In agreeing to pay $8.97 billion by way of settlement with US authorities, while also pleading guilty on two criminal charges to breaching US sanctions against Iran, Cuba and Sudan, the French lending giant BNP Paribas has set a record in the world of sanctions.

In
agreeing to pay $8.97 billion by way of settlement with US
authorities, while also pleading guilty on two criminal charges to
breaching US sanctions against Iran, Cuba and Sudan, the French
lending giant BNP Paribas has set a record in the world of sanctions.

Through
a series of 'egregious' schemes to evade detection and with the
knowledge of many senior executives, BNPP concealed more than $190
billion in transactions between 2002 and 2012 for clients subject to
US sanctions against Sudan, Iran, and Cuba and others. In doing so it
contravened various controversial presidential 'executive orders' of
dubious constitutionality, along with the International Emergency
Economic Powers Act 1977, the Trading with the Enemy Act 1917,
and the regulations of its US regulators.

BNPP
has reached four settlements in all: with the US Department of
Justice, with the District Attorney of New York, with the New York
State Department of Financial Services and with the US Treasury's
Office of Foreign Assets Control, which maintains the relevant list
of 'specially designated nationals' and other 'blocked parties' that
BNPP has admitted to flouting. BNPP has said that as a result of the
fine it is going to take an "exceptional charge" of €5.8
billion ($7.9 billion) in the second quarter of this year.

Not
every settlement contains a full admission. In its agreement with
OFAC, BNPP seems not to agree to wrongdoing at all. In note 28, it
states: "Without this agreement constituting an admission or
denial by BNPP of any allegation made or implied by OFAC in
connection with this matter, and solely for the purpose of settling
this matter without a final agency finding that a violation has
occurred, BNPP agrees to a settlement in the amount of $963,619,900
arising out of the apparent violations by BNPP of IEEPA, TWEA,
various controversial presidential 'executive orders' of dubious
constitutionality, and the regulations described in...this
agreement."

The
admissions

BNPP
admits that, up to and including 2012, it processed thousands of
transactions to or through US financial institutions that involved
countries, companies and people subject to US sanctions. It admits
that it 'appeared' to have engaged in a systematic practice to
conceal references to sanctioned parties in US dollars in SWIFT
payment messages it sent to US financial institutions. It admits that
some of its businesses replaced the names of sanctioned parties
“pursuant to specific instructions from the sanctioned parties
themselves.”

Several
BNP Paribas entities developed procedures or used payment practices
that contravened the bank's 'general procedure' (proclaimed in 2003)
and processed thousands of transactions that they ought not to have.
The US sanctions programmes they contravened were against Burma,
Cuba, Iran and especially the Sudan. BNP Paribas Suisse, the senior Swiss
company in the group, observed its own group-internal directives for
the prevention of business with Sudanese clients only in part. This
meant that people in the system did not record the Sudanese links,
nor did they stop the transactions.

In
“apparent violation of prohibitions,” BNP Paribas processed 2,663
electronic fund transfers totalling $8.37 billion regarding Sudan
between 2005 and 2009; $1.18 billion between 2005 and 2012 regarding
Iran; and $1 million regarding Burma and $689 million regarding Cuba
in comparable periods as well.

Correspondent
accounts

In
2004 BNP Paribas Suisse decided to shift its US dollar clearing
activity away from BNPP's New York branch in an 'apparent' effort to
shield that branch from liability for breaching sanctions. While this
happened, the Swiss headquarters maintained US dollar-denominated
correspondent accounts for several Sudanese banks, including four
banks on the OFAC list.

In
the words of its federal regulator, BNP Paribas Suisse made transactions for
Sudanese clients using accounts that it enlisted another bank to
manage. BNPP switched to an external US clearer and inserted
third-party banks between it and the client. It was therefore not
evident to the US bank that Sudanese clients were involved in the
transactions. For its part, BNP Paribas Suisse believed that US sanction law
did not apply to foreign banks, especially where transactions were
settled through a US bank. BNP Paribas Suisse did, nonetheless, have grave
doubts about the legal implications of this practice. No fewer than
20 legal opinions were sought concerning this matter and BNPP's
agreement with the Treasury says: "Though not always consistent,
the legal advice that BNP Paribas received described OFAC's
comprehensive sanctions and explained why BNPP should be careful in
its business that involved parties subject to OFAC sanctions."

The
potential for secret demands

In
2009, the IRS struck a ground-breaking deal with UBS for $780 million
in penalties and the names of its American depositors. Much has
happened since, but the habit of asking for names to grease the
wheels of a settlement – even when it is illegal to do so – must
be a hard one for the Americans to kick. One wonders how many people
– both from the US and not – whose names and details the
Americans have asked BNPP to pass to them surreptitiously under the
counter. One further wonders whether BNPP held its ground or said yes.

Secret
demands and secret deals certainly seem to be on the mind of Russian
president Vladimir Putin, who claims that the US has been offering to
cut the size of the bank's fine in exchange for the French government
scrapping a contract to sell Mistral warships to Russia.

Swiss
enforcement action against BNP Paribas

Switzerland
has recently pledged its all to the cause of pleasing the American
government, first by signing up to a 'model 2' inter-governmental
agreement with the US Internal Revenue Service in line with America's Foreign Account Tax Compliance Act and secondly by signing a
declaration under the auspices of the Organisation for Economic
Co-Operation and Development to the effect that it is determined to
tackle cross-border tax fraud and tax evasion, after centuries of
resistance to the idea of openness between governments about private
bank accounts and holdings. In line with this new spirit of
capitulation, the Swiss regulator, FINMA, has decided to punish BNPP
for daring to do business with countries that the American government
does not like, even though it broke no Swiss sanctions. Its penance
is to set aside additional capital for operational risks and cease to
conduct business with companies and persons subject to EU and US
sanctions.

As
part of the global elite's drive to push up the number of national
regulatory bodies headed up by foreigners, presumably because those
foreigners will not suffer much reputational damage in their home
countries for their dereliction of duty after the next financial
crash, an Englishman called Mark Branson took over FINMA on April
Fool's Day this year.

The
effect of the fine on the bank's finances: a comparison

The
fine beggars all previous ones that the American authorities have
levied on European banks for criminal conduct in recent years. If one
counts tax evasion as a crime, Credit Suisse previously topped the
list with $2.6 billion, with UBS paying $780 million for the same
reason. If one does not, the next largest fine to BNP Paribas' involving
crime is HSBC's $1.9 billion, levied at the end of 2012 by multiple
agencies for its role in money-laundering. The second and third fines
for 'sanction-busting' were $674 million for the British bank
Standard Chartered and $629 million for the Dutch group ING.
Commerzbank, Credit Agricole, Société Générale and the Italian
bank Unicredit seem to be next in line, with commentators claiming
that US authorities are victimising European banks for some reason.
The Americans are said to be investigating the four banks for a
combination of money laundering and 'sanction-busting'. There are,
however, reports of American banks in the firing line for the same
reasons – notably Citigroup's Banamex unit in Mexico. The progress
of these investigations is unknown.

The
hard road ahead

Compliance
Matters has long been wondering when the US authorities –
especially the go-ahead prosecutor Ben Lawsky and his New York
Department for Financial Services – were finally going to remove a
European bank's licence to trade in the US. The combative Lawsky –
perhaps in response to his president's dim view of the French refusal
to back down over Russia – has finally felt himself able to move in
this direction, although not all the way. His department has
pressurised BNP Paribas to suspend its US dollar clearing operations
through its New York Branch and its other US affiliates for one year
"at BNPP business lines in which the misconduct centred."
The department is also to extend, for an additional two years, the
stay of an 'independent' monitor that it has already installed at
BNPP’s New York Branch to conduct a review of Bank Secrecy
Act/anti-money-laundering and sanctions compliance. The monitor will
also review BNPP’s compliance with the clearing suspension. It is
to be hoped that this individual or firm is not going to be as lax as
the two regulators from the Office of the Comptroller of the Currency
who sat in the offices of HSBC New York while that bank was
laundering money for Mexican drug cartels and the Iranians.

Reuters
recently reported, quoting an anonymous source, that the bank had
just decided to move its sanctions compliance operations from Paris
to New York. This decision, not part of the bank's settlement with
regulators, is likely to involve a profound level of culture-shock
for the staff who have to move. It is also likely to be costly.

New
York Governor Andrew Cuomo, who seems to have been watching too much
science fiction, has claimed additionally that BNP Paribas plans to
'terminate' some senior executives.