BNP Said to Face Year-Long Dollar-Clearing Curb in U.S. Case

Jun 26, 2014 12:54 pm ET

(Updates with analysts’ comments from fourth paragraph.)

June 26 (Bloomberg) -- BNP Paribas SA, seeking to settle claims it violated U.S. sanctions, is close to an agreement with New York state’s top banking regulator that would curtail some of its dollar-clearing operations for as long as a year, according to a person familiar with the matter.

The talks with state and federal authorities, which continue to include a penalty that may reach a record $9 billion, could be completed as soon as next week, said the person, who asked not to be identified because the discussions are confidential.

The ban on dollar clearing could affect specific business lines, such as oil and gas transactions, and certain offices, such as Geneva, where the alleged illegal transactions took place, the person said. Cesaltine Gregorio, a BNP Paribas spokeswoman in New York, declined to comment.

“They’re lengthening the freeze but at the same time restricting to a few sectors,” Jean-Pierre Lambert, a Keefe, Bruyette & Woods Ltd. analyst in London, said in a telephone interview. “That, to me, looks like they want to limit the impact.”

A targeted year-long ban could cost BNP Paribas $40 million or less, Lambert said in a report today. That estimate was based on all wire transfers going through the U.S. and would come down significantly under a narrower restriction.

At the center of the BNP investigation are alleged sanctions violations involving Sudan, Iran and Cuba dating from 2002 to 2009, though some transactions continued until 2011, a person with knowledge of the matter has said.

Hiding Transactions

BNP fell 1.2 percent to 49.14 euros in Paris, leaving the stock’s decline this year at 13 percent and valuing the bank at 61.2 billion euros ($83.3 billion).

Prosecutors from the Manhattan District Attorney’s office and the U.S. Attorney’s office for the Southern District of New York, along with the Superintendent of New York’s Department of Financial Services, Benjamin Lawsky, have all been negotiating a settlement with BNP.

News of the tentative agreement between Lawsky’s office and BNP was reported earlier by Reuters.

The French bank intentionally hid transactions amounting to about $30 billion that violated U.S. sanctions, a person familiar with the discussions said earlier this week. Paris- based BNP Paribas will probably plead guilty in early July to a criminal charge of conspiring to violate the International Emergency Economic Powers Act, the person said.

‘Likely Invisible’

Temporarily restricting its dollar-clearing ability would present BNP Paribas with administrative costs, though it could find a solution that would minimize the impact on clients to a point where it’s “likely to be invisible for end-users,” Lambert said in his report.

The settlement would make BNP Paribas the second major European bank to plead guilty in the U.S. this year. In May, Credit Suisse Group AG 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. Its main banking unit pleaded guilty to a criminal charge.

The possibility of dollar-clearing curbs limited to specific business lines and offices signal that BNP will be allowed to do the transactions through a third party, according to Jeanne Capachin, a senior consultant at research firm Graber Associates who has followed the global payments system for three decades.

“What that would mean is that the bank would expand upon an existing relationship it has with one of its U.S. correspondent banks and send all its dollar clearing through them,” Capachin said.

‘Quick Integration’

While that could cause some disruption, the bank can probably adapt its infrastructure accordingly, according to Capachin.

“They will likely need to do some very quick integration to be able to pass data to their correspondent bank and be able to accept acknowledgments, pricing data and settlement data from their correspondent,” she said.

Banks transfer money around the world for clients trading goods, making investments and paying suppliers. The two cash- payment networks in the U.S., one run by the Federal Reserve and the other a cooperative of some of the largest banks, settle about $4 trillion of transactions daily.