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BNP Paribas pays record $8.97 billion US sanctions violation settlement

June 30, 2014



Paris, France-based BNP Paribas will pay a total of $8.97 billion (EUR 6.6 billion). Beyond what has already been provisioned by the bank, this will result in an exceptional charge of EUR 5.8 billion to be booked in Q2 2014. BNP Paribas has also accepted a temporary suspension of one year starting 1 January 2015 of US dollar direct clearing focused mainly on the Oil & Gas, Energy & Commodity Finance business line.

The bank has agreed a comprehensive settlement of the pending investigation relating to US dollar transactions with countries under sanction, including agreements with the US Department of Justice (DOJ), US Attorney's Office for the Southern District of New York, the New York County District Attorney's Office, the Board of Governors of the U.S. Federal Reserve System (FED), the New York State Department of Financial Services (DFS), and the US Department of the Treasury'sOffice of Foreign Assets Control (OFAC).

According to documents released publicly, over the course of eight years, BNP Paribas 'knowingly and willfully' moved more than $8.8 billion through the US financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the US Government as being cut off from the US financial system.   BNP Paribas engaged in this criminal conduct through various sophisticated schemes designed to conceal from US regulators the true nature of the illicit transactions, according the DOJ, routing illegal payments through third party financial institutions to conceal not only the involvement of the sanctioned entities but also BNP Paribas' role in facilitating the transactions. The bank instructed other financial institutions not to mention the names of sanctioned entities in payments sent through the United States and removed references to sanctioned entities from payment messages to enable the funds to pass through the US financial system undetected.

The bank said its settlement includes guilty pleas entered into by BNP Paribas SA in relation to violations of certain US laws and regulations regarding economic sanctions against certain countries and related recordkeeping.

Jean-Laurent Bonnafe, CEO of BNP Paribas, said, "We deeply regret the past misconduct that led to this settlement. The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate. We have announced today a comprehensive plan to strengthen our internal controls and processes, in ongoing close coordination with the US authorities and our home regulator to ensure that we do not fall below the high standards of responsible conduct we expect from everyone associated with BNP Paribas.

"Having this matter resolved is an important step forward for us. Apart from the impact of the fine, BNP Paribas will once again post solid results this quarter and we want to thank our clients, employees, shareholders and investors for their support throughout this difficult time."

DOJ claims BNP Paribas is first global bank to plead guilty to sanctions violations

A statement from the DOJ said the bank had 'agreed to enter a guilty plea to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the US financial system on behalf of Sudanese, Iranian, and Cuban entities subject to US economic sanctions'. 

The DOJ noted this is the first time a global bank has agreed to plead guilty to large-scale, systematic violations of US economic sanctions. "BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive U.S. authorities. These actions represent a serious breach of U.S. law," Attorney General Eric H. Holder said. "Sanctions are a key tool in protecting U.S. national security interests, but they only work if they are strictly enforced.   If sanctions are to have teeth, violations must be punished.   Banks thinking about conducting business in violation of U.S. sanctions should think twice because the Justice Department will not look the other way."

"BNPP banked on never being held to account for its criminal support of countries and entities engaged in acts of terrorism and other atrocities," said US Attorney Preet Bharara for the Southern District of New York.   "But that is exactly what we do today.  BNPP, the world's fourth largest bank, has agreed to plead guilty and pay penalties of almost $9 billion for performing the hat trick of sanctions violations, unlawfully opening the doors of the US financial markets to three sanctioned countries, Sudan, Iran, and Cuba.  For years, BNPP provided access to billions of dollars to these sanctioned countries, as well as to individuals and groups specifically identified and designated by the US government as being subject to sanctions.  The bank did so deliberately and secretly, in ways designed to evade detection by the US authorities."

The bank will waive indictment and be charged in a one-count felony criminal information, filed in federal court in the Southern District of New York, charging BNP Paribas with knowingly and willfully conspiring to commit violations of IEEPA and TWEA, from 2004 through 2012.   The bank has agreed to plead guilty to the information, has entered into a written plea agreement, and has accepted responsibility for its criminal conduct. It is scheduled to formally enter its guilty plea before United States District Judge Lorna Schofield on 9 July  2014 at 4:30 p.m. The plea agreement, subject to approval by the court, provides that BNPP will pay total financial penalties of $8.9736 billion, including forfeiture of $8.8336 billion and a fine of $140 million. In addition, the Board of Governors of the Federal Reserve System is announcing that BNPP has agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with US law in its ongoing operations, and to pay a civil monetary penalty of $508 million. The New York State Department of Financial Services (DFS) is announcing BNPP has agreed to, among other things, terminate or separate from the bank 13 employees, including the Group Chief Operating Officer and other senior executives; suspend US dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years the term of a monitorship put in place in 2013, and pay a monetary penalty to DFS of $2.2434 billion.   In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it is making in connection with its resolution of these related state and regulatory matters.   The Treasury Department's Office of Foreign Assets Control has also levied a fine of $963 million, which will be satisfied by payments made to the Department of Justice.

Sudan, Cuba and Iran The bank has acknowledged that, from at least 2004 through 2012, it knowingly and willfully moved over $8.8 billion through the US financial system on behalf of Sudanese, Iranian and Cuban sanctioned entities, in violation of U.S. economic sanctions. The majority of illegal payments were made on behalf of sanctioned entities in Sudan, which was subject to US embargo based on the Sudanese government's role in facilitating terrorism and committing human rights abuses.   The bank processed approximately $6.4 billion through the United States on behalf of Sudanese sanctioned entities from July 2006 through June 2007, including approximately $4 billion on behalf of a financial institution owned by the Government of Sudan, even as internal emails showed BNP Paribas employees expressing concern about the bank's assisting the Sudanese Government in light of its role in supporting international terrorism and committing human rights abuses during the same time period. 

One way in which the bank processed illegal transactions on behalf of Sudanese sanctioned entities was through a sophisticated system of "satellite banks" set up to disguise both BNPP's and the sanctioned entities' roles in the payments to and from financial institutions in the United States.  As early as August 2005, a senior compliance officer at BNP Paribas warned several legal, business and compliance personnel at the bank's subsidiary in Geneva that the satellite bank system was being used to evade US sanctions: "As I understand it, we have a number of Arab Banks (nine identified) on our books that only carry out clearing transactions for Sudanese banks in dollars. . . . This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan." Similarly, BNPP provided Cuban sanctioned entities with access to the US financial system by hiding the Cuban sanctioned entities' involvement in payment messages. Further according to court documents, BNPP engaged in more than $650 million of transactions involving entities tied to Iran, and this conduct continued into 2012 – nearly two years after the bank had commenced an internal investigation into its sanctions compliance and had pledged to cooperate with the Government.  The illicit Iranian transactions were done on behalf of BNP Paribas clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company, and an Iranian oil company.


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Source: CPI Financial


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