Allegations that a banking unit of Standard Chartered Plc schemed with Iran to conceal billions of dollars in transactions have dragged Deloitte into the spotlight in another hit to the global accounting and consulting firm.
The New York State Department of Financial Services, in a case involving US anti-money laundering laws, on Monday said Deloitte LLP consultants hid details from regulators about Standard Chartered Bank's transactions with Iranian clients.
The bank's actions “left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes,” Benjamin Lawsky, superintendent of the department, said in an order made public on Monday.
Deloitte said in a statement: “Deloitte Financial Advisory Services performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees. Allegations otherwise are unsupported by the facts.”
The New York Department of Financial Services regulates New York banks and New York branches of foreign banks. It said Standard Chartered's license to operate in the state of New York may be revoked.
The allegations are the latest in a string of setbacks for the US arm of Deloitte, the world's second-largest accounting and consulting firm.
Late last year, Deloitte's US arm came under scrutiny from a member of Congress after audit industry regulators unsealed parts of a report criticising quality controls at Deloitte's corporate auditing business. Deloitte said at the time that it had made investments to improve its audit practice.
'WATERED DOWN' REPORT CITED
Deloitte consultants separately had overseen a review of HSBC banking transactions after that bank was cited for multiple anti-money laundering failures.
A Reuters review last month on that operation in New Castle, Delaware reported that managers were more concerned with clearing out paperwork as fast as possible than in investigating transactions linked to illegal activities. For details click on .
A Deloitte spokesman said in July that Deloitte's “work for HSBC was rigorous and thorough.” It declined further comment on client work.
Deloitte is one of the “Big Four” consulting and accounting firms, which also include Ernst & Young, KPMG and PwC. Together, the firms audit the books of most of the world's largest corporations. Deloitte also has a thriving consulting and advisory business.
In the Standard Chartered case, Deloitte “intentionally omitted critical information” in a report to regulators on its independent review of the bank, Lawsky said. The review was done by Deloitte's financial services advisory group, which is separate from its auditing arm.
Deloitte had been retained as part of a legal agreement between Standard Chartered's New York branch and banking regulators following other compliance failures by the bank involving anti-money laundering policies, Lawsky said.
At one point, Standard Chartered asked Deloitte to delete from its draft report any reference to payments that could reveal the bank's practices involving Iranian entities, Lawsky said.
In an email about the draft report cited by Lawsky, a Deloitte partner said “we agreed” to the request because “this is too much and too politically sensitive for both Standard Chartered Bank and Deloitte. That is why I drafted the watered-down version.”
Using Deloitte's “watered-down” report and fraudulent data, Standard Chartered misled New York banking regulators into believing it had corrected flaws, while the opposite was true, Lawsky said.
Lawsky also said that Deloitte unlawfully gave Standard Chartered confidential reports that Deloitte had prepared for two other major foreign banking clients under investigation for money laundering. The reports had “detailed and highly confidential information concerning foreign banks involved in illegal US dollar clearing activities,” Lawsky said.
AUDIT WORK ALSO SCRUTINISED
Late last year, Deloitte's audit arm came under scrutiny from Democratic Senator Claire McCaskill, who chairs a US Senate subcommittee on contracting oversight.
McCaskill in November asked Deloitte for a list of all of its audit work for the federal government, saying a report from audit regulators had raised serious questions about the integrity of its audits.
The report, from the Public Company Accounting Oversight Board, which polices US audit firms, faulted Deloitte for failing to promptly improve quality controls after problems were found in some 2007 audit inspections.
Deloitte is a major contractor for the US government, with about 6,100 employees in its $1.3 billion federal government services practice, according to the firm's Web site.
Deloitte's Chinese arm has also run into problems with several audits of US listed Chinese clients. Since January, Deloitte has resigned or been dismissed from audit roles with seven US-listed Chinese companies, according to data from research firm Audit Analytics.
No evidence suggests the departures involved wrong-doing on Deloitte's part.
Deloitte China told Reuters in a statement last month that companies facing issues “represent just a minuscule proportion” of its total portfolio of listed companies.
Deloitte in 2011 also lost part of a contract in Afghanistan to provide technical assistance to its central bank after failing to report signs of fraud at Kabul Bank before a run on the bank in September 2010.
The US Agency for International Development had funded the contract to promote the stability of Afghanistan's financial sector and prevent losses.
Deloitte was not working for Kabul Bank, but an AID inspector general's report said Deloitte “did not aggressively follow up on indications of serious problems” at the bank, Afghanistan's largest. - Reuters