STAN Standard Chartered Plc

By Christopher M. Matthews 

Promontory Financial Group and New York's top banking regulator girded themselves over the last two weeks for a legal battle that could have left both sides scarred.

On Tuesday, in a sudden about-face, Promontory settled with the Department of Financial Services, agreeing to pay $15 million and acknowledging that it didn't follow the regulator's requirements for consultants.

"We are pleased that Promontory has agreed to resolve this matter and to work constructively with the department moving forward to help strengthen integrity within the consulting industry," acting DFS Superintendent Anthony Albanese said.

"We are glad to have resolved this matter," said Eugene Ludwig, Promontory's chief executive officer. "We remain committed to quality and integrity in carrying out our work."

As recently as Sunday, Promontory was preparing to challenge the regulator's move earlier in August to block the firm from advising some New York-based banks on regulatory compliance matters, according to people familiar with the matter.

The department took that step after saying that Promontory watered down reports about potential sanctions violations by Standard Chartered PLC, which had hired the consultancy to conduct an internal investigation.

The same day DFS announced it was barring Promontory, the firm said in a statement, "We will litigate the matter and defend our firm against this regulatory overreach."

But in a last-minute change of course, Promontory representatives and Mr. Albanese spoke Sunday evening and agreed to a meeting Monday, according to people familiar with the matter. Mr. Ludwig traveled to the department's offices in Manhattan's financial district Monday and by the afternoon, the deal's contours had been worked out, the people said.

Both sides appear to have gotten some of what they wanted. Promontory relented on a main sticking point that had been blocking a settlement: an acknowledgment that the firm had fallen short of the regulator's requirements. But the admission was milder than those in DFS's other cases involving consultants.

Under the terms of Tuesday's agreement, Promontory agreed that "in certain instances, Promontory's actions in [the Standard Chartered] engagement did not meet the department's current requirements for consultants performing regulatory compliance work for entities supervised by the department."

A Promontory competitor, Deloitte LLP, settled with DFS in 2013 over allegations it mishandled its anti-money-laundering work for Standard Chartered and paid $10 million. In that settlement, it agreed that it violated banking law and its own policies by "knowingly disclosing confidential supervisory information."

PricewaterhouseCoopers settled in 2015, paying $25 million to resolve allegations it sanitized reports about sanctions controls at Bank of Tokyo-Mitsubishi. It agreed that it did not demonstrate "the necessary objectivity, integrity and autonomy that is now required of consultants" by DFS.

Paul Shechtman, Promontory's lawyer, said that "throughout the negotiations, Promontory insisted that it would not admit it lacked independence, integrity and autonomy--the words in prior agreements. The matter did not settle until it was agreed those words weren't required."

In addition to the $15 million penalty, Promontory agreed to a voluntary six-month abstention from new consulting engagements that would require the use of confidential reports sent to DFS by the banks it regulates.

DFS established itself as a regulatory player in its 2012 settlement with Standard Chartered. The bank agreed to a $340 million settlement in 2012 for allegedly scheming to hide $250 billion of transactions for Iranian customers. The penalty came before other U.S. authorities were ready to settle, and the bank eventually reached a separate settlement for $327 million with the Justice Department, Federal Reserve and others. Standard Chartered admitted wrongdoing in its settlement with prosecutors.

Promontory got involved with the matter before Standard Chartered reached its settlements and was paid $54.5 million for the work.

The Justice Department and the New York Fed are also now examining Promontory's investigation of Standard Chartered's sanctions violations, according to people familiar with the matter.

Write to Christopher M. Matthews at christopher.matthews@wsj.com

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(END) Dow Jones Newswires

August 18, 2015 18:53 ET (22:53 GMT)

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