BNP Paribas pleads guilty to criminal charges in sanctions case

Money On Hook

BNP Paribas, France’s biggest bank, pleaded guilty to criminal charges and agreed to pay a record-breaking penalty of nearly $8.9bn on Monday for dealing with countries that were the subject of US sanctions.

Prosecutors said the bank had engaged in a "long-term, multi-jurisdictional conspiracy” involving currency trades for clients in Sudan, Iran and Cuba that was known at the highest levels at the company.

The Department of Justice and New York state prosecutors confirmed the agreement minutes after a lawyer for the bank appeared in a Manhattan courtroom to answer one count of falsifying business records, and one count of conspiracy. The bank will appear in a federal courtroom later in the week.

At a press conference, the US attorney for the southern district of New York, Preet Bharara, aclled the bank's actions a "tour de fraud".

The bank's general counsel, Georges Dirani, told the judge that BNP’s sanctions violations took place between 2004 and 2012. Prosecutors said senior executives at the bank knew of the activities. “This conduct, this conspiracy was known and condoned at the highest levels of BNP," assistant district attorney Ted Starishevsky told the court.

The New York state banking regulator said it was banning BNP’s office in New York from conducting US dollar clearing operations for a year from 1 January 2015. The unprecedented sanction, imposed by the New York State Department of Financial Services, will largely affect BNP's oil and gas finance business.

The regulator also said 13 individuals will leave the bank as part of the settlement, including chief operating officer Georges Chodron de Courcel. His intention to leave after 42 years was announced in June without any mention of the discussions with US regulators. Other staff face demotions and bonus cuts.

The fine is particularly bruising for BNP Paribas, which escaped the fallout from the 2008 financial crisis relatively unscathed and unlike many rival banks has not paid any fines or other penalties related to the crisis. But after months of discussion and and an intervention by French president François Hollande, the bank agreed to plead guilty to the offences.

The allegations centred on $190bn in transactions that BNP's trade-finance arm in Switzerland processed for countries under US sanctions between 2004 and 2012.

In 2006, Bush administration officials warned foreign banks doing business in the US that they would be punished if they helped the sanctioned countries do business in dollars.

In 2007, BNP's president told employees that the bank would stop doing business with Sudan, Iran and Cuba, according to a report in the Wall Street Journal. Yet regulators allege that BNP continued to deal with the blacklisted countries, and employees hid the transactions using satellite banks as fronts. The bank “placed its financial network at the service of rogue nations to improve its bottom line,” said assistant attorney general Leslie Caldwell on Monday.

The nearly $9bn fine is a sizable one compared to BNP's profits – the bank made $6.5bn in 2013. Caldwell said the fine reflected the transactions that prosecutors believed they could prove were criminal. The penalties are in line with a stronger approach taken more recently by the US attorney general Eric Holder, who said that no bank was “too big to jail,” although no BNP employees in this case are going to prison.

FBI and Department of Justice officials said at Monday's press conference that BNP’s penalty was harsher because the bank “hindered” their work. It was “an unprecedented penalty for unprecedented conduct”, Bharara said.

James Cole, deputy attorney general, said BNP shareholders had a responsibility to take a more active role: “The $9bn that’s walking out the door today is your money. Until shareholders demand from their boards [of directors] that those boards choose leaders that create a healthy culture of compliance, the money will keep walking out the door.”

The temporary ban on dollar clearing means that BNP's clients must engage rival banks to send transactions through the financial system in the US. The sanction drew mixed reaction from analysts. RBC’s Anke Reigen warned it could send ripples through the banking industry. “In our view, a harsh decision on BNP will not come without consequences for financial markets and the banks that still have to go through the same investigation as BNP,” Reigen wrote, mentioning France’s Société Générale and Crédit Agricole, Germany’s Commerzbank and Italy’s UniCredit.

Others maintained that the ban will not have a dramatic effect. Jean-Pierre Lambert, analyst at Keefe Bruyette and Woods, said it would be "operationally feasible; likely to be invisible for [clients]; with limited financial cost for BNP."

Lambert estimated the direct cost of the ban on BNP to be about 40m euros a year, though he did estimate that the indirect cost may include lost clients. “There is a residual risk that some clients may opt to diversify their business away from BNP.”

The fine was the latest against a number of foreign-owned banks in the US but, unusually, the deal included a guilty plea.

Swiss bank Credit Suisse was fined $2.6bn in May 2014 for helping US citizens evade tax, offences to which it also pleaded guilty.

The latest fine surpasses the $1.9bn penalty imposed on HSBC in December 2012 for sanctions-busting and money laundering offences, largely involving Mexican drug barons.

US banks have also faced a number of heavy penalties, including JP Morgan, which reached a record $13bn settlement with the US authorities in November over the sale of home loan bonds. But that sum included $9bn of compensation to settle federal and civil claims over the sale of the bonds.

The BNP Paribas investigation, thought to have begun as long ago as 2007, involved a number of US regulators including the Justice Department and Benjamin Lawsky, the head of the New York department of financial services, which took action against Standard Chartered in 2012. The fine will be split between the agencies.

At the height of the talks, Hollande wrote to Barack Obama to complain that the fine would be disproportionate, and in June, France’s foreign minister Laurent Fabius said the fine was not “reasonable”.

There have been concerns that the scale of the fine could weaken the bank by lowering its all-important capital ratios, although Michel Barnier, the European commissioner for financial services, was quoted as saying that he bank “can handle” the fine.

The bank appears to have underestimated the scale of the penalty after taking a provision of $1.1bn only a few months ago to cover the cost of the action by the US authorities, which has already knocked 15% off its share price.

BNP head Jean-Laurent Bonnafe said: "we deeply regret the past misconduct that led to this settlement," but he also stressed the French bank's commitment to remaining in the US where it has a branch network on the West coast.

BNP is setting up a new department in the US called Global Financial Security to ensure it complies with US rules, and will send all dollar transactions through its branch in New York.

Powered by Guardian.co.ukThis article was written by Heidi Moore in New York and Jill Treanor in London, for The Guardian on Monday 30th June 2014 22.38 Europe/London

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