BNP Paribas, France's largest bank, illegally engaged in over $30 billion of US dollar transactions between 2002-2012 on behalf of entities in Cuba, Iran, and Sudan in violation of US sanctions against those countries. When caught, BNP Paribas was fined $8.97 billion by US regulators, the largest fine ever for a foreign bank, and pleaded guilty to criminal charges, a first for a foreign bank. The penalties outraged the French government despite BNP Paribas' serious and long-running violations.
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France's very bad bank (1)
1. France’s Very Bad Bank
By Stephen Bornstein
July 15, 2014
Did BNP Paribas get off easy?
As the mostliquidcurrencyon the planet,the Americandollaris byfarthe denominationof choice in
international trade.1
Those whocan’taccess itare effectivelybarredfrom global commerce.
The onlypractical wayto gainaccess to USD is througha US bankor the US branch of a foreignbank.
Doingso, however,subjects whoevertransfersorreceives USDto US law,evenif that party is foreign.
Amongthe US lawsapplicable toUSDtransactions are the financial sanctionsthe UShasimposedon
countries like Cuba(in1960), Iran (in1995) and Sudan(in1997) in an effortto deterhumanrights
abusesandthreatsto global security. These sanctionsprohibitUSbanksandthe US branchesof foreign
banksfrom doingbusinesswithcounterpartiesinthe blacklistedcountries.
In a class by itself
Between2002 and 2012, BNP Paribas,France’slargestbank, engagedinmore than $30 billion2
of USD
transactionsonbehalf of entitiesinCuba,IranandSudan. The illegal transactionswere centeredin
BNP’soil & gas tradingunitinGeneva. That unithad foryears been extendingcreditand transferring
USD paymentsforbuyersandsellers of petroleumproducts inall three of the sanctionedcountries.
Whenthose countriesbecame subjecttoUS sanctions, BNP apparently didnotat firstbelieve the US
sanctions appliedtoitand,when advised otherwisebycounsel, nevertheless carriedon itsUSD dealings
withthe sanctionedentities,treatingpotentialUS legal penalties asjustabusinessrisk.
BNPknew full well thatitwasviolatingUSsanctions anddisguisedevery USDtransaction witha
sanctionedentity bystrippingall referencesto thatentityinthe transferordersplacedwitheitherits
ownNewYork branch or an unaffiliated(andunwitting) New Yorkbank. Innumerous instances, BNP
alsointerposedindependentforeign (“satellite”) banksbetweenthe sanctionedcounterpartiesand
BNP’sbranch inGenevasoas to conceal the identitiesof the real sourcesorbeneficiariesof the USD
transfers.
BNPcontinuedtocircumventUS sanctionsevenafter ABN Amrowas penalized in2005 forengagingin
similardeceptions. Ataboutthe same time,BNPwaswarnedby US authoritiesthatthe bank wasunder
investigation foritscompliance policiesinthisarea. Seniormanagement atBNPignoredthese ‘red
1 More than 61% of the world’s currency reserves are denominated in USD. About 25% are denominated in Euro.
2 Figures as high as $190 billion havebeen reported, but the US claims
(http://www.justice.gov/opa/documents/paribas/statement-of-facts.pdf) againstthe bank were based on $8.8
billion of proven criminal transactions.
2. flags’as well as multipleinternal warningstostopdealingwith countriessubjecttoUS sanctions. To
boot,the bank wasalso lessthanfullycooperative duringthe USinvestigation and, bydraggingitsfeet,
prevented USlawenforcementfrombringingcriminal chargesagainst individual BNP employeesand
cooperatingsatellite banksdue to afive-yearstatute of limitations.
An international incident
For the enormityandpersistenceof itsviolations,BNPwasfinedawhopping$8.97 billion3
byUS
regulatorsand,more painfully,forcedtopleadguiltytocriminal charges. Itisthe firstforeignbankever
to have beencriminallyconvicted forsanctionsviolations. UnderitssettlementwithUSauthorities,the
bankalso prematurelyretired64year-oldCOOGeorgesChodronde Courcel forcondoningthe
violations,demotedanumberof otherparticipatingemployeesandagreedtosuspenditsso-called
‘dollar-clearing’activitiesinoil &gasfor one year,startingin2015.4
As soonas he got windof the penaltiesfacingBNP,FrenchpresidentFrançoisHollandepersonallycalled
Barack Obama and toldhimthat singlingoutBNPfora criminal convictionandanexorbitantfine5
was
an offense againstFrance since the bankdidnotviolate anyFrenchlaws.6
Obama ignoredHollande’s plea7
and,surprisinglytomany,none of the penaltiesimposeduponBNP
turnedoutto really threatenitsbusinessorprospects. Shortlyafteritssettlementwas reached, CEO
Jean-LaurentBonnafé announcedpubliclythat BNP’sclientswouldstickbythe bankand the penalties
wouldhave “nomajor impacton the business.” The bankthendeclared itsregularannual dividendand
itsstock wasup 3.6% onthe news.
Giventhe size anddurationof its illegal transactions,itsfalsificationof recordsand,mostdamning,the
intransigence of itsseniormanagement, canyouthinkof any financial institutionmore deservingof
beingputout of businessthanBNPParibas? Were itnot for Hollande’s intervention,BNP’sbanking
license inthe USmay well have been revoked andsome BNPhigher-upschargedwithcrimes. Inthe
currentenvironment (http://aroundwallstreet.com/2014/01/what-makes-a-securities-case-go-
criminal/),if BNPwere anAmericanbank, it’safairguessthat buildingsecuritywould soonbe turning
out itslightsforthe last time.
3 BNP’s net income in 2013 was $6.5 billion.
4 ‘Dollar-clearing’is thebusiness of effecting payments in USD and BNP’s ‘dollar-clearing’activities in oil & gas
accountfor less than 1% of BNP’s group revenues.
5 The highest earlier finefor sanctions violationsby any bank was $1.9 billion levied againstHSBC in 2012. In 2005,
ABN Amro was the firstforeign bank to be fined for sanctions violations and theamount of the fine was $80
million.
6
Russian presidentVladimir Putin even chimed in on France’s behalf,claimingthatthe BNP finewas a n attempt by
the US to blackmail Franceinto renegingon a pending saleof two warships to Russia.
7 Obama reportedly replied that he doesn’t just“pick up the phone and call theJustice Department. Perhaps that
happens elsewhere.”
