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Bank overseer is facing major penalty

PricewaterhouseCoopers LLP.

PricewaterhouseCoopers LLP.

NEW YORK — The giant consulting firm PricewaterhouseCoopers occupies a position of trust on Wall Street, acting as a shadow regulator of sorts that promises the government an impartial look inside the world’s biggest banks.

But the firm — hired and paid by the banks it examines — has landed in the regulatory spotlight for obscuring some of the same misconduct it was supposed to unearth, according to confidential documents and interviews with people briefed on the matter.

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New York state’s financial regulator is poised to announce a settlement with PricewaterhouseCoopers, according to the interviews, taking aim at the consulting firm for watering down a report about one of the world’s biggest banks, Bank of Tokyo-Mitsubishi UFJ.

The regulator, Benjamin M. Lawsky, will impose a $25 million penalty against PricewaterhouseCoopers and prevent one of its consulting units from taking on certain assignments from New York-regulated banks for two years, a reputational blow that could cause some banking clients to leave.

The firm, which is accused of lacking the objectivity and integrity expected of consultants but not actually breaking the law, agreed to pay the fine and accept the two-year sidelining of its regulatory consulting unit. PricewaterhouseCoopers appeared to have had little choice: Lawsky’s office, which has the authority under a little-known New York law to censure erring consultants even without a legal violation, threatened to otherwise inflict a more sweeping and lengthy prohibition.

The settlement involves the firm’s work for the Japanese banking giant, which regulators long suspected of routing money through its New York branches on behalf of nations blacklisted by the United States. The bank voluntarily hired PricewaterhouseCoopers in 2007 to quantify its improper transactions with Iran and other sanctioned countries.

In the firm’s initial draft of a report about the transactions, a copy of which was reviewed by The New York Times, PricewaterhouseCoopers acknowledged certain limitations of its examination and highlighted in great detail how the bank had stripped out the names of Iranian clients to avoid detection. But when it was time for Bank of Tokyo-Mitsubishi to file the report with regulators two weeks later, PricewaterhouseCoopers bowed to pressure from bank lawyers and executives, deleting some of the harshest characterizations and diluting others, according to the documents and interviews.

“Several issues” the consultant identified became “some issues.” Questions about whether there was an “intentional omission” of client names were condensed into “subsequent events.”

And some critical passages from the first draft disappeared altogether, replaced with more anodyne summaries of the bank’s actions. In the version provided to regulators, PricewaterhouseCoopers deleted two paragraphs excerpted from the bank’s operational manual that explained the name-stripping policy: “Exert care to avoid the funds being frozen,” the manual said, adding that employees should avoid “specifying the final receiving bank (the name of the enemy country).”

Miles Everson, leader of the firm’s advisory services practice in the United States, said in a statement that the report was “detailed” and “disclosed the relevant facts.”

He added, “This matter relates to a single engagement completed more than six years ago in which PwC searched for and identified relevant transactions that were self-reported to regulators” by Bank of Tokyo-Mitsubishi.

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