By Karen Freifeld
NEW YORK (Reuters) - Promontory Financial Group, accused of whitewashing a report on Standard Chartered Plc's violations of sanctions on Iran, has worked on a separate assignment involving other potential sanctions violations by the same bank, according to a person familiar with the matter.
On Monday, the New York Department of Financial Services effectively suspended Washington, D.C.-based Promontory from most upcoming work for banks licensed in New York state. The state regulator decided that in 2010-11, the consultant "made changes to 'soften' and 'tone down' the language used in its reports" about the bank.
Promontory, a trusted advisor to big banks, foreign governments and the Vatican, has said it will challenge the move in court.
U.S. prosecutors and regulators are investigating Standard Chartered for potential sanctions-related violations connected to banking for Iranian-controlled entities in Dubai, sources have told Reuters. Promontory has done work for the bank as part of that ongoing probe, one source said. It was unclear whether that work would be affected by Monday's decision.
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Promontory has reviewed the bank's Dubai-based accounts with Iranian connections to see whether they should have been marked for closure, the source said.
Federal and state authorities discussed whether Promontory should proceed with the Dubai-related Standard Chartered assignment after the New York regulator sent a subpoena to the consulting firm in 2013, but they decided it would be too disruptive to change course, the source said.
In 2012, Standard Chartered negotiated settlements with U.S. and New York authorities over sanctions-related violations. The bank reached another settlement with New York in 2014. Deferred prosecution agreements from the 2012 deals remain in effect.
Julie Gibson, a spokeswoman for Standard Chartered, and Promontory spokesman Mark Paustenbach both declined to comment. Spokespeople for the U.S. Department of Justice, the New York Department of Financial Services and the Manhattan District Attorney's office, which sources said were also involved in the Dubai probe, declined to comment.
SHADOW REGULATORS
The New York action against Promontory came after the regulator scrutinized the consultant's prior work for Standard Chartered. The British bank had hired Promontory in 2010 to identify and review transaction records with entities subject to U.S. sanctions.
New York authorities relied in part on the Promontory report in 2012 when punishing the bank, which paid $667 million in settlement monies to U.S. state and federal authorities after providing U.S. dollar clearing to sanctioned Iranian customers from at least 2001 through 2007.
The department said this week that it had found numerous instances of Promontory sanitising the bank's misconduct.
Promontory has said the department "willfully misconstrued" its work. A Standard Chartered spokeswoman declined to comment.
The action against Promontory is New York's latest move against so-called shadow regulators: consultants that government agencies rely on to investigate misconduct although they are paid by targeted institutions.
Promontory, with a board full of former regulators, is considered the shadow regulator par excellence. Its chief executive officer Eugene Ludwig is a former comptroller of the currency, and its board includes former U.S. Securities and Exchange Commission chairs.
New York initiated its crackdown on consultants in 2013, when it went after Deloitte LLP for omitting critical information from its report to authorities about Standard Chartered before the 2012 settlements.
The firm agreed to pay a $10 million fine, refrain for one year from certain new business with New York-regulated banks, and institute reforms designed to address conflicts of interest.
(Editing by Carmel Crimmins and David Gregorio)
