Deloitte's FSA Ban Leaves Unit Vulnerable to Talent Poaching

In an industry-altering move, state authorities have banned Deloitte's financial-advisory services unit from working for select New York state financial institutions for a full year following its botched investigation into Standard Chartered’s money-laundering protections. The move is a landmark victory for prosecutors who have long maligned the consulting industry’s cushy relationship with the very banks they’re asked to investigate. The ban may also have a carryover effect on Deloitte’s recruitment efforts within its financial-advisory services unit.

Deloitte agreed to the ban and a $10 million fine after authorities cited the firm’s “misconduct, violations of law, and lack of autonomy” during its independent investigation of Standard Chartered, which has been accused of laundering billions of dollars on behalf of Iran. A Deloitte partner admitted that the firm drafted a “watered down” version of its report at the request of the British bank.

Regulators called the ban an important step in eliminating the “I’ll scratch your back if you scratch mine” culture that has been fostered in the consulting industry.

Unable to provide consulting work to select financial institutions in New York for the next year, Deloitte's FAS unit will likely face some workplace issues.  The scandal will “certainly make it more difficult to recruit given [Deloitte’s] tarnished reputation,” said Richard Lipstein, managing director at Gilbert Tweed Associates.

“The competition and recruiters will certainly take advantage of this situation by increasing its recruiting efforts at the firm,” he said.

Peter Laughter, CEO of Wall Street Services, thinks the ban will have an even broader impact, touching the partner and principal levels. “I expect an exodus of high level employees to other consulting houses,” he said. “With that exodus you will see several of Deloitte's key clients moving to other members of the Big Four.”

Deloitte made it clear that the ban only affects its FAS group, and only future engagements that meet certain criteria.

“This is not intended to affect engagements performed by any Deloitte entity other than Deloitte FAS.  Neither the fact of this agreement nor any of its terms is intended to be, or should be construed as, a reflection of any of the other practices of Deloitte-affiliated entities," the company said in a statement.

Deloitte told eFinancialCareers that its plan to hire approximately 17,000 employees this year has not changed.