2/4/2016 Press Release ­ August 18, 2014: NYDFS Announces Pricewaterhousecoopers Regulatory Advisory Services Will Face 24­Month Consulting Suspensio...

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August 18, 2014

Contact: Matt Anderson, 212‐709‐1691

NYDFS ANNOUNCES PRICEWATERHOUSECOOPERS REGULATORY ADVISORY SERVICES

WILL FACE 24‐MONTH CONSULTING SUSPENSION; PAY $25 MILLION; IMPLEMENT

REFORMS AFTER MISCONDUCT DURING WORK AT BANK OF TOKYO MITSUBISHI

Under Pressure from BTMU Executives, PwC Removed Warning in Report to Regulators Regarding the

Bank's Scheme to Falsify Wire Transfer Data for Sanctioned Clients

PwC Director: "[I]f you find something at this point it will open up a whole other can of worms." . . . "

[To] raise an issue of data completeness at this point does not do anyone, especially the bank, any

good."

Today's Action Follows NYDFS One‐year Suspension of Deloitte FAS for Misconduct During Standard

Chartered Consulting Work

Benjamin M. Lawsky, Superintendent of Financial Services, announced today that PricewaterhouseCoopers ("PwC")

Regulatory Advisory Services will be suspended for 24 months from accepting consulting engagements at financial

institutions regulated by the New York State Department of Financial Services (NYDFS); make a $25 million payment

to the State of New York; and implement a series of reforms after improperly altering a report submitted to

regulators regarding sanctions and anti‐money laundering compliance at Bank of Tokyo Mitsubishi (BTMU). Under

pressure from BTMU executives, PwC removed a warning in an ostensibly "objective" report to regulators

surrounding the Bank's scheme to falsify wire transfer information for Iran, Sudan, and other sanctioned entities.

Superintendent Lawsky said: "We are continuing to find examples of improper influence and misconduct in the bank

consulting industry. As a regulatory community, it may well be advisable for us to take a hard look in the mirror and

ask whether we are doing enough to root out and investigate this troubling web of conflicts. When bank executives

pressure a consultant to whitewash a supposedly 'objective' report to regulators – and the consultant goes along

with it – that can strike at the very heart of our system of prudential oversight."

A more than year‐long DFS investigation uncovered that PwC – under pressure from BTMU executives – improperly

altered an "historical transaction review" (HTR) report submitted to regulators on wire transfers that the Bank

performed on behalf of sanctioned countries and entities. During the 11th month (May 2008) of a 12‐month

engagement (June 2007 to June 2008), PwC found that BTMU had issued special instructions to Bank employees to

strip wire messages of information that would have triggered sanctions compliance alerts – after the Bank denied

having such a policy only weeks before in a meeting with regulators. PwC understood that this improper data

manipulation could significantly compromise the HTR’s integrity and PwC inserted into an earlier draft of the report

an express acknowledgement informing regulators that "had PwC know[n] about these special instructions at the

initial Phase of the HTR then we would have used a different approach in completing this project." Specifically, PwC

would have conducted a more in‐depth, forensic investigation into the Bank's scheme – rather than simply a more

rote, mechanical review of the transactions provided to it by the Bank. In other words, the discovery of the Bank's

scheme to falsify wire transfer information cast doubts on whether PwC had a complete set of data to review (among

other issues).

However, at the Bank’s request, PwC ultimately removed the original warning language from the final HTR Report

the Bank submitted to regulators and, in fact, inserted a passage stating the exact opposite conclusion: "[W]e have

concluded that the written instructions would not have impacted the completeness of the data available for the HTR

and our methodology to process and search the HTR data was appropriate." Moreover, also at the Bank’s request,

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2/4/2016 Press Release ­ August 18, 2014: NYDFS Announces Pricewaterhousecoopers Regulatory Advisory Services Will Face 24­Month Consulting Suspensio...

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PwC removed other key information from drafts of the HTR Report, including:

deleting the English translation of BTMU’s wire stripping instructions, which referenced the Bank doing

business with "enemy countries" of the U.S;

deleting a regulatory term of art that PwC used throughout the report in describing BTMU’s wire‐stripping

instructions ("Special Instruction") and replacing it with a nondescript reference that lacked regulatory

significance ("Written Instruction");

deleting most of PwC’s discussion of BTMU’s wire‐stripping activities;

deleting information concerning BTMU’s potential misuse of OFAC screening software in connection with its

wire‐stripping activities;

deleting several forensic questions that PwC identified as necessary for consideration in connection with the

HTR Report; and

deleting a section of the HTR Report that discussed the appearance of special characters (such as "#" "‐" and

",") in wire transfer messages, which disabled PwC’s filtering system from detecting at least several

transactions involving Sudan and Myanmar. (e.g. SUD#AN).

Copies of four versions of the relevant section of the HTR report – which were progressively sanitized based on

changes demanded by the Bank – are available here. The first three documents are late‐stage drafts of the HTR

Report and the last document is the final version of the report submitted to regulators.

PwC Individuals Involved in the Engagement

Two PwC partners were responsible for supervising the HTR. They are now both retired from PwC. During the HTR, a

PwC Director led the firm’s technology and data collection team. This Director is presently a PwC partner.

On numerous occasions, this Director made statements in emails to PwC partners and employees that elevated his

apparent concern for client satisfaction over the need for objective inquiry. Those statements included:

To "raise an issue of data completeness at this point does not do anyone, especially the bank, any good."

There is "no tangible benefit by doing data mining [for missing wire messages involving improper

transactions]. It can only raise issues."

"I'm not advocating looking for anything in the cases deemed allowable because if you find something at this

point it will open up a whole other can of worms at this point."

Warning that a PwC memorandum stating that language stripped from a wire message would "likely have

resulted in [OFAC] alerts in the U.S." was "probably correct, but the bank or [its attorneys] may get all twisted

up about this affirmative statement."

"I don’t recall OFAC asking for this and if we do find information it points the finger at another bank, it will not

make BTMU any more friends. Just want to make sure I understand the request and that we are sensitive to

how we work with the bank."

No one at PwC reprimanded or even told Director that his comments were inappropriate because they drew the

firm’s objectivity seriously into question.

PwC Consulting Reforms

During its suspension, PwC will work to implement a series of reforms to help address conflicts of interest in the

consulting industry. These reforms are modeled on a similar agreement DFS reached with Deloitte Financial Advisory

Services in 2013 when DFS suspended that company for 12‐months from accepting consulting engagements at DFS‐

regulated institutions. The reform agreement with PwC is available here.

To view a copy of NYDFS’ order today regarding PwC, please visit, link.

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