N.Y. IN PACT WITH DELOITTE OVER STANDARD CHARTERED WORK

(The following is a reformatted version of a press release
issued by New York Governor Andrew M. Cuomo and received via e-mail. The release was confirmed by the sender.) 
June 18, 2013 
CUOMO ADMINISTRATION REACHES REFORM AGREEMENT WITH DELOITTE OVER
STANDARD CHARTERED CONSULTING FLAWS 
Deloitte Agrees to One-year Suspension from Consulting Work at
DFS-Regulated Institutions, Makes $10 Million Payment to New
York State 
Reforms at Deloitte Will Serve as Standard for All Independent
Consulting Firms Appearing Before DFS, Could Serve as National
Model for Reform 
Governor Andrew M. Cuomo today announced that the Administration
has reached an agreement with Deloitte Financial Advisory
Services (“Deloitte”) regarding the company’s misconduct,
violations of law, and lack of autonomy during its consulting
work at Standard Chartered on anti-money laundering issues.
Under the agreement, Deloitte agrees to a one-year, voluntary
suspension from consulting work at financial institutions
regulated by the New York State Department of Financial Services
(“DFS”), will make a $10 million payment to the State of New
York, and will implement a set of reforms designed to help
address conflicts of interest in the consulting industry. 
DFS intends to use the reforms Deloitte has agreed to today as a
model that will govern all independent consulting firms that
seek to be retained or approved by DFS. These reforms could also
potentially serve as a template for other government agencies
that retain independent consultants in regulatory work.
“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,” Governor Cuomo said. “When
tasked by government agencies to undertake regulatory work at
financial institutions, it is 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 M. Lawsky, 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.” 
DFS’s Investigation into Deloitte’s Work at Standard Chartered 
In 2004, Standard Chartered executed a joint written agreement
with the New York State Banking Department (“the Department” - a
DFS predecessor agency) and Federal Reserve Bank of New York
(“FRBNY”), which identified several compliance and risk
management deficiencies in the anti-money laundering and Bank
Secrecy Act controls at Standard Chartered’s New York branch.
The agreement required Standard Chartered to retain a qualified
independent consulting firm to review anti-money laundering
issues at the bank. Standard Chartered engaged Deloitte to
conduct that review. 
DFS’s investigation into Deloitte’s conduct during its
consultant work at Standard Chartered found that the company: 
· Did not demonstrate the necessary autonomy required of
consultants performing regulatory work. Based primarily on
Standard Chartered’s objection, Deloitte removed a
recommendation aimed at rooting out money laundering from its
written final report on the matter to the Department. The
recommendation discussed how wire messages or “cover payments”
on transactions could be manipulated by banks to evade money
laundering controls on U.S. dollar clearing activities. 
· 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. 
Deloitte Agreement
To resolve the misconduct, lack of autonomy, and violations of
law at Deloitte uncovered during DFS’s investigation, Deloitte
has agreed to: 
· A voluntary, one year suspension from conducting consulting
work at firms regulated by DFS;
· Make a $10 million payment to the State of New York;
· Establish and implement a new set of safeguards to address
conflicts of interest in the consulting industry. DFS intends to
use these standards as a new model that will govern independent
consulting firms that seek to be retained or approved by DFS.
When a financial institution engages an independent consultant
pursuant to an agreement or order by DFS, the following code of
conduct will apply: 
- Disclosure of Past Work that Could Represent Potential
Conflicts of Interest. The financial institution and the
consultant will disclose to DFS all prior work by the consultant
for the financial institution in the previous three years. 
- Declaration of Independence Provision. The engagement letter
between the consultant and the financial institution shall
require that the consultant’s ultimate conclusions and judgments
during its work will be based upon the exercise of its own
independent judgment - rather than that of the financial
institution. 
- Anti-tampering Provisions. The consultant’s final report shall
contain a listing of all of the personnel from the financial
institution who substantively reviewed or commented on drafts of
the findings, conclusions, and recommendations to be included in
the final report. The consultant will also bring any
disagreement over a material matter between itself and the
financial institution to DFS’s attention. 
- Records of Recommendations Financial Institutions Failed to
Implement (’Anti-Sweeping-Under-the-Rug’ Provision). The
consultant and financial institution shall maintain records of
recommendations to the financial institution that the financial
institution did not adopt, and provide such records to DFS. 
- Monitoring the Monitor, Independent Lines of Communication.
DFS will meet regularly - at least monthly - with the
independent consultant. The financial institution will consent
that contacts between the Consultant and DFS may occur outside
of the presence of the financial institution. 
- Protecting Confidential Information. The consultant shall have
in place policies and procedures designed specifically to
maintain the confidentiality of bank supervisory material. 
Provisions Regarding a Breach of this Agreement 
If Deloitte breaches this agreement, DFS may employ any and all
remedies available to it, including but not limited to an order
pursuant to New York Banking Law § 36.10 barring regulated
financial institutions from sharing confidential supervisory
information with Deloitte. 
Under New York Banking Law § 36.10, DFS can revoke a
consultant’s access to confidential supervisory information if
continued access to that information would not serve “the ends
of justice and the public advantage.” Virtually all consulting
and monitoring work at regulated financial institutions requires
access to confidential supervisory information. 
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(sgp) NY 
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