Coverage: BNP Paribas pays record fine

Regulators are sending a message, and BNP Paribas is the poster child for banks that did wrong. The French bank will pay a record fine and in possibly even bigger news, plead guilty to wrong doing.

Devlin Barrett, Christopher M. Matthews and Andrew R. Johnson had this story for The Wall Street Journal calling the settlement “unprecedented”:

BNP Paribas SA agreed to pay nearly $9 billion Monday and plead guilty to crimes for violating U.S. sanctions, an unprecedented settlement that includes a year-long ban on the French bank’s ability to conduct certain U.S. dollar transactions.

U.S. officials, in a Washington news conference and a Manhattan courtroom, laid out in stark terms a sophisticated and long-running scheme by BNP Paribas to disguise billions of dollars in financial transactions in violation of American sanctions against Sudan, Iran and Cuba—despite warnings by some within the firm about the legality, and morality, of the transactions.

“BNP Paribas went to really elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive U.S. authorities. These actions represent a serious breach of U.S. law,” Attorney General Eric Holder said.

The bank, putting profits over the law, set up an intricate web of “satellite banks” designed to disguise its role in illicit transactions, according to the government complaint. For instance, a Sudanese bank seeking to move U.S. dollars out of Sudan transferred funds internally within a BNP satellite bank, which then transferred the money to the Sudanese bank’s “intended beneficiary” without reference to the Sudanese bank.

BNP Paribas agreed with sanctioned entities “not to mention their names in U.S. dollar transactions,” and included explicit instructions to bank personnel, such as “! Payment in $ to [French Bank 1] without mentioning Sudan to N.Y.!!!”

The bank is also losing a core piece of its business Danielle Douglas wrote for The Washington Post:

The agreement includes a rare year-long suspension of the bank’s ability to convert foreign currency into U.S. dollars through its New York office, a step that could potentially cripple one of the bank’s chief functions.

Prosecutors say BNP, France’s largest bank, went to elaborate lengths to disguise illicit trans­actions with sanctioned countries.

BNP used a network of banks in the Middle East, Europe and Africa with their own clearing codes to mask dollar-based transfers connected to Sudanese companies. Employees also removed information from wire transfers that could have revealed the identity of the countries blacklisted by the United States, according to the complaint.

“These activities significantly undermined long-standing U.S. economic sanctions, in many cases to the detriment of America’s national security interests,” Attorney General Eric H. Holder Jr. said at a news conference Monday. “They continued for years, despite repeated indications and warnings that the bank’s conduct violated U.S. embargoes.”

The New York Times reported in a story by Ben Protess and Jessica Silver-Greenberg that the bank may also lose its license after the guilty plea:

In the BNP case, the authorities sought to send a message that no bank is immune from criminal charges, despite lingering concerns that financial institutions have grown so large and interconnected that they are “too big to jail.” The decision to require BNP’s parent company to plead guilty, coming six weeks after Credit Suisse pleaded guilty to helping American clients evade taxes, reflects a broader policy shift after decades of civil settlements and so-called deferred prosecution agreements.

“This outcome should send a strong message to any institution — any institution anywhere in the world — that does business in the United States: that illegal conduct will simply not be tolerated,” United States Attorney General Eric H. Holder Jr. said at a news conference on Monday.

Preet Bharara, the United States attorney in Manhattan who accused BNP of “perpetrating what was truly a tour de fraud,” has argued that no bank is too big to charge.

Still, criminal pleas could prompt regulators to revoke the license of a bank, the Wall Street equivalent of the death penalty. To prevent that outcome, prosecutors and regulators coordinated their actions months in advance.

Bloomberg reported that BNP believes it will be able to weather the storm, according to Tiffany Kary, Del Quentin Wilber and Patricia Hurtado:

BNP said in a statement that it will retain its licenses and expects “no impact” on its operational or business capabilities. In 2015, the lender will clear U.S. dollars through a third party. The Bank of France said today BNP can withstand the fine and dollar clearing ban.

The bank also said it will take a second-quarter charge of 5.8 billion euros ($7.9 billion) and intends to pay a 2014 dividend of 1.50 euros a share, unchanged from last year. BNP’s American depositary receipts climbed 0.4 percent to close at $34.03 today in New York.

BNP becomes the second major European bank in the past two months to plead guilty in the U.S. Credit Suisse (CSGN) AG did so on May 19, when it agreed to pay $2.6 billion, the largest penalty in an offshore tax case, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service.

The Federal Reserve said the $8.97 billion penalty resolves its own claims as well as investigations by the Justice Department, the Treasury’s Office of Foreign Assets Control, the New York District Attorney’s Office and the New York Department of Financial Services.

U.S. regulators are clearly sending a message that these types of violations won’t be tolerated. By flexing their muscles this way, they’re sending a message to overseas and multi-national banks that wrongdoing won’t be tolerated, no matter the jurisdiction. I’m sure there are some who are wondering why they didn’t impose higher fines for transgressions in the mortgage market.