PricewaterhouseCoopers, the consulting firm which assures investors and regulators alike that businesses’ books are on the up-and-up, will pay a $25-million fine and be barred from certain work with Wall Street banks for two years after misleading regulators, the New York Times reports.
The firm was hired by a major Japanese bank, Tokyo-Mitsubishi UFJ, to examine its procedures for transferring money and reassure regulators that they don’t violate US economic sanctions on countries such as Iran and Sudan. But the report produced by PwC and submitted to the government glossed over procedures designed to hide how the bank was helping its clients avoid the rules, even instituting a policy of stripping Iranian names out of transaction records. The report was changed after bank executives objected to a previous version of the document.
One of the strangest changes between the original draft and the final draft concerned the bank’s methods to avoid the flagging of potentially suspicious transactions. PwC uses uses software to pore over bank records, but when the bank prepared its records for scrutiny, hashtags and other characters were inserted into the text, resulting in notations like “#Sudan” instead of “Sudan.” Those modified terms would not be picked up by PwC’s software, and while this problem was noted in PwC’s draft report, the warning was excised by the time the final version was sent to regulators.
Firms like PwC, including competitors Deloitte and Promontory, are often expected to act objectively, but the conflict of interests are apparent—they rely on the banks they scrutinize for the majority of their business. Deloitte was caught in a similarly compromising position after it removed incriminating references from an audit conducted on behalf of Standard Charter’s troubled international transactions business.
While the fine and the prohibition from consulting will mean less revenue for the influential global partnership, PwC’s real loss here is prestige: The company essentially sells its reputation for sternly crossing t’s and dotting i’s, and suggestions of laxity—or an outright cover-up—could make that product less valuable.