Deloitte penalized for anti-money-laundering work done for Standard Chartered

Deloitte Financial Advisory Services agreed to a $10M fine from the N.Y. Department of Financial Services and a one year ban on new work for state chartered banks.

The consent agreement between the state regulators and Deloitte Financial Advisory Services can be found here.

What’s the problem?

In 2004, Standard Chartered was required to bring in a consultant to review their anti-money-laundering procedures. Deloitte did the consulting work in 2004 and 2005.

During the project, according to the negotiated settlement, Deloitte provided StanChart (hey, that’s the shorthand in use) copies of two reports from other Deloitte clients.

Is that a big deal?


The Economist, in their article Desperately seeking skepticism, points out why:

In the course of its work Deloitte sent Standard Chartered employees confidential reports of two other banks (also Deloitte clients) that were under money-laundering scrutiny. This, the DFS says, revealed the regulators’ enforcement priorities and strategy.

In addition, when StanChart objected to one specific recommendation, Deloitte dropped the comment from the report.

I don’t have anywhere near a sufficient understand the technicalities of international wires to appreciate the significance, but it looks like the recommendation dealt with a technique that could be used to change the wire instructions so that the source or destination of the money could be hidden.

Scrubbing the transaction, in my words.

Update: One report I read (don’t recall which one and won’t take time to find it) connected the two parts by suggesting reading the two reports from other monitored firms let the bank realize this recommendation would highlight that an issue of big concern to DFS was also present in StanChart. 

Why is that a big deal?

As I mentioned in my post here, StanChart scrubbed identifying information from 59,000 transactions with dollar value of about $250 billion from 2001 through 2007. That info is not just alleged – it is the negotiated agreement of facts spelled out in the StanChart settlement with the DFS.

Like I already said, I don’t get the technical details, but putting the pieces together, it sounds to me like if that particular recommendation had been made and if it had been implemented by StanChart, it might have been possible to identify or prevent the subsequent billions of dollars that were laundered through thousands of wires between 2005 and 2007.

That would be why the DFS seems to be so put out with Deloitte.

What do you think? Did I get the point or miss it?

Ban on new work

Deloitte agrees not to seek new work subject to DFS oversight for either 6 months or one year.

The consent agreement also says that Deloitte has to put in place a variety of new procedures to monitor their own work.

If those procedures are put in place within 6 months, DFS may lift the ban at that point. If it takes longer, the ban will run for a year.


Lately I’ve been looking at the collateral consequences of getting in trouble.

What do I see in this situation?

A $10M fine, which approximates the fees generated from this engagement.

Ban on new work for either 6 months or a year. That means a bunch of people won’t have much work to do while the pipeline is empty starting a few months from now and running until the pipeline is full again.

Broad publicity – Deloitte’s name will be in every business paper in the world for a few days with the headline of they get punished. Few people will appreciate that it is a specific unit, Deloitte Financial Advisory Services, that got in trouble with New York state.

Reputation – Everyone in banking knows that Deloitte FAS got tangled up in the StanChart money laundering fiasco and has signed a consent decree. An unidentified executive quoted in an American Banker article explains the damage:

“In this kind of regulatory environment, any time a partner gets a stain on them, you have to take a hard look,” said a technology executive at a bank with more than $10 billion in assets who spoke on the condition of anonymity. “As much regulatory light as has been shined, you have to have partners that are squeaky clean.”

Here’s risk that banks take from hiring Deloitte in the future:

They have “a bigger problem now. It’s not the one-year ban, it’s the fact that you are walking around trying to get new business and you have this stain on your sheet.”

Further reading

Here’s a few of the articles I read that give more details

Here’s a list of posts I’ve written on Standard Chartered.

By the way, I know my post is way behind the news. I’m trying to catch up

Update:  More reading:

I think the reputational risk is going to be bigger than expected. Looks like bar is getting raised for the lucrative and extensive consulting for regulators. Ms. McKenna commented on the danger other regulators may be concerned about Deloitte performing as their stand-in to monitor banks.

The confusion between all the entities within the Deloitte overall structure may be greater than expected. Even though it is a minor anecdote, the discussion at this Going Concern post on the regulatory announcement has two people who appear to be Deloitte insiders trying to sort out on the day of the announcement which entity is affected. Took me a long time to sort that out, but then I’m way outside that world.  When I look at the first round of reports again, it is clear they said the ban affected the FAS group.

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