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Categorized | Banks

BNP pleads guilty and faces $8.9bn fine

Posted on June 30, 2014

BNP Paribas agreed to pay a record $8.9bn penalty and pleaded guilty in a landmark settlement with US authorities for conspiring to violate sanctions that prohibit transactions with Sudan and other regimes.

It is the first time a major bank has pleaded guilty in a sanctions-busting case and represents a significant stiffening of penalties against global financial institutions, which have paid more than $100bn in fines in recent years.

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    US authorities – including the Department of Justice, Treasury, Federal Reserve, Internal Revenue Service, New York state’s Department of Financial Services and the Manhattan district attorney’s office – said France’s largest bank concealed billions of dollars in transactions on behalf of Sudan, Iran and Cuba from 2002 until 2012, well after the bank was warned it was under investigation and after multiple other banks were penalised for similar transactions.

    According to court filings citing an internal bank memo, BNP’s senior compliance personnel agreed to continue doing business with Sudan despite the sanctions and human rights violations in Darfur by stating that “the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way.”

    “BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks and deceive US authorities,” said attorney-general Eric Holder.

    Benjamin Lawsky, superintendent of New York’s Department of Financial Services, said in a statement that BNP “employees – with the knowledge of multiple senior executives – engaged in a longstanding scheme that illegally funnelled money to countries involved in terrorism and genocide.”

    BNP executives caught up in sanctions case

    • Georges Chodron de Courcel, group chief operating officer

    • Vivien Levy-Garboua, current senior adviser to the BNP executive committee and former group head of compliance

    Christopher Marks, group head of debt capital markets

    Dominique Remy, group head of structured finance for the Corporate Investment Bank (CIB)

    Stephen Strombelline, head of ethics and compliance for North America ​

    The settlement is a costly setback for the bank that largely weathered the US and European financial crises. BNP said it would take a €5.8bn charge to cover the fine, on top of its past provisions.

    The French government, which feared a guilty plea would have ripple effects throughout the country’s economy and had lobbied US authorities fiercely to limit BNP’s punishment, gave the settlement a guarded welcome, saying it lifted the uncertainty that had been facing the bank.

    “In line with the demands of the French authorities, this agreement punishes the past, not the future,” said Michel Sapin, finance minister.

    But he added that the “extraterritorial” nature of the action and further threatened moves against other European banks meant Europe should “mobilise” to ensure more international transactions were conducted in euros, not dollars.

    BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks and deceive US authorities

    – Eric Holder, US attorney-general

    BNP will not lose its banking licence in New York as part of the settlement, but will be prohibited for one year from clearing dollar-denominated transactions related to its oil and gas business, where much of the alleged criminal activity took place, as well as from transacting on behalf of other banks. The suspension begins on January 1, giving clients six months to move their accounts.

    Thirteen BNP employees have left the bank at the request of the DFS – including Georges Chodron de Courcel, its former chief operating officer, whom the bank said would retire this year. Mr Chodron de Courcel has not been accused of any wrongdoing. In total 45 bank employees have been disciplined, including lowered pay, lost bonuses and demotions.

    French banking regulator ACPR said on Monday that BNP had “a solid solvency and liquidity position,” which would allow it to absorb the penalty.

    The bank said it would “adapt its dividend for 2014” to match its 2013 payout of €1.50 per share, less than the €2 traders once expected. Its common equity tier one ratio – a crucial measure of financial strength – would not fall below its target of 10 per cent, it added.

    Jean-Laurent Bonnafé, BNP’s chief executive, said the bank deeply regretted the past misconduct that led to the settlement and had designed “new robust compliance and control procedures”.

    He added, however: “Apart from the impact of the fine, BNP Paribas will once again post solid results this quarter and we want to thank our clients, employees, shareholders and investors for their support throughout this difficult time.”

    BNP pleaded guilty to state felonies of conspiracy and making false statements. It is scheduled to plead guilty to federal charges next week.

    HSBC less than two years ago paid $1.9bn and averted a guilty plea in a case involving money laundering and sanctions violations. Last month Credit Suisse became the first major bank in over a decade to plead guilty to criminal charges, stoking concerns in some quarters that foreign banks are being singled out by US authorities – a charge the US has denied. No individuals were charged in the matter.