International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Friday, August 22, 2014

PwC pays $25 Million fine, 2 year consulting suspension for hiding sanction and anti-money laundering violations 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."

PwC Individuals 

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.

Today's Action Follows NYDFS One-year Suspension of Deloitte FAS for Misconduct During Standard Chartered Consulting Work

NY DFSBenjamin 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.

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, 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 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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