The Swiss banking regulator’s reaction to U.S. sanctions violations by BNP Paribas SA’s Geneva unit signaled the watchdog is taking a tougher stance against rule-breaking outside Switzerland.
The Swiss Financial Market Supervisory Authority, or Finma, ordered BNP Paribas (Suisse) SA to hold additional capital and banned it from conducting business with companies and persons subject to U.S. or European Union sanctions for two years, according to a July 1 statement.
“This has a legal signaling effect for Swiss banks as well as for foreign banks in Switzerland,” said Peter V. Kunz, a professor of comparative law at the University of Bern. “Compliance with all legal systems is crucial to Finma.”
BNP Paribas pleaded guilty in the U.S. on June 30 to breaking American embargoes on Sudan, Iran and Cuba, and was fined $8.97 billion. The penalty came about six weeks after a unit of Zurich-based Credit Suisse Group AG pled guilty in a U.S. court to helping Americans evade taxes, and agreed to pay $2.6 billion.
Finma’s decision to specifically ensure the BNP Paribas unit heeds the sanctions shows the growing importance it places on global legal compliance. Mark Branson, Finma’s head, last month urged Swiss banks to stay on top of legal and reputational risks in their dealings with other countries.
BNP Paribas’s Swiss unit “persistently and seriously violated its duty to identify, limit and monitor the inherent risks” in making transactions with business partners in countries sanctioned by the U.S., Finma said in the statement. Besides ordering the unit to comply with U.S. and EU sanctions and tightening capital requirements for the bank, Finma said it continues to investigate employees of BNP Paribas (Suisse) in connection with the misconduct.
Finma didn’t address the political motives behind the sanctions by the European Union and the U.S. “The considerations behind this measure are exclusively concerned with risk,” said Tobias Lux, a spokesman for the regulator.
A BNP Paribas spokeswoman declined to comment.
“Every other bank reading Finma’s statement will decide it’s safer to adhere to these sanctions,” said Marco Sassoli, professor for international law at the University of Geneva.
Finma’s order to BNP Paribas doesn’t legally clash with Swiss neutrality, according to Sassoli. “There’s a difference between the Finma imposing such a measure and the government doing the same,” he said. “Finma has a specific mandate to make sure banks are managed soundly, which includes to avoid fines for breaches of foreign sanctions which could ruin them.”
Switzerland, where neutrality is seen as part of a national identity that helped the country weather both world wars, only started heeding sanctions imposed by the United Nations in 1990. The country joined the organization in 2002.
The country took part in economic sanctions outside the UN for the first time in 1998, when it joined the European Union’s measures against Yugoslavia, according to the website of the Swiss State Secretariat for Economic Affairs.
“Neutrality doesn’t mean one can hide from prosecution abroad in Switzerland,” said Kunz. “Someone who’s active abroad, like BNP Paribas was, has to respect the laws there and cannot flee to Switzerland.”