New York State Regulator Issues Subpoenas in Money Laundering Investigations

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Benjamin Lawsky
Mike Groll / Associated Press

Benjamin Lawsky, superintendent of New York State Department of Financial Services

As part of a broad investigation into money laundering by banks, New York State banking and insurance regulator Benjamin Lawsky has issued subpoenas for records to a number of major consulting firms in recent months, a government source tells TIME.

The exact number and identities of all the recipients of the subpoenas is unknown. The private consulting firms typically are hired to look into bank practices when questions about anti-money laundering systems arise in bank examinations either by the financial institution itself, or in a review by regulators.

Lawsky and the agency he heads, the New York Department of Financial Services, have been investigating whether financial institutions exert undue pressure on the consultants they hire in such cases. Evidence could include documents or e-mails that show the firms pressing their independent consultants to change drafts of reports before they are given to regulators.

In June, Deloitte LLP’s financial advisory unit agreed to pay $10 million in fines as part of an agreement with Lawsky’s office in a money laundering case involving Standard Chartered Bank. The regulator found that in early October 2005 Deloitte removed at Standard Chartered’s behest an important recommendation from its official report on suspicious bank transactions, according to the bank’s settlement with Lawsky’s office.

The recommendation if implemented would have eliminated or restricted the use of a kind of wire payment that “could be manipulated by banks to evade money laundering controls on U.S. dollar clearing activities” in a practice known as “stripping,” according to the settlement document in the case. As a result, regulators only belatedly discovered $250 billion worth of suspicious transactions by Standard Chartered for Iran. After Lawsky charged the bank with seven violations of the law in August 2012, the bank agreed to a settlement that included a $340 million fine.

One of the investigators on the Standard Chartered case tells TIME, “If you strip out transactions so we don’t know, how can we possibly regulate you? It’s a sin of omission as much as commission.”

Among the firms Lawsky has subpoenaed in recent months is Promontory Financial Group, a source familiar with the investigation tells TIME. Promontory was hired by Standard Chartered in 2010 to review whether certain transactions violated Treasury department and other rules, and Lawsky is looking at the firm’s conduct during its review of the bank, the source familiar with the investigation tells TIME.

Promontory declined to comment on whether it had received a subpoena or intended to comply with it. “Promontory from time to time receives document requests in the form of subpoenas relating to client activities,” Promontory said in a statement to TIME. “Promontory does not disclose the nature of individual requests or scope of the inquiry,” the statement said.

TIME takes a closer look at the financial system’s reliance on independent consultants in this week’s magazine, available online here.

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