Independent Audits

When companies seek to settle violations of export controls, the government’s first question – Is this all? – can only be answered to its satisfaction by “independent” audits of the companies’ relevant activities. To conduct these audits, large companies – with years, and thousands, of violations to unearth – usually turn to big accounting firms, like Deloitte or PricewaterhouseCoopers.

Or Promontory Financial Group, a DC-based firm that specializes in advising financial firms on compliance with regulatory matters, like OFAC controls, and auditing them when they get in trouble. While Promontory’s motto is “Independence and Integrity”, its reputation for both was called into question today, when New York’s Department of Financial Services effectively suspended Promontory from auditing New York financial institutions.

Like Deloitte and PwC, whose lack of independence that Department has also penalized, Promontory operates under a clear conflict of interest, because the companies it audits pay it to do so, and it always wants to keep the compliance business of those companies after settlement-directed audits are completed. When auditing Standard Chartered Bank’s flagrant violations of OFAC and state banking rules, the Department now reports, Promontory bowed to pressure from the Bank and its lawyers to, in some cases, minimize its violations.

Apparently, Promontory’s own settlement negotiations with the Department broke down recently when Promontory balked at admitting wrongdoing – this in the face of email messages detailing agreements to suppress facts that would’ve led the Department “to ask further questions” about violations not yet uncovered, and stating that the “most important thing is that we get to the end of the project without jeopardizing our relationship” with Standard Chartered “as a whole.”

More startling still was one employee’s excuse for hiding violations: It was, s/he claimed, “in the U.S. national interest to have a reduction of national sanctions violations.”

This kind of behavior hurts all exporters because it necessarily makes regulators look askance at all disclosures, including ones conducted in the height of good faith.

Comments are closed.