The saga of the over-reaching New York Department of Financial Services (“NYDFS”) and Standard Chartered Bank, chronicled on this blog here, here, and here, is the blogging gift that just keeps on giving. Standard Chartered Bank hired Promontory Financial Group to help investigate transactions that the bank conducted with countries subject to U.S. economic sanctions. Today the NYDFS announced that it was restricting Promontory’s access to certain confidential reports necessary for it to provide consulting services to banks because its final report on the Standard Chartered investigation “exhibited a lack of independent judgment.” Apparently, Promontory, at the behest of Standard Chartered’s outside counsel, changed some words in the investigative report, for example, changing a description of transactions “that should be called to the attention of authorities” to transactions that “may be of interest to the authorities.” Seriously.
But that’s not the worst of it. What really got the NYDFS to clutch its pearls and fall on the fainting couch was that Promontory had the unmitigated gall to engage in a legal analysis to determine whether certain transactions were actually OFAC violations or not.
While Promontory was preparing reports for the Department, Promontory was also providing arguments to the Bank’s counsel to help it assert that certain transactions should not be considered violations. On September 16, 2011, a Senior Analyst suggested some “fresh thinking” about emphasizing categories of transactions that were potentially exempt from OFAC sanctions. Several days later, on September 19, 2011, a Managing Director replied, “[g]ood points on fresh thinking although I think that fresh thinking about reducing the number of violations is more likely to command attention for obvious reasons.” The Senior Analyst replied about the value that Promontory might add, stating that “big wins” will come from payments that Promontory “might be able to drop off.” Regarding this email exchange, the Senior Analyst testified that Promontory provided information to the Bank’s counsel to help reduce the number of violations and a Managing Director testified that the Bank and its counsel asked Promontory if they had observed anything that “might have an impact on reducing the amount of violations.”
That’s right. Promontory was punished for actually trying to analyze whether certain transactions violated OFAC’s rules or not rather than just assuming that everything the bank did was a violation. This takes particular significance when you recall that NYDFS punished Standard Chartered for U-Turn transactions with Iran that were legal under OFAC’s rules on the ground that, no matter what OFAC itself said, these transactions violated OFAC’s rules.
Promontory, not surprisingly, has said that it will seek a stay of NYDFS’s action against it.