A U.S. crackdown on financial institutions for alleged sanctions-busting threatens to penalize more European banks after France’s BNP Paribas SA (BNP) was fined a record $8.97 billion for dealing with blacklisted countries.
French lenders Credit Agricole SA (ACA) and Societe Generale SA (GLE), Germany’s Deutsche Bank AG and Commerzbank AG (CBK), and UniCredit SpA (UCG), Italy’s largest lender, are among other financial institutions being investigated by U.S. authorities.
“I think it’s fair to say that the U.S. is taking a more aggressive stance on making sure banks are brought to book,” Christopher Wheeler, an analyst at Mediobanca SpA in London, said in a telephone interview. “It seems difficult to imagine higher fines than this, but clearly it depends on the circumstances.”
Authorities around the world are increasing their scrutiny of lenders in the aftermath of the financial crisis, looking into allegations ranging from aiding tax evasion to dealings with blacklisted regimes to manipulating interest rates, currencies and commodity prices. The probes are forcing companies in Europe to set aside reserves of cash just as the European Central Bank reviews their balance sheets to see if they are sufficiently capitalized.
BNP Paribas, France’s biggest lender, carried out illegal payments on behalf of sanctioned entities in Sudan, which came under a U.S. trade embargo for abusing human rights and aiding terrorists, the Justice Department said in a statement yesterday. The company went to “ellaborate lengths” to deceive U.S. authorities, using “satellite banks” to disguise transactions, processing about $6.4 billion through the U.S. from July 2006 to June 2007 on behalf of Sudanese entities.
The U.S. has brought at least 22 cases against financial firms since 2009 for doing business or handling funds linked to sanctioned countries, according to announcements on government websites.
Yesterday’s penalty dwarfs the combined $4.9 billion levied against 21 other banks since U.S. President Barack Obama took office. Most of those cases targeted overseas banks, with less than $90 million in fines imposed on U.S. firms. In 2011, JPMorgan Chase & Co. (JPM) paid $88.3 million to settle allegations over transactions involving Cuba, Iran and Sudan.
Concern among investors over litigation has contributed to underperformance for the 43-member Bloomberg Europe Banks & Financial Services Index, which has risen 0.6 percent this year compared with an increase of 5.1 percent for the Stoxx Europe 600 Index and 6 percent for the S&P 500 Banks Index.
Societe Generale and Credit Agricole, France’s largest banks after BNP Paribas, are conducting internal reviews and cooperating with the authorities over dollar transactions involving embargoed countries.
Societe Generale paid a civil fine of $111,000 in 2011 over transactions involving Iran. It said the punishment didn’t fully end U.S. probes, saying in filings this year it’s conducting an internal review and cooperating with U.S. authorities over dollar transactions involving embargoed countries. Nathalie Boschat, a spokeswoman at Societe Generale, declined to comment by phone from London.
Deutsche Bank, Europe’s biggest investment bank, said in a share sale offer June 5 that it is cooperating with U.S. regulatory agencies on dollar payment probes and “has no reliable basis on which to compare the ongoing investigations relating to it to any potential settlements involving other institutions.” When asked about the probes by phone today, Deutsche Bank spokesman Christian Streckert referred to last month’s document, declining to comment further.
BNP Paribas also admitted in court documents to processing banned transactions involving Iran and Cuba. The company will be barred from U.S. dollar-clearing operations for one year for its oil and gas commodity finance business, and it promised not to employ 13 key executives.
Credit Agricole is also reviewing dollar payments. It is “not possible to know the outcome” though the U.S. could impose financial penalties “as they have done for other financial institutions,” the company said in March. Alexandre Barat, a spokesman at Credit Agricole, declined to comment.
Before yesterday’s BNP Paribas fine, the largest settlement was in 2012, when HSBC Holdings Plc (HSBA) reached a $1.9 billion deal to resolve charges it handled transactions for customers in sanctioned nations and enabled drug cartels to launder funds.
“Litigation risks will continue to burden banks in 2014 and in 2015 -- there’s no light at the end of the tunnel yet,” said Stefan Bongardt, an analyst at Independent Research in Frankfurt. “Long-term it’s difficult to determine -- there’s a huge spectrum of issues.”
Commerzbank said in 2010 that it was cooperating with U.S. authorities on an investigation of transactions involving Iran. Germany’s second-biggest bank said at the time that it couldn’t assess the outcome of the investigation or how much it might cost. Spokeswoman Margarita Thiel declined to comment by phone.
In December, UniCredit reiterated in its annual report that German unit UCB AG was subpoenaed in March 2011 by the New York District Attorney’s Office over transactions with certain Iranian entities subject to U.S. sanctions. It said it was cooperating and couldn’t “determine the form, extent or timing of any resolution.” A spokesman at UniCredit in Milan declined to comment.
Working with the investigators is key to mitigating U.S. penalties, as the authorities saw BNP as “dragging their feet once the Justice Department put them on notice that their illegal conduct was under investigation,” Deputy Attorney General James M. Cole said at a press conference yesterday. “True cooperation might have reduced that price.”
To contact the reporters on this story: Fabio Benedetti-Valentini in Paris at email@example.com; Sonia Sirletti in Milan at firstname.lastname@example.org; Shane Strowmatt in Frankfurt at email@example.com