The much-awaited BNP Paribas 8.97 billion dollar fine was announced yesterday after France’s biggest bank agreed to settle with US authorities over allegations of doing business with rogue nations, specifically Iran, Cuba and Sudan.
As part of the settlement, the largest for this type of crime in US history, BNP Paribas (BNP) pleaded guilty to two criminal charges of breaking US sanctions and related recordkeeping, and agreed to dismiss 13 people who were linked to the sanctions violations.
Apart from the financial penalty, BNP has had its dollar clearing license suspended for one year, starting on January 1st, 2015. During that period, US dollars will be cleared through a third party bank instead.
The settlement was made between BNP and:
- the U.S. Department of Justice,
- the U.S. Attorney’s Office for the Southern District of New York,
- the New York County District Attorney’s Office,
- the Board of Governors of the U.S. Federal Reserve System (FED),
- the New York State Department of Financial Services (DFS), and
- the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).
Concealed the crime and covered its tracks
US Attorney General Eric Holder said yesterday that BNP went to elaborate lengths to hide illegal transactions, cover its tracks, and mislead US authorities. The bank used “cover payments” to make it look as if the sanctioned entities were not involved in the transactions that were processed through several parts of the United States, including New York.
Mr. Holden said:
“They worked with partners and subsidiaries around the world to structure transactions in needlessly complicated ways – using sophisticated techniques that served no legitimate business purpose, but that allowed them to obscure the truth: that these transactions violated the law and should not have been occurring in the first place.”
“Through these widespread illegal practices, BNP knowingly processed more than $500 million in illicit U.S. dollar transactions involving a company controlled by an Iranian energy group – headquartered in Tehran and owned in full by an Iranian citizen.”
“The bank also processed thousands of transactions – totaling more than $1.7 billion – with sanctioned entities in Cuba. And BNP enabled the Government of Sudan and related institutions to avail themselves of the U.S. financial system, engaging in billions of dollars in illegal transactions. They did this despite knowing that the Sudanese government supported terrorism, engaged in human rights abuses, and even – in the words of one senior compliance manager – “has hosted Osama bin Laden and refuses the United Nations intervention in Darfur.”
Mr. Holder added that hopefully the settlement will serve as a warning to other financial institutions and companies that do business with the United States that “illegal conduct will simple not be tolerated.”
Exceptional charge and an apology
BNP, France’s biggest bank, announced that beyond the $1.1 billion that had already been provisioned for fines, the bank will take an exceptional charge of €5.8 billion ($7.94 billion) to be booked in Q2 2014.
CEO of BNP Paribas, Jean-Laurent Bonnafe, said:
“We deeply regret the past misconduct that led to this settlement. The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate.”
“We have announced today a comprehensive plan to strengthen our internal controls and processes, in ongoing close coordination with the US authorities and our home regulator to ensure that we do not fall below the high standards of responsible conduct we expect from everyone associated with BNP Paribas.”
Is there a US vendetta against European banks?
As the US levies heftier-and-heftier fines on European financial institutions, there is a growing perception among European lawmakers and lenders that the US has it in for them.
Fines have been levied not only for sanctions violations, but also for assisting tax dodgers, money laundering and manipulating interest rates.
While it may be natural to have those perceptions, it would be unfair and unrealistic to make such an accusation. In 2013, JP Morgan, America’s largest bank, agreed a whopping $13 billion settlement with US authorities, while Bank of America agreed to pay Freddie Mac and Fannie Mae $9.5 billion.
The following European banks have had fines slapped on them in the United States:
- Credit Suisse: $2.6 billion for helping US citizens dodge taxes.
- HSBC: $1.9 billion for money laundering.
- UBS: $1.2 billion and $780 million for manipulating Libor and tax evasion respectively.
- Standard Chartered: $674 for violating US sactions. Last week it issued a profit warning.
