BNP Paribas SA agreed to plead guilty to U.S. sanctions violations and pay $8.97 billion after prosecutors resisted French opposition to the record punishment, saying it serves as a warning to financial firms.
BNP Paribas, France’s largest bank, admitted in court documents yesterday that it processed almost $9 billion in banned transactions from 2004 to 2012 involving Sudan, 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.
Overtures this year by numerous French officials, including President Francois Hollande, weren’t enough to persuade U.S. authorities to take a more lenient approach with the Paris-based lender amid concerns that a large penalty could undermine Europe’s financial system. The bank said it will take a second-quarter charge of 5.8 billion euros ($7.9 billion).
“BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks and deceive U.S. authorities,” U.S. Attorney General Eric Holder said yesterday in announcing the accord. “If sanctions are to have teeth, violations must be punished.”
The Bank of France said after the deal that BNP Paribas can withstand the fine and dollar-clearing ban. The firm said in a statement it will retain its licenses and expects “no impact” on its operational or business capabilities. In 2015, it will clear U.S. dollars through a third party.
BNP Paribas shares climbed as much as 3.6 percent in Paris trading. The stock climbed 3.1 percent to 51.09 euros at 9:15 a.m., paring losses this year to 9.7 percent and valuing the company at 63.7 billion euros.
“The irony is we should be staggered by the size of the fine but of course we’ve got used to it over the past few weeks” said Christopher Wheeler, analyst at Mediobanca SpA in London. “Seems difficult to imagine higher fines than this.”
The bank said it intends to pay a 2014 dividend of 1.50 euros a share, unchanged from last year. The announcement of the payout was a positive surprise, said Jerome Forneris, who helps manage $9 billion at Banque Martin Maurel in Marseille.
BNP Paribas is the second major European bank to plead guilty in a U.S. court in the past two months. Credit Suisse Group AG’s main bank subsidiary did so May 19, when it agreed to pay $2.6 billion, the largest penalty in an offshore tax case, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service. BNP Paribas’s punishment was the heftiest levied for violating U.S. sanctions.
The Federal Reserve said the bank’s $8.97 billion payment will resolve its own claims as well as investigations by the Justice Department, the Treasury’s Office of Foreign Assets Control, the New York District Attorney’s Office and the New York Department of Financial Services.
BNP Paribas pleaded guilty yesterday in state court to Manhattan District Attorney Cyrus Vance Jr.’s charges of falsifying business records and conspiracy. The lender is set to plead guilty to one count of conspiracy in federal court July 9.
The investigation, which began in 2009 when an informant alerted Vance’s office, centered on the firm’s commodity-trade finance business in Paris and Geneva. About 30 executives who worked there have resigned, gone on leave, been fired or relocated since 2012, people familiar with the matter have said.
As part of the agreement, New York’s top banking regulator said it required the bank to refrain from employing people including Georges Chodron de Courcel, co-chief operating officer; Vivien Levy-Garboua, former head of compliance; Dominique Remy, former head of structured finance for the corporate investment bank; and Stephen Strombelline, head of ethics and compliance for North America.
The majority of the illegal payments were made 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. BNP Paribas, using “satellite banks” to disguise the transactions, processed about $6.4 billion through the U.S. from July 2006 to June 2007 on behalf of Sudanese entities, according to the statement.
The U.S. said such transactions included instructions to BNP Paribas from the sanctioned country, saying “due to the U.S. embargo on Sudan, please debit our U.S. dollar account without mentioning our name in your payment order.”
Holder also said that BNP compliance officers wrote to their colleagues to remind them that some Sudanese banks they were doing business with “play a pivotal part” in support of the Sudanese government, which “has hosted Osama bin Laden.”
BNP subverted U.S. sanctions against Sudan “by acting in essence as the central bank of Sudan,” Assistant District Attorney Edward Starishevsky said during a hearing in New York state court yesterday. “This conduct, this conspiracy, was known and condoned at the highest levels of BNP.”
BNP Paribas persisted in doing business with Iran even after the investigation began. The illicit transactions included dealings with a Dubai-based oil company that was a front for an Iranian petroleum firm, the Justice Department said.
The bank also provided more than $1.7 billion in U.S. dollar financing through its headquarters to Cuban banks and other entities from at least 2000 to 2010, violating an embargo that had been in place since 1960, according to the statement.
As the severity of U.S. and New York settlement demands became clearer, French officials became more involved. In May, Christian Noyer, the Bank of France Governor, and Edouard Fernandez-Bollo, a senior French banking regulator, met with prosecutors and regulators, a person briefed on the matter has said.
Meanwhile, the case sparked public outrage in France. The right-wing National Front, which beat France’s two mainstream political parties in the May 25 European parliamentary elections, accused the U.S. of “racketeering,” saying the investigation was an effort to weaken BNP and aid its American rivals.
Hollande said June 4 that a disproportionately large penalty against BNP Paribas wouldn’t just harm the bank but could reverberate across Europe’s financial system. He raised the issue the following evening with U.S. President Barack Obama, who said that he wouldn’t intervene in the probe.
The following week, France’s central bank said BNP Paribas hadn’t violated French or European laws and that the probe may encourage companies to stop using dollars in international transactions. The U.S. claimed jurisdiction in the case because the transactions were processed in dollars.
At least two other French banks are still under investigation. Societe Generale SA and Credit Agricole SA, respectively France’s No. 2 and No. 3 banks by market value, have said in company filings this year that they are conducting internal reviews and cooperating with U.S. authorities regarding dollar transactions involving embargoed countries.
Yesterday’s penalty dwarfs the combined $4.9 billion levied against 21 other banks for transactions tied to sanctioned countries since Obama took office. Vance said in a phone interview that BNP Paribas’s conduct was more egregious than previous sanctions cases because of the bank’s “concerted effort over a period of time to hide from federal and state government the extent” of the transactions.
Corporate penalties for violating U.S. sanctions are escalating. London-based HSBC Holdings Plc agreed to pay $1.9 billion in 2012 to resolve a sanctions-violation investigation and allegations of being used by Mexican drug gangs to launder money. It avoided a guilty plea by admitting wrongdoing and agreeing to bring in an independent monitor.
The U.S. imposed sanctions against Iran in 1979 and Sudan in 1997. In November, the U.S. reached an interim accord with Iran for some sanctions relief in exchange for Iran curtailing its nuclear program. Diplomats want a pact by July 20 to rescind banking and trade sanctions in exchange for limitations on Iran’s nuclear program.