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

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the US are seeing gas prices dip below $3 a gallon More

Afghan Women's Soccer Team Building for the Future

A four-team female league was recently set up in Kabul; It will help identify players for the national team More

Video Koreas on Edge Amid Live-fire Drills

Pyongyang threatens nuclear test as joint US, S. Korean exercises show forces’ capabilities More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
New Skateboard Defies Gravityi
X
November 21, 2014 5:07 AM
A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video New Skateboard Defies Gravity

A futuristic dream only a couple of decades ago, the hoverboard – a skateboard that floats above the ground - has finally been made possible. While still not ready for mass production, it promises to become a cool mode of transport... at least over some surfaces. VOA’s George Putic reports.
Video

Video Falling Gas Prices Impact US Oil Extraction

With the price of oil now less than $80 a barrel, motorists throughout the United States are benefiting from gas prices below $3 a gallon. But as VOA’s Kane Farabaugh reports, the decreasing price of petroleum has a downside for the hydraulic fracturing industry in the United States.
Video

Video Tensions Build on Korean Peninsula Amid Military Drills

It has been another tense week on the Korean peninsula as Pyongyang threatened to again test nuclear weapons while the U.S. and South Korean forces held joint military exercises in a show of force. VOA’s Brian Padden reports from the Kunsan Air Base in South Korea.
Video

Video Mama Sarah Obama Honored at UN Women’s Entrepreneurship Day

President Barack Obama's step-grandmother is in the United States to raise money to build a $12 million school and hospital center in Kogelo, Kenya, the birthplace of the president's father, Barack Obama, Sr. She was honored for her decades of work to aid poor Kenyans at a Women's Entrepreneurship Day at the United Nations.
Video

Video Gay Evangelicals Argue That Bible Does Not Condemn Homosexuality

More than 30 U.S. states now recognize same-sex marriages, and an increasing number of mainline American churches are blessing them. But evangelical church members- which account for around 30 percent of the U.S. adult population - believe the Bible unequivocally condemns homosexuality. VOA's Jerome Socolovsky reports that gay, lesbian, bisexual and transgender evangelicals are coming out. Backed by a prominent evangelical scholar, they argue that the traditional reading of the bible is wrong.
Video

Video Ebola Economic Toll Stirs W. Africa Food Security Concerns

The World Bank said Wednesday that it expects the economic impact of the Ebola outbreak on the sub-Saharan economy to cost somewhere betweenf $3 billion to $4 billion - well below a previously-outlined worst-case scenario of $32 billion. Some economists, however, paint a gloomier picture - warning that the disruption to regional markets and trading is considerable. Henry Ridgwell reports from London.
Video

Video Mexico Protests Escalate Over Disappearances

Protests in Mexico over 43 students missing since September continue to escalate, reflecting growing anger among Mexicans about a political system they view as corrupt, and increasingly tainted by the drug trade. Mounting outrage over the disappearances is now focused on the government of President Enrique Pena Nieto, accused of not doing enough to end insecurity in the country. More from VOA's Victoria Macchi.
Video

Video US Senate Votes Down Controversial Oil Pipeline - For Now

The U.S. Senate has rejected construction of a controversial pipeline to transport Canadian oil to American refineries. The $5 billion project still could be approved next year, but it faces a possible veto by President Barack Obama. As VOA’s Michael Bowman reports, the pipeline has exposed deep divisions in Congress about America’s energy future.
Video

Video Can Minsk Cease-fire Agreement Hold?

Growing tensions between government troops and separatists in eastern Ukraine further threaten a cease-fire agreement reached two months ago in the Belarusian capital of Minsk. Critics of U.S. policy in Ukraine say it is time the Obama administration gives up on that much-violated cease-fire and moves toward a new deal with Russia. VOA's Scott Stearns has more.
Video

Video Chaos, Abuse Defy Solution in Libya

The political and security crisis in Libya is deepening, with competing governments and, according to Amnesty International, widespread human rights violations committed with impunity. VOA’s Al Pessin reports from London.
Video

Video US Hosts Record 866,000 Foreign Students

Close to 900,000 international students are studying at American universities and colleges, more than ever before. About half of them come from Asia, mostly China. The United States hosts more foreign students than any other country in the world, and its foreign student population is steadily growing. Zlatica Hoke reports.
Video

Video Ferguson Church Grapples with Race Relations

Many white residents of Ferguson, Missouri, say they chose to live there because of the American Midwest community's diversity. So, they were shocked when a white police officer killed an unarmed black teenager in August – and shaken by the resulting protests and violence. Some local churches are leading conversations on how to go forward. VOA’s Ayesha Tanzeem reports.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8050
JPY
USD
117.90
GBP
USD
0.6376
CAD
USD
1.1259
INR
USD
61.655

Rates may not be current.