Outside Monitors Police Misbehaving FIs

Private watchdogs called outside monitors are becoming a useful and popular tool in keeping an eye on financial institutions.

Monitors are often used by authorities in lieu of pursuing criminal or civil charges against companies that have committed some form of wrongdoing, The Wall Street Journal reported yesterday (Aug. 31).

According to WSJ, financial institutions such as HSBC, Credit Suisse Group and Standard Chartered currently operate under the recommendations of monitors.

Over the last five years, the use of monitors has significantly increased as a result of government officials increasingly pushing financial institutions to hire outside consultants to oversee their work.

Industry executives told WSJ top monitors are able to charge rates up to $1,200 an hour, resulting in a boom in the “lucrative cottage industry,” which is made up of both former prosecutors and small consulting firms.

The monitor selection process usually takes place by law enforcement officials along with input from the company in question, but there is little disclosed to the public about how much monitors really collect for their work, the information they discover through their time at the company or what goals they are expected to achieve.

“Their reports should be provided to the court and the public should know their key findings,” Brandon Garrett, a law professor at the University of Virginia and a white-collar prosecution expert, told WSJ. “Instead, monitoring in cases of great public significance had been done in the dark.”

Garrett is also in disagreement with the private selection of monitors, who he said “should be chosen by a judge to avoid cronyism concerns.”

As part of a $667 million settlement of previous problems at Standard Chartered related to questionable transactions, the bank eventually went through two monitorships and one independent consultant in an effort to get things back on track.

But last year its monitor, former Manhattan federal prosecutor Ellen Zimiles, found that the U.K. bank’s computer systems failed to flag wire transfers flowing from areas of the world considered vulnerable to money laundering.

New York State’s financial regulator announced Standard Chartered would be required to implement a new transaction monitoring system and pay a $300 million fine.



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