International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Wednesday, July 23, 2014

BNP Paribas pleads guilty, pays $8.9 billion for Iran and Sudan sanctions busting

Paris_BNP_Paribas_885 (1)BNP Paribas S.A. (BNPP) plead guilty 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 U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions, and agreed to pay $8.9 billion in fines.

The agreement by the French bank to plead guilty is the first time a global bank has agreed to plead guilty to large-scale, systematic violations of U.S. economic sanctions.  BNP Paribas currently employs over 14,000 in the U.S., where it has operated since 1919.  BNP Paribas' three core U.S. businesses are Corporate & Investment Banking, Investment Solutions, and Retail Banking.

$8.9 billion settlement of $19 billion possible penalty

On June 30th, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a combined $8.9 billion settlement (settlement agreement here) with federal and state government agencies, announced a $963 million agreement with BNP Paribas (BNPP) to settle its potential liability for apparent violations of U.S. sanctions regulations.  The $8.9 billion is the largest OFAC settlement to date.  However, the statutory maximum and base civil monetary penalties in this case were $19,272,380,006.

What did BNP Paribas do?

For a number of years, up to and including 2012, BNPP processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs listed above.  BNPP appears to have engaged in a systematic practice, spanning many years and involving multiple BNPP branches and business lines, that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties in U.S. Dollar Society for Worldwide Interbank Financial Telecommunication payment messages sent to U.S. financial institutions.

The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions.  While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.

FINCENHow egrigous was BNP Paribas' conduct?

OFAC determined that BNPP did not voluntarily self-disclose its violations (it was a whistleblower), and that the apparent violations constitute an egregious case: BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012, including:

$8 billion with Sudan

BNPP officials have described Darfur as a "humanitarian catastrophe" and, while discussing the Sudanese business, noted that certain Sudanese banks "play a pivotal part in the support of the Sudanese government which…has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur."  BNPP’s senior compliance personnel agreed to continue the Sudanese business and rationalized the decision by stating that "the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way."

BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 between September , 2005, and July 24, 2009, involving Sudan.  The total base penalty for this set of apparent violations was $16,826,707,625.  $8 billion in four years - approximately $2 billion a year.

$1 billion with Iran

BNPP processed 318 wire transfers totaling approximately $1,182,075,543 between July 15, 2005, and November 27, 2012, involving Iran.  The total base penalty for this set of apparent violations was $2,382,634,677.

$700 million with Cuba

BNPP processed 909 wire transfers totaling approximately $689,237,183 between July 18, 2005, and September 10, 2012.  The total base penalty for this set of apparent violations was $59,085,000.

$1.5 million with Burma

BNPP processed seven wire transfers totaling approximately $1,478,371 between November 3, 2005, and approximately May 2009, involving Burma.  The total base penalty for this set of apparent violations was $3,952,704.

Who at BNP Paribas was involved?

Dfs_print_70 (1)Benjamin M. Lawsky, New York's Superintendent of Financial Services, said, "BNPP employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct – bankers do."

- COO Signed Off on Continuing Illicit Transactions at Meeting Where He Asked Minutes Not to be Taken";

- North American Head of Ethics/Compliance wrote: "The Dirty Little Secret Isn’t So Secret Anymore, Oui?"


DOJ-U-S-ATTORNEYS-OFFICEDid the DOJ charge any employees?

No criminal charges have been brought against BNP Paribas' employees involved in the sanction busting.

If not prison, then what was the fallout for employees?

Some executives were merely 'separated'.  What does separated mean?  Asked to resign?  Awarded severance?  Kept salaries and bonuses derived from the illicit business?   What of the COO who "signed off on continuing illicit transactions at a meeting where he asked minutes not to be taken"?  He was allowed to retire.  Did he keep his pension, retirement funds, bonuses?

BNP Paribas states: "As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group."

But the Department of Financial Services informs a different story, statingAt DFS's direction, 13 individuals were terminated by or separated from the Bank as a result of the investigation, including the following senior executives:

  • George Chodron de Courcel, Group Chief Operating Officer
  • Vivien Levy-Garboua, Current Senior Advisor to the BNPP Executive Committee and Former Group Head of Compliance
  • Christopher Marks, Group Head of Debt Capital Markets
  • Dominique Remy, Group Head of Structured Finance for the Corporate Investment Bank (CIB)
  • Stephen Strombelline, Head of Ethics and Compliance for North America

In total, including those terminated, the Department of Financial Services reports that the Bank disciplined 45 employees, with levels of discipline ranging from dismissals, to cuts in compensation, demotion, and other sanctions, while 27 additional BNPP employees who would have been subject to potential disciplinary action during the investigation had already resigned.

Who is actually paying the fine?

BNP Paribas shareholders inevitably.  No fines have been levied against the employees involved. BNP shareholders include 76% institutional investors, such as pension and retirement funds.  So retirees are partly bearing the fine.

Belgian State (through SFPI (1)) 10.3%
Grand Duché de Luxembourg 1.0%
Employees 5.5%
Retail shareholders 4.9%
European institutional Investors 46.1%
Non-European institutional investors 30.0%
Other and unidentified 2.2%
   
Total 100%

How will BNP minimize the risk of its employees repeating similar conduct?  

Under the settlement agreement, BNPP is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.  BNPP is also required to provide OFAC with copies of submissions to the Board of Governors relating to the OFAC compliance review that it will be conducting as part of its settlement with the Board of Governors.

BNP states that it has designed new robust compliance and control procedures:

  • a new department called Group Financial Security US, part of the Group Compliance function, will be headquartered in New York and will ensure that BNP Paribas complies globally with US regulation related to international sanctions and embargoes.
  • all USD flows for the entire BNP Paribas Group will be ultimately processed and controlled via the branch in New York.

https://lawprofessors.typepad.com/intfinlaw/2014/07/bnp-paribas-pleads-guilty-pays-89-billion-for-iran-and-sudan-sanctions-busting.html

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