NY Slams Consultant Over Chartered Scandal

MANHATTAN (CN) - New York's top financial regulator moved Monday to cut off Promontory Financial Group's access to confidential information, saying Wall Street consultant had truckled to Standard Chartered lawyers who wanted to "tone down" and "soften" findings that the bank violated Iran sanctions.

The action comes been nearly three years after the New York State Department of Financial Services threatened to revoke Standard Charter's license, calling it "a rogue institution" amid allegations that it conspired with Iran to avoid U.S. sanctions.

New York's top watchdog Benjamin Lawsky found then that the British bank reaps hundreds of millions of dollars from roughly 60,000 secret transactions that involved "at least" $250 billion.

State regulators investigating Standard Chartered had relied in part upon reports by Promontory, a Washington-based firm also retained by major banks and the Vatican.

On Monday morning, Lawsky's office found that Promontory showed a "lack of independent judgment" in the reports the firm submitted to regulators between 2010 and 2011.

Promontory collected $54.5 for its work on "Project Green," probing the bank's historical transaction records with countries and individuals who were subject to sanctions, according to a footnote of Lawsky's report.

He says that the firm made $12.4 million other projects for Standard Charter.

Lawsky said that Promontory employees insisted that they followed an "innate" - if unwritten - policy that they had to exercise their "best independent judgment" on all projects.

But the firm's emails and other internal documents paint a different picture, according to the report.

A Promontory senior analyst wrote of Project Green that the "most important thing is that we get to the end of the project without jeopardizing our relationship with [Standard Chartered Bank] as a whole," Lawsky said.

"There are numerous instances where Promontory, at the direction of the bank or its counsel, or at its own initiative, made changes to 'soften' and 'tone down' the language used in its reports, avoid additional questions from regulators, omit red flag terms or otherwise make the reports more favorable to the bank," the report states.

In one instance, a Standard Chartered counsel is said to have commented that "it would be slightly less alarming if we toned down" language that certain transactions "should be called to the attention of the authorities."

At his direction, Promontory changed the phrasing to "may be interest to the authorities" based on these "very helpful comments."

The bank's lawyer also watered down a category of transactions labeled "potential violations" to a more nebulous "Payments with a US nexus for which no exemption or potential violation has been identified."

In a Dec. 9, 2010, email, a senior analyst requested that Promontory staffers change the title of a table from "missed terms" to " 'transactions containing geographic references' or something equally as sterile," according to the report.

This analyst told regulators that he understood "sterile" to be more "factually accurate."

Lawsky's office highlighted this as part of the testimony by Promontory witnesses that "lacked credibility."

Announcing that it would "review all pending and future requests to provide Promontory with confidential supervisory information," the department said it would "deny all such requests until further notice" if circumstances did not change.

The New York Times reported that this "effectively suspected" Promontory from "conducting most assignments for banks that are licensed in New York state and suspected of wrongdoing."

Promontory vowed in a statement to seek a stay of the regulators' action in New York state court.

"We believe the department has willfully misconstrued our work based on a handful of emails taken out of context," the company said in a statement. "Promontory reviewed approximately 131,000 Standard Chartered transactions from 2001 to 2007 totaling more than $590 billion. The two-year-long NYDFS investigation identified no substantive errors."

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