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PwC Faces Suspension, Fine From New York Regulator

The New York State Department of Financial Services conducted an investigation into PwC's regulatory advisory services arm involving work it did for Bank of Tokyo Mitsubishi.

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, the agency announced today.

New York superintendent of financial services, Benjamin Lawsky, also announced that PwC must "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)." These sanctions come after a year-long investigation by the agency.

According to the agency, PwC, under pressure from BTMU executives, removed a warning in a report to regulators surrounding the bank's scheme to falsify wire transfer information for Iran, Sudan, and other sanctioned entities. The agency says PwC altered a historical transaction review (HTR) report submitted to regulators on wire transfers. 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, the investigation found.

Per the agency's investigation:

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"...

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.

As part of an agreement with the Department of Financial Services, during its suspension PwC will work to implement a series of reforms to help address conflicts of interest in the consulting industry. The reform agreement can be viewed here.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

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Byurcan
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Byurcan,
User Rank: Author
8/20/2014 | 5:00:04 PM
Re: Regulatory Problems
The finger can always be pointed at the Fed, when banks (and governments) know they have an elastic money supply, they can be less cautious with their money and make more risky, ill-advised investments when the Fed can just make more money for them to spend or be bailed out by. This then creates inflation, which drives down the value of the dollar, which hurts people like you and me and 90% of low-to-middle class America as our savings is worth less, since the dollar is worth less. I have lots of material from prominent economists throughout the past century about the evils of central abnking if anyone is inetrested in learning more. 


Disillusion with the Fed is very widspread in this country and crosses the political spectrum. That's why you'll see both hippies at Occupy gatherings and those at Tea Party gatherings sporting "End the Fed" signs.
KBurger
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KBurger,
User Rank: Strategist
8/20/2014 | 4:49:32 PM
Re: Regulatory Problems
Ah, the old "moral hazard" argument! Well, I think that's valid, although I don't know that I would point the finger at the Fed as the villain here.
Byurcan
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Byurcan,
User Rank: Author
8/20/2014 | 4:46:22 PM
Re: Regulatory Problems
Nothing to do with regulation, but the fact that banks know there is a bail-out for them. So if they do business with risky players, it doesn't matter, the Fed will create more money, and the government will bail them out.
KBurger
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KBurger,
User Rank: Strategist
8/20/2014 | 2:53:09 PM
Re: Regulatory Problems
Umm, what does that have to do with anti-money-laundering requirements? Please don't tell me that regulation is forcing banks to do business with bad players.
Byurcan
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Byurcan,
User Rank: Author
8/18/2014 | 12:52:08 PM
Re: Regulatory Problems
Well I don't mean just regulation, I'm talking the whole thing. Mainly the Fed's ability to create money whenever it wishes, which thus allows banks to take risks they normally would not if they didn't know that they have a backup that will bail them out, i.e. the federal government, and it's money-creating arm, the Federal Reserve.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
8/18/2014 | 12:49:29 PM
Re: Regulatory Problems
Yes that's what I was getting at. There needs to be changes in the way banks are regulated, not just how much they are.
Byurcan
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Byurcan,
User Rank: Author
8/18/2014 | 12:47:14 PM
Re: Regulatory Problems
I don't believe the problem is the typical more v less regulation battle, but rather a complete dismantling and overhauling of the entire current financial system. But that's a lenghtier discussion for another forum.
Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
8/18/2014 | 12:43:48 PM
Regulatory Problems
As much heat as banks get today publicly, our regulatory framework needs a lot of work, and this story shows that the holes in it extend beyond the regulatory agencies themselves. I think it's easy to say that regulators need to be more skeptical towards the industry in light of this incident (and all the others over the last few years), but that will require serious reform of the regulatory agencies. And I don't think anybody is pushing for that given all the change already happening in regulation.
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