Standard Chartered last week settled allegations of illegal Iran-related transactions by agreeing to a $340 million fine, proceeds going to the New York Department of Financial Services. It was a rush job, designed to avoid a showdown hearing Aug. 15 over the bank's license to do business in New York. Details are not yet available. What we do know is that Standard Chartered must install a monitor for at least two years who will "report directly to DFS" and that DFS examiners will be on site at the bank for the indefinite future.
What we don't know yet is who will choose the monitor, who will pay the monitor and which firm will be the monitor. Deloitte is unlikely to get the job, given its disputed role in previous compliance lapses at the bank; accusations of doctoring status reports and of supplying Standard Chartered with confidential client information do not bode well for its chances to get another shot. In spite of public statements by Deloitte's CEO to the contrary, DFS allegations of a dereliction of duty to the public by Deloitte won't disappear quickly.
Regulatory-compliance monitoring projects are big business for the Big Four audit firms. Deloitte is already busy running a similar "monitor" project at another British bank burdened with money laundering allegations, HSBC. Deloitte leads the project team performing a "look-back" review of multiple anti-money laundering failures requested in 2010 by the Comptroller of the Currency. According to a special Reuters investigation, Deloitte is using former law-enforcement officials working under contract to perform the work. According to Reuters, the project at HSBC hasn't gone well.
PricewaterhouseCoopers will now come in behind Deloitte at HSBC to beef up efforts after a Congressional panel recently roasted the bank for the poor results, including enormous backlogs of documents of be reviewed and reports from some contractors that concerns about suspicious transactions were being ignored. Sources tell me PwC is recruiting in New York and New Jersey from the ranks of contractors working on the foreclosure "look-back" review ordered by the OCC and Federal Reserve Bank in April 2011 for PwC audit client JPMorgan Chase.
Which consultant leads the foreclosure "look-back" review at JPMorgan? Deloitte. I have raised questions about Deloitte's independence on the JPMorgan foreclosure review engagement. Most of the mortgages subject to the firm's review originated at Bear Stearns and Washington Mutual, Deloitte's former audit clients before failure forced the acquisition by JPMorgan. In addition, the Deloitte partner in charge of the JPMorgan foreclosure review consulting engagement is an audit partner previously assigned to Washington Mutual.
If Deloitte's behavior at Standard Chartered demonstrates anything, it's that an interest in doing the current work and securing future consulting work can trump an auditor's obligation to regulators and the public. Standard Chartered was allowed to select its "independent consultant," the one supposedly monitoring the bank on behalf of regulators and the public – just like the Fed and the OCC allowed the banks subject to foreclosure review to pick their watchdogs. In spite of OCC/Fed protestations that all vendor selections by the banks were thoroughly vetted for conflicts, "independent consultant" Allonhill, for example, was eventually dropped as a foreclosure "look-back" review independent consultant after reports of prior conflicts could not continue to be ignored.
