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Credit Suisse, BNP Paribas at Risk of Criminal Charges Over Taxes, Business With Banned Nations

Photographer: Valentin Flauraud/Bloomberg

A Credit Suisse Group AG bank in Geneva. Close

A Credit Suisse Group AG bank in Geneva.

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Photographer: Valentin Flauraud/Bloomberg

A Credit Suisse Group AG bank in Geneva.

Credit Suisse Group AG (CSGN) and BNP Paribas SA (BNP) are at risk of being criminally charged by U.S. and state prosecutors, a person familiar with the matter said, signaling that authorities are taking a tougher approach as they seek to resolve probes of major banks.

Credit Suisse has been the target since 2011 of a U.S. criminal probe into whether it helped Americans evade taxes. BNP Paribas has been the subject of a federal probe into possible violations of sanctions barring business with prohibited countries.

Prosecuting the companies would break with a past practice of brokering settlements with large banks that are considered integral to the financial system. Previous probes have been resolved through so-called non-prosecution and deferred-prosecution agreements, which have been criticized by U.S. senators for failing to hold banks accountable for breaking the law. Preet Bharara, U.S. Attorney for the Southern District of New York, responded last month, saying that “a significant financial institution” will soon be charged.

“Maybe the U.S. attorney’s office is saying these things to get a resolution of the problem without it going to court and without having to do that,” former Citigroup Inc. Chairman and Chief Executive Officer Sanford “Sandy” Weill said today in an interview on CNBC. “How does a bank stay in business if they’re charged criminally?” he asked, adding that there are a “whole bunch” of businesses such as asset management that a firm can’t engage in if charged.

Photographer: Balint Porneczi/Bloomberg

A poster advertises insurance services in the window of a branch of BNP Paribas SA bank in Jouars-Pontchartrain. BNP Paribas has been the subject of a federal probe into possible violations of sanctions barring business with prohibited countries. Close

A poster advertises insurance services in the window of a branch of BNP Paribas SA bank... Read More

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Photographer: Balint Porneczi/Bloomberg

A poster advertises insurance services in the window of a branch of BNP Paribas SA bank in Jouars-Pontchartrain. BNP Paribas has been the subject of a federal probe into possible violations of sanctions barring business with prohibited countries.

Bharara, O’Neil

Criminal charges against a bank -- something that could threaten its existence -- may also endanger the national or global economies in the case of the largest ones, because of their size and interconnectedness, Attorney General Eric Holder told Congress in March 2013. “That the size of some of these institutions becomes so large that it does become difficult for us to prosecute them,” he said.

The Justice Department’s tax division and prosecutors in Alexandria, Virginia, are leading the tax probe of Credit Suisse. Bharara, Manhattan District Attorney Cyrus Vance Jr. and David O’Neil, the head of the Justice Department’s criminal division in Washington, are working together in the BNP Paribas investigation, said the person, who asked not to be identified because the matter isn’t public. Benjamin Lawsky, superintendent of New York’s Department of Financial Services, has begun examining whether Zurich-based Credit Suisse helped clients evade New York taxes and is also investigating BNP Paribas.

BNP Paribas fell the most in two months in Paris trading. The firm said separately today it may need to pay much more than the $1.1 billion it set aside for alleged breaches of U.S. sanctions. The Wall Street Journal reported the amount may be about $2 billion. The stock dropped 3.2 percent to 54.11 euros in Paris trading today. Credit Suisse fell 0.3 percent to 27.91 francs in Zurich.

Prosecutors’ Meetings

Cesaltine Gregorio, a spokeswoman for Paris-based BNP Paribas, and Jack Grone, a Credit Suisse spokesman, declined to comment on the probe. Credit Suisse previously said it was working to resolve the Justice Department probe, though “the timing and outcome remain uncertain.”

Erin Duggan, a spokeswoman for Vance, declined to comment. The New York Times reported earlier that prosecutors were considering charges against the two banks.

To prepare for potential criminal charges, prosecutors have met with regulators including the New York Fed to discuss how to contain the fallout, the New York Times reported, citing records and unidentified lawyers.

Among the possibilities, Lawsky is considering seeking a deal with BNP Paribas that would terminate some bank employees, claw back pay and temporarily suspend the firm’s ability to transfer money through New York branches on behalf of foreign clients, according to a person familiar with that matter who asked not to be named because a decision isn’t final. Lawsky isn’t planning to suspend BNP Paribas’s license, the person said.

‘Nuclear Sanction’

“That’s such a nuclear sanction that would have so many effects that realistically, it is not going to be on the table,” said Owen Watkins, a former regulator at the U.K. Financial Service Authority who’s now a lawyer at Lewis Silkin LLP in London. “More likely, the regulators will look to see whether there is an individual or individuals who can face the most severe punishments.”

Credit Suisse, the largest of 14 Swiss banks under U.S. criminal investigation, could resolve its negotiations with the Justice Department within the next month, according to another person familiar with the matter who didn’t want to be identified because it isn’t public.

Pressure on the bank to resolve the investigation is rising. Today, the founder of a Swiss trust company pleaded guilty to working with Credit Suisse to help American clients hide money from the IRS.

The bank has been negotiating a deferred-prosecution agreement similar to one that UBS AG (UBSN), the largest Swiss bank, reached with the Justice Department in 2009, according to the person. The resolution could involve criminal charges against the bank or a unit, the person said.

Charges Rare

Criminal charges against banks have been rare for many reasons, said John Hueston, a former Enron Task Force prosecutor now at the law firm Irell & Manella LLP. That’s partly because their practices, including some viewed by the general public as unfair or even deceitful, are disclosed in one form or another, Hueston said in an e-mail.

“Prosecutors likewise rarely indict large institutions because of the potential widespread collateral damage to uninvolved employees and investors in the form of lost jobs and shareholder value,” he said.

Both banks have been the subject of federal probes into alleged criminal behavior involving sanctions violations.

In 2009 Credit Suisse settled federal investigations of illegal transactions involving Iran, Sudan, Burma, Cuba and Libya from mid-1990s through 2006 by paying $536 million.

BNP Paribas

BNP Paribas has said in past regulatory filings that it was working with U.S. authorities in similar probes into sanction violations. BNP Paribas said in 2011 that following discussions with the U.S. Department of Justice and Vance’s office, it was reviewing operations to see if it has complied with sanction rules of the Office of Foreign Assets Control.

BNP Paribas said in February that it set aside $1.1 billion amid a review of payments to parties subject to U.S. economic sanctions. The probe focuses on dealings tied to Iran, Sudan and Cuba, a person with knowledge of the matter said at the time.

Under the deferred-prosecution agreements, banks involved in investigations agreed to pay or forfeit money and improve their compliance systems. If the agreement is followed, the banks will avoid criminal prosecution.

HSBC Accord

The largest such settlement was made when HSBC Holdings Plc (HSBA), Europe’s largest bank by market value, resolved investigations into whether it had laundered funds of sanctioned nations including Iran and Sudan in 2012. The bank agreed to change its business practices and paid $1.9 billion.

Similar agreements have been made with ING Groep NV, the biggest Dutch financial-services company, and Standard Chartered Plc. (STAN) Settlements with Lloyd’s Banking Group Plc, ABN Amro Bank NV, Barclays Plc (BARC) and Credit Suisse have also been made.

Banking regulators pledged to beef up the enforcement tools at their disposal to go after illegal money laundering operations in response to tough questioning from members of the Senate Banking Committee in 2013.

Closure Threat

Federal Reserve spokeswoman Barbara Hagenbaugh declined to comment on the probes of Credit Suisse and BNP Paribas. The Office of the Comptroller of the Currency didn’t immediately respond to phone and e-mail messages after regular business hours yesterday seeking comment on the probes.

“A criminal indictment could close a bank,” said Jacob Frenkel, a former federal prosecutor who is now a lawyer with Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “That is why we see more and more financial institutions -- banks, brokerage firms and hedge funds -- prepared to add zeros to the left of the decimal and pay for the right to remain in business.”

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; David Voreacos in federal court in Newark, New Jersey, at

dvoreacos@bloomberg.net; Greg Farrell in New York at gregfarrell@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net; Michael Hytha at mhytha@bloomberg.net; Andrew Dunn at adunn8@bloomberg.net Joshua Gallu

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