New York State’s chief banking regulator on Tuesday announced a $315 million settlement with the Bank of Tokyo-Mitsubishi UFJ, accusing the bank of “misleading regulators” about its business with Iran and other countries blacklisted by the United States.
The latest action is an outgrowth of a separate settlement, reached in June of last year, that took aim at the Japanese bank for routing transactions with Iran through New York.
The initial settlement drew a $250 million penalty, a sum that was based in part on a report that assessed the extent of the bank’s wrongdoing. The report, conducted by the consulting firm PricewaterhouseCoopers, was supposed to be objective.
But the New York State Department of Financial Services, the agency headed by Benjamin M. Lawsky, now believes that the bank compromised that objectivity. Citing internal emails and documents, Mr. Lawsky argues that the bank “pressured” PricewaterhouseCoopers to “water down” and alter the report.
“It is clear that we — as a regulatory community — must work aggressively to reform the cozy relationship between banks and consultants, which far too often has resulted in shoddy work that sweeps wrongdoing under the rug,” Mr. Lawsky said in a statement.
The Bank of Tokyo-Mitsubishi, which noted that it “voluntarily submitted the report” to regulators in 2008, said in a statement that it was “committed to conducting business with the highest levels of integrity and regulatory compliance and to continually improving its policies and procedures.”
The settlement deals the latest blow to the financial consulting industry, which operates as a sort of shadow regulator of Wall Street. Lawmakers, however, have criticized the industry for its inherent conflict of interest: The consultants are paid by the very banks they are expected to examine.
Mr. Lawsky’s case against the Bank of Tokyo-Mitsubishi follows a separate action already taken against PricewaterhouseCoopers’s consulting unit in the matter. In August, Mr. Lawsky imposed a $25 million penalty on the consulting firm, accusing it of “improperly altering” the report. The firm said at the time that the report was “detailed” and “disclosed the relevant facts.” Still, its regulatory consulting unit was barred from doing certain work for banks regulated by New York State for two years.
Like that deal, the settlement announced on Tuesday with the Bank of Tokyo-Mitsubishi is not solely a fine. Under the agreement, the bank also had to take disciplinary action against employees who were “involved in the watering-down of the PwC report.”
One employee, a manager in the anti-money laundering compliance office, resigned. Two other employees in the bank’s compliance department were banned from “conducting business involving any New York banks (or other financial institutions) regulated” by Mr. Lawsky.
“We continue to believe that fines — while often necessary — are not sufficient to deter misconduct on Wall Street,” Mr. Lawsky said in the statement. “We must also work to impose individual accountability, where appropriate, and clearly proven, on specific bank employees that engaged in wrongdoing.”
Mr. Lawsky’s case centers on the pressure that bank employees exerted on the consulting firm.
In an initial draft of the report, PricewaterhouseCoopers referred to a section from a bank manual that outlined “special instructions” employees should follow to ensure that transactions with Iran and other countries under United States sanctions did not draw attention. Under pressure from the bank, the auditing firm later deleted those paragraphs.
In the initial draft, PricewaterhouseCoopers acknowledged the limitations of its review. Had the firm known about “these special instructions” at the start of the review, it said, “then we would have used a different approach in completing this project.”
PricewaterhouseCoopers deleted that disclosure from the final draft — and did an about-face. “Our methodology to process and search” transactions “was appropriate,” it said.
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