BNP Paribas to Pay $8.97 Billion in U.S. Sanctions Plea Deal

Jun 30, 2014 7:27 pm ET

(Updates with BNP comment in sixth paragraph.)

June 30 (Bloomberg) -- BNP Paribas SA pleaded guilty to U.S. sanctions violations and agreed to pay a record $8.97 billion in a case that reached the highest echelons of French and American diplomacy.

BNP, France’s largest bank, admitted that it processed almost $9 billion in banned transactions from 2004 to 2012 involving Sudan, Iran and Cuba, the Justice Department said today. The bank will also be barred from U.S. dollar-clearing operations for one year for its oil and gas commodity finance business.

As part of the agreement, New York’s top banking regulator required 13 executives to leave the bank, 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 regulator said in a statement.

“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. “If sanctions are to have teeth, violations must be punished.”

Fallout from the probe, and negotiations over its settlement with state and federal prosecutors, reached the highest levels of the French and American governments. Overtures this year by numerous French officials, including President Francois Hollande, weren’t enough to persuade U.S. officials to take a more lenient approach with the Paris-based bank.

‘No Impact’

BNP said in a statement that it will retain its licenses and expects “no impact” on its operational or business capabilities. In 2015, the lender will clear U.S. dollars through a third party. The Bank of France said today BNP can withstand the fine and dollar clearing ban.

The bank also said it will take a second-quarter charge of 5.8 billion euros ($7.9 billion) and intends to pay a 2014 dividend of 1.50 euros a share, unchanged from last year. BNP’s American depositary receipts climbed 0.4 percent to close at $34.03 today in New York.

BNP becomes the second major European bank in the past two months to plead guilty in the U.S. Credit Suisse AG did so on 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.

The Federal Reserve said the $8.97 billion penalty resolves 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.

Guilty Plea

The bank pleaded guilty today to Manhattan District Attorney Cyrus Vance Jr.’s charges of falsifying business records and conspiracy. BNP will plead guilty to one count of conspiracy in federal court on July 9.

The BNP investigation centered on its 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.

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, 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.

Hidden Identity

The U.S. said such transactions included instructions to BNP 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,” said Assistant District Attorney Edward Starishevsky during a hearing in New York state court today. “This conduct, this conspiracy was known and condoned at the highest levels of BNP.”

Illicit Transactions

BNP also 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 Paris 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.

Public Outrage

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 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 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 BNP case because the transactions were processed in dollars.

Penalties Escalating

While BNP’s case is resolved, 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.

BNP’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’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.

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 the Iran’s nuclear program.

--With assistance from Tom Schoenberg in Washington, Chris Dolmetsch in New York State Supreme Court in Manhattan, Matthew Boesler and Greg Farrell in New York and Mark Deen in Paris.