US slaps record fine on French bank BNP
Jul 01 2014 , New York/Washington
The BNP Paribas guilty plea is the direct consequence of a broader US justice department shift in strategy that is expected to try to snare more major banks for possible money laundering or sanctions violations. Manhattan US attorney Preet Bharara’s office helped to prosecute the case.
In an unprecedented move, regulators banned BNP for a year from conducting certain US dollar transactions, a critical part of the bank’s global business, in addition to the fine which was a record for violating American sanctions.
(PTI adds: There is an Indian link to the case. As per details released by the US department of justice (DoJ) about violations of Iran sanctions, “In June 2012, a BNP Paribas Paris compliance officer noted that an Iranian-controlled company was sending payments from its account at BNPP Paris to its account at an Indian bank with ‘known links to Iran’.” The DoJ document did not name the Indian bank, neither the ‘Iranian-controlled company’. India is among the 75 countries, where BNP Paribas has a presence.)
The US authorities said the severe penalties reflected BNP’s violations going back to at least 2004 and through to 2012 and its drive to put profits first, even after US officials warned the bank of its obligation to crack down on illegal activity.
Shares in BNP rose 4.1 per cent in early trade, making it the strongest performer in the European bank index because of relief the bank had finally settled the case. But the stock is down around 16 per cent since mid-February because of the affair.
The bank essentially functioned as the “central bank for the government of Sudan”, concealed its tracks and failed to cooperate when first contacted by law enforcement, the US authorities said.
They also found BNP Paribas had evaded sanctions against entities in Iran and Cuba, in part by stripping information from wire transfers so they could pass through the US system without raising red flags.
With its Sudanese clients, the bank admitted it set up elaborate payment structures that routed transactions through satellite banks to disguise their origin. “BNP banked on never being held to account for its criminal support of countries and entities engaged in acts of terrorism and other atrocities, but that is exactly what we did today,” said Bharara.
“We deeply regret the past misconduct that led to this settlement,” BNP’s chief executive officer Jean-Laurent Bonnafe told analysts and investors on a conference call on Tuesday. He said the bank would implement a significant strengthening of its internal controls and processes.
Credit Agricole and SocGen have disclosed that they are reviewing whether they violated US sanctions. SocGen said in its latest annual report that it is engaged in discussions with the US treasury department’s office of foreign assets control over potential sanctions violations. The two banks could not be immediately reached for comment.
The settlement marks a stinging rebuke for BNP, the grand dame of French banking and one of the world’s five biggest banks by assets. Until now BNP Paribas had managed to avoid the sort of scandals that damaged most of its rivals, including interest rate manipulation and the mis-sale of US sub-prime mortgages.
From BNP Paribas’ historic Parisian headquarters, where Napoleon married Josephine in 1796, BNP Paribas management has always prided itself on its tight risk controls, which helped it successfully navigate the financial and euro zone debt crises.
The Swiss financial regulator said it was investigating staff at BNP Paribas’ Swiss arm after the bank’s general counsel appeared in a New York court to plead guilty to one count of falsifying business records and one count of conspiracy.
France’s bank supervisor said that BNP Paribas could cope with the sanctions without risking its financial health, and finance minister Michel Sapin said the bank “will still be able to finance economic activity” in France. Concern about the future of France’s biggest listed bank and the knock-on effect on the fragile French economy prompted President Francois Hollande to express concern to Barack Obama and a French threat to derail the US-EU trade talks.
A pipeline of cases has built up as US prosecutors have pivoted from focusing on specific criminals to also vigorously pursuing financial institutions that move money for them, which some had in the past considered “too big to jail.”
Leslie Caldwell, who leads the criminal division at justice department, said in an interview that a unit within the justice department has its sights set on a range of firms potentially involved in illicit money flows.
The penalties imposed on BNP Paribas dwarf any previously handed out for sanctions avoidance and are far bigger than those against Credit Suisse in May, which became the largest bank in decades to plead guilty to a US criminal charge, for helping Americans to evade taxes. No individuals were charged on Monday, but the US authorities said they had not wrapped up their inquiry.
“The case which BNP is pleading to now is against the corporation alone, but our investigation into potential individual culpability is continuing,” Manhattan district attorney Cyrus Vance said.