New York banking regulators have handed PwC a two-year ban on new consulting arrangements subject to their approval and a $25 million fine after concluding the firm put client interests ahead of an objective regulatory review.

The New York Department of Financial Services says PwC partners bowed to pressure from the Bank of Tokyo Mitsubishi to remove from a report to regulators references to the bank’s activity in falsifying wire transfer information to countries such as Iran, Sudan and others entities under sanction. In 2008, PwC was performing a “historical transaction review” report to submit to regulators on wire transfers that the bank performed on behalf of sanctioned countries and entities when members of the PwC team learned in the 11th month of a 12-month engagement that bank employees were under instruction to strip wire messages of information that would trigger sanctions compliance alerts, New York officials said.

After a yearlong investigation, “having fully considered the evidence, the Department and PwC agree that PwC's work as a consultant for the Bank in this matter did not demonstrate the necessary objectivity, integrity, and autonomy that is now required of consultants performing regulatory compliance work for entities supervised by the Department,” New York DFS officials said in their settlement release. According to the New York account, PwC wrote in an earlier draft of the report that it learned of the wire transfer instructions late in the engagement and would have performed its review differently if it had known of the situation earlier in the review process. The investigation uncovered email communication among PwC partners advocating that the reference be deleted from the final report because it would not do anyone, “especially the bank, any good.” For PwC to perform more data mining late in the review process “can only raise issues,” a PwC partner said, according to New York officials.

Instead of pursuing the discovery, PwC at the request of the bank ultimately removed the warning language and reported to regulators the exact opposite, New York officials said. The investigation revealed PwC removed other key information from the drafts of the report, such as deleting the English translation of the wire stripping instructions, which referenced doing business with “enemy countries,” and doctored other language in way that would have been less likely to raise a red flag. 

Neither New York officials nor PwC named the PwC partners involved in the engagement and the alteration of the final report. The settlement release says PwC’s lead partner and supervising partner were responsible for supervising the review, and both are now retired. The release references a third PwC partner, still employed with the firm, who led the firm’s technology and data collection team. The release says that particular partner demonstrated his concern for client satisfaction over objectivity, advocating that the firm not perform further analysis so as not to expose the bank.

"This matter relates to a single engagement completed more than six years ago in which PwC searched for and identified relevant transactions that were self-reported to regulators by PwC’s client. PwC's detailed report also disclosed the relevant facts that PwC learned subsequent to its search process,” says Miles Everson, US Advisory Leader for PwC. “PwC is proud of its long history of contributing to the safety and soundness of the financial system by serving as subject matter experts in banking regulatory and compliance matters and the firm is committed to improving continuously and meeting changes in regulatory expectations. This resolution reinforces that commitment." 

Bank of Tokyo Mitsubishi officials and the New York Department of Financial Services earlier settled charges that the bank unlawfully cleared payments involving Iran, Sudan, Myanmar and from at least 2002 to 2007 with a penalty of $250 million and a comprehensive review of the bank’s sanctions compliance efforts.