News / Economy

French Bank BNP Paribas Pleads Guilty to Violating US Sanctions

Georges Dirani (C), general counsel for BNP Paribas, appears with his lawyers in New York state court, June 30, 2014. The French bank pleaded guilty to violating U.S. sanctions laws.
Georges Dirani (C), general counsel for BNP Paribas, appears with his lawyers in New York state court, June 30, 2014. The French bank pleaded guilty to violating U.S. sanctions laws.
Reuters

French bank BNP Paribas has pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve accusations that it had violated U.S. sanctions against Sudan, Cuba and Iran, in a severe punishment aimed at sending a clear message to other financial institutions around the world.

The BNP Paribas guilty plea is the direct consequence of a broader U.S. Justice Department shift in strategy that is expected to try to snare more major banks for possible money laundering or sanctions violations.

In an unprecedented move, regulators banned BNP for a year from conducting certain U.S. dollar transactions, a critical part of the bank's global business, in addition to the fine which was a record for violating American sanctions.

U.S. 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 U.S. officials warned the bank of its obligation to crack down on illegal activity. Shares in BNP rose 4.1 percent by 0945 GMT, making it the strongest performer in the European bank index because of relief the bank had finally settled the case.

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, U.S. 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 U.S. system without raising red flags.

The logo of French bank BNP Paribas is seen above the facade of their central Paris agency June 30, 2014.The logo of French bank BNP Paribas is seen above the facade of their central Paris agency June 30, 2014.
x
The logo of French bank BNP Paribas is seen above the facade of their central Paris agency June 30, 2014.
The logo of French bank BNP Paribas is seen above the facade of their central Paris agency June 30, 2014.

With its Sudanese clients, the bank admitted it set up elaborate payment structures that routed transactions through satellite banks to disguise their origin.

"BNPP 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 Manhattan U.S. Attorney Preet Bharara, whose office helped to prosecute the case.

"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 U.S. sanctions. SocGen said in its latest annual report that it is engaged in discussions with the Treasury Department's Office of Foreign Assets Control over potential sanctions violations.

The two banks could not be immediately reached for comment.

Stinging rebuke

The settlement marks a stinging rebuke for BNP, the granddame 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 interestrate manipulation and the mis-sale of U.S. 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. But the stock is still down around 16 percent since mid-February because of the affair.

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 U.S.-EU trade talks.

A pipeline of cases has built up as U.S. 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 U.S. criminal charge, for helping Americans to evade taxes. No individuals were charged on Monday, but U.S. 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.

BNP said it would take an exceptional charge of 5.8 billion euros ($7.9 billion) in the second quarter of this year. It plans to keep its dividend payment at 1.5 euros per share this year, the same as in 2013, and expects its core capital adequacy ratio to be around 10 percent at the end of June, consistent with long-term targets. The bank had been expected to cut its dividend, sell bonds or some assets to help pay for the fine.

"Reassuring comments"

"While the settlement is very significant it does not call into question the solidity of BNP Paribas," Bonnafe said.

"We consider the settlement a setback for the group, but we do not expect its franchise to suffer lasting damage," Fitch Ratings agency said. A fine of up to $10 billion and a dollar clearing ban had been widely expected, and analysts said keeping the dividend intact was positive.

"The size of the fine we knew, the reaction is more to do with BNP's extremely reassuring comments and the efforts made to protect the dividend," said Francois Chaulet, fund manager at Montsegur Finance in Paris.

BNP Paribas will have to suspend its dollar-clearing operations through its New York branch and other U.S. affiliates during all of 2015 at the business lines where the misconduct took place, the U.S. authorities said.

The ban could trigger a client exodus, and it is not clear how BNP may blunt its impact.

It said it would clear the affected dollar-clearing operations through another bank, which it did not name.

"We have not observed any massive uncertainty among clients," said BNP Finance Director Lars Machenil. Some of the business lines affected were dollar clearing on behalf of the oil and gas finance business from Geneva, Paris and Singapore, the trade finance business from Milan, and for oil and gas-related clients from Rome.

The ban was proposed as one condition for not revoking BNP's license to operate in New York, which would have effectively been a death warrant, sources had previously told Reuters. In addition, the bank will need to prohibit all U.S. dollar clearing as a correspondent bank for unaffiliated third-party banks in New York and London for two years.

Authorities said 13 individuals, including Group Chief Operating Officer Georges Chodron de Courcel, would leave the bank, out of 45 employees who were disciplined.

"This conduct, this conspiracy was known and condoned at the highest levels of BNP," Assistant District Attorney Ted Starishevsky said.

"Contrary to principles"

Most of BNP's failures related to transactions with Sudan, which the U.S. imposed sanctions on in 1997. It strengthened them in 2006 because it said the government there supported terrorism and violated human rights, in particular with respect to a conflict in Darfur.

Bonnafe said the failures that came to light in the course of the investigation "run contrary to the principles on which BNP Paribas has always sought to operate". But internal bank memos revealed in the settlement showed BNP officials were aware of the humanitarian crisis in Sudan and the ties of the government with al-Qaida founder Osama bin Laden, but chose to do business with Sudan because it was commercially attractive.

Vance said prosecutors insisted on a guilty plea because of how long the conduct went on, even well after the inquiry began, the volume of transactions, and the nature of the conduct. BNP, which has 190,000 staff and more than 34 million customers across Europe, the United States and Asia, said the settlement would not affect a strategic plan it laid out in March. Its plan includes expansion in North America, where it owns San Francisco-based Bank of the West and First Hawaiian Bank, to raise revenue and profits outside European markets.   

You May Like

Lesotho Faces New Round of Violence, Political Crisis

Brutal killing of military officer has sent former leaders back into S. Africa where they're watching anxiously as regional officials head in to try to restore peace More

Video US Diplomat Expects Adoption of Bosnian Massacre Anniversary Resolution

Samantha Power says there's broad consensus about killings in Bosnia's war, but Russia calls resolution 'divisive,' backs UN countermeasure More

UN Report Exposes Widespread Boko Haram Atrocities

Damning report graphically details pattern of vicious, widespread atrocities committed by Islamist militants More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Olympics Construction Scars Sacred Korean Mountaini
X
July 02, 2015 4:10 AM
Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video US Silica Sand Mining Surge Worries Illinois Residents, Businesses

Increased domestic U.S. oil and gas production, thanks to advances known as “fracking,” has created a boom for other industries supporting that extraction. Demand for silica sand, used in fracking, could triple over the next five years. In the Midwest state of Illinois, people living near the mines are worried about how increased silica sand mining will affect their businesses and their health. VOA’s Kane Farabaugh has more in this first of a series of reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Texas Defies Same-Sex Marriage Ruling

Texas state officials have criticized the US Supreme Court decision giving same-sex couples the right to marry nationwide. The attorney general of Texas says last week's decision did not overrule constitutional "rights of religious liberty," and therefore officials performing wedding services can refuse to perform them for same-sex couples if it is against their religious beliefs. Zlatica Hoke reports on the controversy.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.
Video

Video Saudi Leaks Expose ‘Checkbook Diplomacy’ In Battle With Iran

Saudi Arabia’s willingness to wield its oil money on the global diplomatic stage appears to have been laid bare, after the website WikiLeaks published tens of thousands of leaked cables from Riyadh’s Ministry of Foreign Affairs. VOA's Henry Ridgwell reports.
Video

Video In Kenya, Police Said to Shoot First, Ask Questions Later

An organization that documents torture and extrajudicial killings says Kenyan police were responsible for 1,252 shooting deaths in five cities, including Nairobi, between 2009 and 2014, representing 67 percent of all gun deaths in the areas reviewed. Gabe Joselow has more from Nairobi.

VOA Blogs

World Currencies

EUR
USD
0.9009
JPY
USD
123.09
GBP
USD
0.6387
CAD
USD
1.2524
INR
USD
63.605

Rates may not be current.