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Deloitte Agrees to Pay New York State $10 Million Penalty

June 18 (Bloomberg) -- Deloitte LLP became the first consulting firm to be fined and suspended as New York State’s financial regulator tightens oversight of the companies that banks hire to help them comply with regulations.

Deloitte agreed to pay $10 million to the state’s Department of Financial Services and halt consulting services for state-regulated financial institutions for one year. The suspension affects Deloitte Financial Advisory Services LLP and not other parts of the company, New York-based Deloitte said.

Regulators found “misconduct, violations of law and lack of autonomy” in Deloitte’s consulting work for London-based Standard Chartered Plc, the state said in a statement today. Standard Chartered hired Deloitte in 2004 to review anti-money laundering controls at the bank, according to the regulator.

“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,” Benjamin M. Lawsky, New York’s superintendent of financial services, said in the statement.

The state will require all consulting firms and the financial institutions that hire them to follow a new code of conduct. This will include disclosing to the regulator any past work that could create a conflict of interest, getting consultants to vouch for their work’s independence, and listing all employees who review reports, according to the regulator.

‘Follow Their Lead’

They will also have to maintain a record of all recommendations that banks failed to adopt, attend monthly meetings with the state regulator and have policies in place to protect confidential information, according to the statement.

“It’s about time state regulators step in and use their authority to police financial services companies,” said Dennis Kelleher, president and CEO of Better Markets, a Washington-based non-profit that promotes public interest in the financial markets. “Let’s hope other state regulators follow their lead.”

The state regulator didn’t find evidence that Deloitte concealed or was aware of any alleged violations of the law by Standard Chartered, Deloitte said in an e-mailed statement.

$2 Billion

The Office of the Comptroller of the Currency estimated that banks spent about $2 billion to hire consulting firms to conduct reviews of mortgage foreclosures.

The government eventually stopped the reviews, which had been required by the OCC and the Federal Reserve, and agreed to a $9.3 billion settlement with the lenders, saying too much money had been spent on consultants. The Government Accountability Office said in an April report that the effort was hampered by poor planning by the regulators who demanded it.

The banks hired consulting firms including Promontory Financial Group LLC, Ernst & Young LLP and PricewaterhouseCoopers LLP to conduct the reviews. Arthur Levitt, a member of the board of Bloomberg LP, the parent of Bloomberg News, is a senior adviser to Promontory.

Lawsky has emphasized the importance of independence by bank-hired consultants and the need for regulators to oversee them.

“If the monitors or consultants are simply puppets of the big banks that pay their fees -- rather than independent voices -- then their work-product can hardly be deemed reliable,” Lawsky said in a speech in April. Regulators, he added, need to be better at “managing the monitors.”

Removed Recommendation

Deloitte violated New York banking law by disclosing confidential information about its other clients to Standard Chartered, the state regulator found. The company also failed to show the necessary autonomy required by 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 regulator said in today’s statement. “The recommendation discussed how wire messages or ‘cover payments’ on transactions could be manipulated by banks to evade money laundering controls.”

Lawsky, whose department monitors banks and insurers across the state, surprised federal regulators last year when he accused Standard Chartered of helping Iran launder about $250 billion and threatened to pull the bank’s license to operate in the state. The bank, which makes most of its money in Asia, agreed in August to pay New York $340 million to settle the probe. In December Standard Chartered agreed to pay $327 million in federal fines.

To contact the reporter on this story: Keri Geiger in New York at

To contact the editors responsible for this story: Christine Harper at; David Scheer at

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