In agreeing to pay $8.97 billion by way of settlement with US authorities, while also pleading guilty on two criminal charges to breaching US sanctions against Iran, Cuba and Sudan, the French lending giant BNP Paribas has set a record in the world of sanctions.

In agreeing to pay $8.97 billion by way of settlement with US authorities, while also pleading guilty on two criminal charges to breaching US sanctions against Iran, Cuba and Sudan, the French lending giant BNP Paribas has set a record in the world of sanctions.

Through a series of 'egregious' schemes to evade detection and with the knowledge of many senior executives, BNPP concealed more than $190 billion in transactions between 2002 and 2012 for clients subject to US sanctions against Sudan, Iran, and Cuba and others. In doing so it contravened various controversial presidential 'executive orders' of dubious constitutionality, along with the International Emergency Economic Powers Act 1977, the Trading with the Enemy Act 1917, and the regulations of its US regulators.

BNPP has reached four settlements in all: with the US Department of Justice, with the District Attorney of New York, with the New York State Department of Financial Services and with the US Treasury's Office of Foreign Assets Control, which maintains the relevant list of 'specially designated nationals' and other 'blocked parties' that BNPP has admitted to flouting. BNPP has said that as a result of the fine it is going to take an "exceptional charge" of €5.8 billion ($7.9 billion) in the second quarter of this year.

Not every settlement contains a full admission. In its agreement with OFAC, BNPP seems not to agree to wrongdoing at all. In note 28, it states: "Without this agreement constituting an admission or denial by BNPP of any allegation made or implied by OFAC in connection with this matter, and solely for the purpose of settling this matter without a final agency finding that a violation has occurred, BNPP agrees to a settlement in the amount of $963,619,900 arising out of the apparent violations by BNPP of IEEPA, TWEA, various controversial presidential 'executive orders' of dubious constitutionality, and the regulations described in...this agreement."

The admissions

BNPP admits that, up to and including 2012, it processed thousands of transactions to or through US financial institutions that involved countries, companies and people subject to US sanctions. It admits that it 'appeared' to have engaged in a systematic practice to conceal references to sanctioned parties in US dollars in SWIFT payment messages it sent to US financial institutions. It admits that some of its businesses replaced the names of sanctioned parties “pursuant to specific instructions from the sanctioned parties themselves.”

Several BNP Paribas entities developed procedures or used payment practices that contravened the bank's 'general procedure' (proclaimed in 2003) and processed thousands of transactions that they ought not to have. The US sanctions programmes they contravened were against Burma, Cuba, Iran and especially the Sudan. BNP Paribas Suisse, the senior Swiss company in the group, observed its own group-internal directives for the prevention of business with Sudanese clients only in part. This meant that people in the system did not record the Sudanese links, nor did they stop the transactions.

In “apparent violation of prohibitions,” BNP Paribas processed 2,663 electronic fund transfers totalling $8.37 billion regarding Sudan between 2005 and 2009; $1.18 billion between 2005 and 2012 regarding Iran; and $1 million regarding Burma and $689 million regarding Cuba in comparable periods as well.

Correspondent accounts

In 2004 BNP Paribas Suisse decided to shift its US dollar clearing activity away from BNPP's New York branch in an 'apparent' effort to shield that branch from liability for breaching sanctions. While this happened, the Swiss headquarters maintained US dollar-denominated correspondent accounts for several Sudanese banks, including four banks on the OFAC list.

In the words of its federal regulator, BNP Paribas Suisse made transactions for Sudanese clients using accounts that it enlisted another bank to manage. BNPP switched to an external US clearer and inserted third-party banks between it and the client. It was therefore not evident to the US bank that Sudanese clients were involved in the transactions. For its part, BNP Paribas Suisse believed that US sanction law did not apply to foreign banks, especially where transactions were settled through a US bank. BNP Paribas Suisse did, nonetheless, have grave doubts about the legal implications of this practice. No fewer than 20 legal opinions were sought concerning this matter and BNPP's agreement with the Treasury says: "Though not always consistent, the legal advice that BNP Paribas received described OFAC's comprehensive sanctions and explained why BNPP should be careful in its business that involved parties subject to OFAC sanctions."

The potential for secret demands

In 2009, the IRS struck a ground-breaking deal with UBS for $780 million in penalties and the names of its American depositors. Much has happened since, but the habit of asking for names to grease the wheels of a settlement – even when it is illegal to do so – must be a hard one for the Americans to kick. One wonders how many people – both from the US and not – whose names and details the Americans have asked BNPP to pass to them surreptitiously under the counter. One further wonders whether BNPP held its ground or said yes.

Secret demands and secret deals certainly seem to be on the mind of Russian president Vladimir Putin, who claims that the US has been offering to cut the size of the bank's fine in exchange for the French government scrapping a contract to sell Mistral warships to Russia.

Swiss enforcement action against BNP Paribas

Switzerland has recently pledged its all to the cause of pleasing the American government, first by signing up to a 'model 2' inter-governmental agreement with the US Internal Revenue Service in line with America's Foreign Account Tax Compliance Act and secondly by signing a declaration under the auspices of the Organisation for Economic Co-Operation and Development to the effect that it is determined to tackle cross-border tax fraud and tax evasion, after centuries of resistance to the idea of openness between governments about private bank accounts and holdings. In line with this new spirit of capitulation, the Swiss regulator, FINMA, has decided to punish BNPP for daring to do business with countries that the American government does not like, even though it broke no Swiss sanctions. Its penance is to set aside additional capital for operational risks and cease to conduct business with companies and persons subject to EU and US sanctions.

As part of the global elite's drive to push up the number of national regulatory bodies headed up by foreigners, presumably because those foreigners will not suffer much reputational damage in their home countries for their dereliction of duty after the next financial crash, an Englishman called Mark Branson took over FINMA on April Fool's Day this year.

The effect of the fine on the bank's finances: a comparison

The fine beggars all previous ones that the American authorities have levied on European banks for criminal conduct in recent years. If one counts tax evasion as a crime, Credit Suisse previously topped the list with $2.6 billion, with UBS paying $780 million for the same reason. If one does not, the next largest fine to BNP Paribas' involving crime is HSBC's $1.9 billion, levied at the end of 2012 by multiple agencies for its role in money-laundering. The second and third fines for 'sanction-busting' were $674 million for the British bank Standard Chartered and $629 million for the Dutch group ING. Commerzbank, Credit Agricole, Société Générale and the Italian bank Unicredit seem to be next in line, with commentators claiming that US authorities are victimising European banks for some reason. The Americans are said to be investigating the four banks for a combination of money laundering and 'sanction-busting'. There are, however, reports of American banks in the firing line for the same reasons – notably Citigroup's Banamex unit in Mexico. The progress of these investigations is unknown.

The hard road ahead

Compliance Matters has long been wondering when the US authorities – especially the go-ahead prosecutor Ben Lawsky and his New York Department for Financial Services – were finally going to remove a European bank's licence to trade in the US. The combative Lawsky – perhaps in response to his president's dim view of the French refusal to back down over Russia – has finally felt himself able to move in this direction, although not all the way. His department has pressurised BNP Paribas to suspend its US dollar clearing operations through its New York Branch and its other US affiliates for one year "at BNPP business lines in which the misconduct centred." The department is also to extend, for an additional two years, the stay of an 'independent' monitor that it has already installed at BNPP’s New York Branch to conduct a review of Bank Secrecy Act/anti-money-laundering and sanctions compliance. The monitor will also review BNPP’s compliance with the clearing suspension. It is to be hoped that this individual or firm is not going to be as lax as the two regulators from the Office of the Comptroller of the Currency who sat in the offices of HSBC New York while that bank was laundering money for Mexican drug cartels and the Iranians.

Reuters recently reported, quoting an anonymous source, that the bank had just decided to move its sanctions compliance operations from Paris to New York. This decision, not part of the bank's settlement with regulators, is likely to involve a profound level of culture-shock for the staff who have to move. It is also likely to be costly.

New York Governor Andrew Cuomo, who seems to have been watching too much science fiction, has claimed additionally that BNP Paribas plans to 'terminate' some senior executives.