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Financial Consulting Firm Agrees to Pay $15 Million to Resolve NYDFS Investigation
On August 18, a Washington D.C.-based financial consulting firm agreed to pay $15 million to resolve allegations that the firm failed to meet the current requirements of the NY Department of Financial Services (NYDFS) for consultants hired to perform regulatory compliance engagements. In addition to the $15 million penalty, the consulting firm agreed not to accept new engagements which require the NYDFS to disclose confidential supervisory information for six (6) months, and that it will attest that any reports submitted to the NYDFS on behalf of a client is objective and reflects the consulting firm’s best independent judgment. The Agreement follows a report released by the NYDFS detailing the consulting firm’s practices when preparing and submitting to the NYDFS reports of its findings regarding sanctions compliance with respect to certain transactions of a large, multi-national bank.
New York Announces Latest Action Against A Bank Consulting Firm
On August 18, the New York DFS announced an settlement with a bank consulting firm to resolve allegations related to certain services it performed for a bank charged last year with sanctions violations. The consulting firm allegedly altered an historical transaction review (HTR) report submitted to regulators regarding wire transfers that the bank completed on behalf of sanctioned countries and entities. At the bank’s request, the firm allegedly removed from the original HTR report key information and warning language concerning the bank’s transactions. Specifically, the DFS alleges that the firm: (i) removed the English translation of the bank’s wire stripping instructions; (ii) removed a regulatory term to describe the wire-stripping instructions and a discussion of the activities; and (iii) deleted “several forensic questions” that the firm identified as necessary for consideration in connection with the HTR report. The agreement prohibits the firm from doing business with any DFS-regulated institution for two years and requires the firm to: (i) pay a $25 million penalty; and (ii) implement certain reforms to address the conflicts of interest within the consulting industry.
New York Signals Crackdown on Bank Consultants with Substantial Fine, Temporary Ban
On June 18, New York announced an agreement with a bank consulting firm in connection with the firm’s work for a state-regulated bank alleged to have engaged in deceptive and fraudulent misconduct on behalf of client Iranian financial institutions in violation of anti-money laundering and sanctions rules. An investigation conducted by the New York Department of Financial Services (DFS) found that the consultant (i) failed to demonstrate autonomy and removed a recommendation aimed at rooting out money laundering from a written final report submitted to the DFS, and (ii) violated New York Banking Law § 36.10 by disclosing confidential information of other consulting firm clients to the bank. To resolve that investigation, the consulting firm agreed to (i) a voluntary one-year suspension from consulting work at any DFS-regulated institution, (ii) pay a $10 million penalty, and (iii) adopt a new code of conduct. The DFS intends for the code of conduct to serve as “a new model that will govern independent consulting firms that seek to be retained or approved by DFS.” The code of conduct states, among other things: (i) the financial institution and consultant must disclose all prior work by the consultant for the institution in the previous three years, (ii) the engagement letter must require that the ultimate conclusions and judgments will be that of the consultant based upon the exercise of its own judgment, (iii) the consultant and institution must submit a work plan for the engagement and timeline for completion of work, (iv) the DFS and the consultant must have ongoing communication, including outside the presence of the institution, and (v) the consultant must implement numerous record keeping, training, reporting, and other policies and procedures.