliance work for entities supervised by the Department.” (Click here for details.) In 2013, Deloitte Financial Advisory Services LLP was likewise fined US $10 million and required it to implement certain practice reforms by the NYSDFS for allegedly similar problematic conduct. (Click here for details.) Both firms agreed to the payment of their fine as part of a settlement with NYSDFS.