The New York Department of Financial Services issued a report on August 3 alleging that consulting powerhouse Promontory did not act independently of Standard Chartered Bank when reporting to DFS from 2010-2011 on alleged OFAC violations. Instead, DFS alleges that Promontory altered language in reports at Standard Chartered’s request to make findings “more bland” and “toned down” in order to be “less alarming.” Some information was allegedly removed in order to “avoid wasting time arguing with the bank.” DFS alleges that Promontory often acted as an advocate for the bank, rather than exercising independent judgement. Promontory employees stated in depositions that language in e-mails like “more bland” was meant to make the reports more factually accurate; DFS found these statements lacked credibility.
DFS has responded by denying Promontory access to confidential supervisory information “until further notice.” As a result, Promontory will be hard-pressed to represent clients facing regulatory scrutiny because those clients will not be able to share any supervisory information with Promontory.
Promontory reportedly is considering challenging DFS’ action in court. According to the New York Times, Promontory and DFS had been discussing a possible settlement and monetary penalty of $20 million (Promontory reportedly made $54.5 million on the Standard Chartered engagement). Promontory also alleges that DFS’ action directly benefits the new consulting firm founded by former DFS head Benjamin Lawsky.
It should be noted that despite any alleged toning down of reports by Promontory, DFS issued a $340 million penalty against Standard Chartered in 2012. DFS began its investigation into Promontory in September 2013. DFS reports that it reviewed thousands of documents, took sworn testimony of seven current or former Promontory employees, and reviewed four written submissions by Promontory’s lawyers.