Banks That Can't Pay the Fine Shouldn't Do the Crime
President Barack Obama's dinner on Thursday with French President Francois Hollande might be a little chilly. Obama's hosts are furious that their country's flagship financial institution, BNP Paribas SA, may soon have to plead guilty to violating U.S. sanctions laws, pay $10 billion in penalties and temporarily stop conducting business in dollars.
France's anger over the case isn't justified. The U.S. is entitled to bring this action, and if the bank is guilty of helping blacklisted countries end-run U.S. sanctions, it should face a stiff penalty.
France's government doesn't see it that way. Its foreign minister is threatening "grave consequences," including withdrawing from trans-Atlantic trade talks and refusing to cancel a large weapons contract with Russia. The head of France's central bank, among others, has traveled to New York to plead for leniency, apparently to no avail.
The crux of their argument is that the U.S. isn't really interested in justice: It's punishing their bank more severely than the alleged infractions would justify to appease Americans who are angry about the failure to prosecute U.S. banks after the financial crisis. And by the way, they add, BNP Paribas didn't violate any French or European laws.
JPMorgan Chase & Co. might contest the claim that U.S. banks haven't been punished. It's had to pay more than $20 billion to settle charges that it sold shoddy mortgages, among other transgressions. And it's irrelevant that BNP Paribas didn't break French or European laws.
Any foreign company operating in the U.S. is obliged to follow U.S. laws. Note, too, that the firm's U.S. operation is no small outpost: It runs 675 U.S. retail branches, has about 15,000 employees and generates about 12 percent of the bank's revenue. BNP Paribas received billions in emergency aid from the Federal Reserve in 2008. It has access to the Fed's discount window and is a primary dealer for the central bank.
The penalties under discussion are certainly steep. A fine of $10 billion would be more than a year's earnings for the bank. It already has lost about $8 billion in stock-market value on concerns it might be unable to pay dividends or might have to sell shares to meet capital rules. A suspension of the right to conduct dollar transactions would hit future revenue. The timing is tough as well because the bank is about to undergo stress testing by the European Central Bank.
The threat of such harsh punishment doesn't suggest a vendetta so much as it indicates that U.S. authorities think their case is airtight. The infractions in question aren't minor. The bank is thought to be facing allegations that, from 2002 to 2009, it facilitated oil and other commodity trades for Cuba, Iran and Sudan in violation of U.S. sanctions; that BNP Paribas employees conducted secret dealings with blacklisted countries using doctored paperwork to avoid involving New York employees or alerting U.S. regulators; and that, once confronted, the bank was uncooperative and sought to confine wrongdoing to a Swiss unit beyond the U.S.'s reach.
A fine of $10 billion would be the heftiest criminal penalty in U.S. history. It's hard to say whether that's too much without knowing exactly what the bank did. Standard Chartered Plc paid $670 million in 2012 to settle charges that it violated Iran sanctions. HSBC Holdings Plc paid $2 billion to resolve its Mexican drug cartel money-laundering case in 2012. Last month, Credit Suisse AG was fined $2.6 billion for helping U.S. citizens evade taxes.
The penalties are certainly ratcheting upward, and reasonable people might disagree about what is just in each case. Nonetheless, one way to avoid these punishments is not to break the law in the first place.
--Editors: Paula Dwyer, Clive Crook.
To contact the editor on this story:
David Shipley at email@example.com