(Updates with investor comment in fourth paragraph.)
May 13 (Bloomberg) -- U.S. authorities are seeking more than $3.5 billion from BNP Paribas SA to resolve federal and state investigations into the lender’s dealings with sanctioned countries including Sudan and Iran, according to people familiar with the matter.
The agreement, which could be the largest penalty for sanctions violations, is still being negotiated and the amount could fluctuate, said four people who asked not to be named because the discussions are private. U.S. prosecutors are also seeking a guilty plea from BNP, which said last month it may need more than the $1.1 billion it has set aside to settle the case. The agreement could come in the next month, the people said.
BNP is one of several banks negotiating multibillion-dollar settlements with U.S. prosecutors, who are trying to counter criticism that they’ve shied away from punishing financial institutions because of their size and influence on the economy. Prosecutors’ push for a guilty plea -- part of the more aggressive approach -- has raised regulatory concerns the punishment could disrupt financial markets.
“It’s a very high fine and also a way for the bank to turn the page,” said Karim Bertoni, who helps manage $3.3 billion at de Pury Pictet Turrettini & Co. in Geneva. “Beyond that, we’re going into uncharted territory,” he said, referring to the impact of a guilty plea on the financial system. De Pury Pictet doesn’t disclose whether it holds BNP stock.
BNP Paribas closed down less than 1 percent at 53.06 euros in Paris after falling as much as 2.3 percent on the news. The shares dropped 6.6 percent in 2014, while the 43-member Bloomberg Europe Banks and Financial Services Index gained 2.5 percent. Julia Boyce, a BNP spokeswoman, declined to comment on the discussions.
Manhattan U.S. Attorney Preet 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 on the BNP Paribas investigation. Benjamin Lawsky, superintendent of New York’s Department of Financial Services, is also investigating the bank.
The BNP probe, which was conducted in part by the Federal Bureau of Investigation in New York, focuses on the bank’s dealings with Sudan, Iran and Cuba -- countries that are under U.S. economic sanctions. Prosecutors met with BNP officials last week and are still discussing settlement terms, including the type of charges and whether the parent company or a subsidiary would plead guilty, one of the people said.
A guilty plea would be a departure from previous sanctions cases which typically ended with deferred prosecution agreements that spared offending companies from criminal prosecution. The largest similar settlement came in 2012 when HSBC Holdings Plc paid $1.9 billion over claims it broke anti-money laundering and sanctions laws. Standard Chartered Plc agreed to pay a total of $667 million the same year over sanctions violations.
Prosecutors argue that a more severe penalty against BNP is justified because the misconduct was more egregious and the bank didn’t fully cooperate with the investigation, according to one person with knowledge of the matter.
Samuel Buell, a former federal prosecutor who is now a professor at Duke University School of Law, said the Justice Department is trying to send a message.
“The Justice Department is trying to play to two audiences at the same time: the public, which wants something that looks like real punishment, and the financial industry, which needs to be sent some sort of message that will deter these behaviors,” Buell said.
The Justice Department under Attorney General Eric Holder is also actively negotiating multibillion-dollar deals with Credit Suisse Group AG over allegations that it helped Americans evade taxes and Bank of America for its sale of mortgage bonds. The U.S. is also seeking a guilty plea from Credit Suisse’s parent company as part of the deal, people familiar with the matter have said.
Justice officials have met with regulators for assurances that charging BNP’s parent company doesn’t result in the revocation of its charter or the failure of the bank.
Lawsky, New York’s top banking regulator, isn’t planning to suspend BNP’s license, a person familiar with that matter said earlier this month. Lawsky instead is considering seeking a deal 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, the person said.
Peter Carr, a Justice Department spokesman, didn’t immediately respond to phone and e-mail messages seeking comment. Spokesmen for Bharara, Vance and Lawsky declined to comment.
One approach prosecutors could take that could help contain fallout on financial markets would be to bring criminal charges under the Bank Secrecy Act for not filing suspicious activity reports or failing to have adequate anti-money laundering controls, two of the people said.
Such charges wouldn’t trigger the revocation of the bank’s charter, something that’s possible if a bank is convicted under federal anti-money laundering law’s so-called death penalty provision.
For state regulators such as Vance, the charges would most likely be falsifying business records under New York penal law, something that past banks were faced with when they settled similar cases, they said.
--With assistance from Fabio Benedetti-Valentini in Paris, Andy Hoffman in Geneva and Keri Geiger in New York.