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Bank BNP Paribus To Plead Guilty And Pay Almost $9 Billion For Illegal Transactions

There seem to be more and more huge billion dollar settlements by banks for wrongdoing. Earlier this week, the U.S. Department of Justice (DOJ) announced an agreement with Bank BNP Paribus (BNPP) where the bank has agreed to plead guilty for illegal financial transactions with countries under U.S. sanctions. The French bank allegedly violated:

"... 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. 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."

Investigations found that the bank processed $8.8 billion in illegal financial transactions with sanctioned entities.To avoid detection, the bank allegedly routed illegal payments through third-party banks and instructed other banks not to disclose the names of sanctioned entities in those transactions.

The bank entered a written plea agreement and will pay total financial penalties of $8.9736 billion, including a forfeiture of $8.8336 billion and a fine of $140 million. The DOJ annouced additional terms of the plea agreement:

"BNPP 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 BNPP with knowingly and willfully conspiring to commit violations of IEEPA and TWEA, from 2004 through 2012."

The bank is scheduled to formally enter its guilty plea in United States District Court on July 9, 2014 at 4:30 p.m. Deputy Attorney General James M. Cole said:

"BNPP ignored US sanctions laws and concealed its tracks. And when contacted by law enforcement it chose not to fully cooperate... This failure to cooperate had a real effect -- it significantly impacted the government’s ability to bring charges against responsible individuals, sanctioned entities and satellite banks. This failure together with BNPP’s prolonged misconduct mandated the criminal plea and the nearly $9 billion penalty that we are announcing today.”

Assistant Attorney General Caldwell said:

"By providing dollar clearing services to individuals and entities associated with Sudan, Iran, and Cuba – in clear violation of U.S. law – BNPP helped them gain illegal access to the U.S. financial system... In doing so, BNPP deliberately disregarded U.S. law of which it was well aware, and placed its financial network at the services of rogue nations, all to improve its bottom line. Remarkably, BNPP continued to engage in this criminal conduct even after being told by its own lawyers that what it was doing was illegal.”

BNP Paribus stated in a press release:

"BNP Paribas also accepts a temporary suspension of one year starting 1st January 2015 of the USD direct clearing focused mainly on the Oil & Gas Energy & Commodity Finance business line in certain locations... BNP Paribas will maintain its licenses as part of the settlements, and expects no impact on its operational or business capabilities to serve the vast majority of its clients... "

In its press release, the bank announced new internal compliance and control processes:

"... 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. 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."

The bank generated annual revenues in 2013 of Euros 36.1 million. The current exchange rate: 1.0 Euro = 1.37 U.S. dollars.

I congratulate government officials for the investigations and for enforcing the law. I look forward to the results of investigations of banks that worked with BNP Paribus to hide the illegal transaction. However, I have only one question: why are no BNP Paribus bank executives going to prison? The criminal conduct seems to warrant prison time.

What are your opinions of the plea agreement by Bank BNP Paribus?


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Chanson de Roland

I am glad that the U.S. Government has taken some action against a major bank so that senior banking executives will have some sense that at least their banks' business interests are not untouchable and that violating applicable law can at least have business consequences. But I join the Editor, Mr. Jenkins, in wondering why there are not also prosecutions of the people who violated criminal and civil law, the senior bank executives both at BNP and at the banks that conspired with it.

A corporation is nothing more than a legal fiction, which exists as so many pieces of paper in some secretary of state's files. It isn't alive; it can't do anything, except through its agents, who are its employees, its lawyers, and its other agents. Certain of those agents are the human beings who broke the law, and they should be prosecuted for that so that bank executives everywhere will know that they too are subject to the law’s sanctions and that they too must either obey the law or face the risks and consequences of their criminal conducts.

Some months back this paper reported on an editorial by U.S. District Court Judge Jed Rakoff, where Judge Rakoff challenged the DOJ's failures and the failure of other prosecutors to prosecute bank executives for the massive wrongdoing that caused the 2008 financial crisis, which devastated the U.S. and world economies, the aftermath of which still afflicts us today. See http://images.businessweek.com/bloomberg/pdfs/ProsFailure.pdf. Judge Rakoff observed that, while prosecuting a bank has its place on certain occasions, the real, just, and effective and economically less risky course is to prosecute the people at the bank who violated criminal law.

So I join Mr. Jenkins and Judge Rakoff in desiring that prosecutors start prosecuting criminals who are managing the banks rather than the banks themselves. Prosecuting a large, systemically important bank, though it can safely be done, entails risks to the larger economy and, in my view, is most appropriate where a prosecutor wishes to invoke a court's equitable powers to make major reforms to a bank's culture, its business practices, and/or its management; otherwise prosecuting the bank itself hurts only shareholders, lower level employees, and the banks creditors. And it sets the awful precedent that serious crimes by banking executives can be settled by paying a fine, which is paid not with their money but with their shareholders‘ property. At present, a child stealing a candy bar has more fear of criminal sanctions than bank executives, who commit crimes for the sake of their personal and their banks' profits and who, when financial disaster strikes, seem immune to prosecution and who then move governments to socialize their banks’ losses, while they get to privatize and keep the gains their crimes.

Whatever that is, it isn't just, and it isn't capitalism.

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