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 The BNP Paribas guilty plea is the direct consequence of a broader
U.S. Justice Department shift in strategy that is expected to snare
more major banks for possible money laundering or sanctions
violations.
In an unprecedented move, regulators banned BNP for a year from
conducting certain U.S. dollar transactions, a critical part of the
bank's global business, in addition to the fine which was a record
for violating American sanctions.
U.S. authorities said the severe penalties reflected BNP's
violations going back to at least 2004 and through to 2012 and its
drive to put profits first, even after U.S. officials warned the
bank of its obligation to crack down on illegal activity.
BNP shares rose 4.1 percent by 0945 GMT, the strongest performer in
the European bank index .SX7P because of relief that the bank had
finally settled the case. The stock is still down around 16 percent
since mid-February because of the affair.
The bank essentially functioned as the "central bank for the
government of Sudan", concealed its tracks and failed to cooperate
when first contacted by law enforcement, U.S. authorities said.
They also found BNP Paribas had evaded sanctions against entities in
Iran and Cuba, in part by stripping information from wire transfers
so they could pass through the U.S. system without raising red
flags.
With its Sudanese clients, the bank admitted it set up elaborate
payment structures that routed transactions through satellite banks
to disguise their origin.
"BNPP banked on never being held to account for its criminal support
of countries and entities engaged in acts of terrorism and other
atrocities, but that is exactly what we did today," said Manhattan
U.S. Attorney Preet Bharara, whose office helped to prosecute the
case.
"We deeply regret the past misconduct that led to this settlement,"
BNP's Chief Executive Officer Jean-Laurent Bonnafe told analysts and
investors on a conference call on Tuesday. He said the bank would
implement a significant strengthening of its internal controls and
processes.
STINGING REBUKE
The settlement marks a stinging rebuke for BNP, the grand dame of
French banking and one of the world's five biggest banks by assets.
Until now BNP Paribas had managed to avoid the sort of scandals that
damaged most of its rivals, including interest rate manipulation and
the mis-sale of U.S. sub-prime mortgages.
From the bank's historic Parisian headquarters, where Napoleon
married Josephine in 1796, BNP Paribas management has always prided
itself on its tight risk controls which helped it successfully
navigate the financial and euro zone debt crises.
The Swiss financial regulator said it was investigating staff at BNP
Paribas' Swiss arm after the bank's general counsel appeared in a
New York court to plead guilty to one count of falsifying business
records and one count of conspiracy.
A pipeline of cases has built up as U.S. prosecutors have pivoted
from focusing on specific criminals to also vigorously pursuing
financial institutions that move money for them, which some had in
the past considered "too big to jail".
Leslie Caldwell, who leads the criminal division at Justice
Department, said in an interview that a unit within the Justice
Department has its sights set on a range of firms potentially
involved in illicit money flows.
"I think that we'll probably see other financial institutions,
regional banks, maybe some smaller banks ... ," Caldwell said during
an interview on Friday, speaking of cases in the pipeline. She
declined to name specific firms.
The penalties imposed on BNP Paribas dwarf any previously handed out
for sanctions avoidance and are far bigger than those against Credit
Suisse CSGN.VX in May, which became the largest bank in decades to
plead guilty to a U.S. criminal charge, for helping Americans to
evade taxes.
No individuals were charged on Monday, but U.S. authorities said
they had not wrapped up their inquiry. "The case which BNP is
pleading to now is against the corporation alone, but our
investigation into potential individual culpability is continuing,"
Manhattan District Attorney Cyrus Vance said.
BNP said it would take an exceptional charge of 5.8 billion euros
($7.9 billion) in the second quarter of this year. It plans to keep
its dividend payment at 1.5 euros per share this year, the same as
in 2013, and expects its core capital adequacy ratio to be around 10
percent at the end of June, consistent with long-term targets. The
bank had been expected to cut its dividend, sell bonds or some
assets to help pay for the fine.
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"REASSURING COMMENTS"
"While the settlement is very significant it does not call into
question the solidity of BNP Paribas," Bonnafe said.
A fine of up to $10 billion and a dollar clearing ban had been
widely expected, and analysts said keeping the dividend intact was
positive.
"The size of the fine we knew, the reaction is more to do with BNP's
extremely reassuring comments and the efforts made to protect the
dividend," said Francois Chaulet, fund manager at Montsegur Finance
in Paris. BNP Paribas will have to suspend its dollar-clearing
operations through its New York branch and other U.S. affiliates
during all of 2015 at the business lines where the misconduct took
place, the U.S. authorities said.
The ban could trigger a client exodus, and it is not clear how BNP
may blunt its impact. It said it would clear the affected
dollar-clearing operations through another bank, which it did not
name. "We have not observed any massive uncertainty among clients,"
said BNP Finance Director Lars Machenil.
Some of the business lines affected were dollar clearing on behalf
of the oil and gas finance business from Geneva, Paris and
Singapore, the trade finance business from Milan, and for oil and
gas-related clients from Rome.
The ban was proposed as one condition for not revoking BNP's license
to operate in New York, which would have effectively been a death
warrant, sources had previously told Reuters.
In addition, the bank will need to prohibit all U.S. dollar clearing
as a correspondent bank for unaffiliated third-party banks in New
York and London for two years.
Authorities said 13 individuals, including Group Chief Operating
Officer Georges Chodron de Courcel, would leave the bank, out of 45
employees who were disciplined.
"CONTRARY TO PRINCIPLES"
Most of BNP's failures related to transactions with Sudan, which the
U.S. imposed sanctions on in 1997. It strengthened them in 2006
because it said the government there supported terrorism and
violated human rights, in particular with respect to a conflict in
Darfur.
Bonnafe said the failures that came to light in the course of the
investigation "run contrary to the principles on which BNP Paribas
has always sought to operate".
But internal bank memos revealed in the settlement showed BNP
officials were aware of the humanitarian crisis in Sudan and the
ties of the government with al Qaeda founder Osama bin Laden, but
chose to do business with Sudan because it was commercially
attractive.
BNP's illicit Iranian transactions were conducted on behalf of
clients including a petroleum company based in Dubai that was
effectively a front for an Iranian petroleum company.
Vance said prosecutors insisted on a guilty plea because of how long
the conduct went on, even well after the inquiry began, the volume
of transactions, and the nature of the conduct.
France's bank supervisor ACPR said that the bank could cope with the
sanctions without risking its financial health, and the country's
Finance Minister Michel Sapin said the bank "will still be able to
finance economic activity" in France.
BNP, which has 190,000 staff and more than 34 million customers
across Europe, the United States and Asia, said the settlement would
not affect a strategic plan it laid out in March. Its plan includes
expansion in North America, where it owns San Francisco-based Bank
of the West and First Hawaiian Bank, to raise revenue and profits
outside European markets.
(Reporting by Joseph Ax in New York and Aruna Viswanatha in
Washington and Maya Nikolaeva in Paris; Additional reoporting by
Nate Raymond, Ingrid Melander, Julia Edwards and Lionel Laurent;
Writing by Douwe Miedema and Steve Slater; Editing by Peter
Millership)
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