On June 30, 2014, BNP Paribas S.A. (“BNP”) — the world’s fourth largest bank — pled guilty in New York State Supreme Court to falsifying and conspiring to falsify business documents. On July 9, 2014, the Bank is expected to plead guilty in federal court to a one-count felony criminal Information charging BNP with knowingly and willfully conspiring to commit violations of the International Emergency Economic Powers Act and the Trading with the Enemy Act.
These actions were taken in conjunction with actions by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), the Federal Reserve and the New York Department of Financial Services. Attendant to these actions, BNP will pay more than $8.9 billion in forfeitures, criminal and civil penalties under the criminal pleas and assessed by these agencies — the largest penalties ever obtained in an economic sanctions case. Most importantly, statements released by the Justice Department, Federal Reserve, U.S. Attorney’s Office of New York and OFAC suggest that the settlement will serve as a template for future prosecutions of financial crimes.
In addition to financial penalties, the Federal Reserve issued a joint cease and desist order with the Autorité de Contrôle et de Résolution, the French regulator supervising BNP, to implement a global compliance program.
Perhaps more significantly, the New York Department of Financial Services required that five high level individuals be terminated by or separated from the bank, including the Group’s Chief Operating Officer and the Head of Ethics and Compliance for North America, and the investigation resulted in termination or discipline of many others. In addition, the right of the New York branch and other U.S. affiliates to clear dollar transactions will be suspended in certain sectors for one year beginning in January 2015; and BNP will be prohibited for a period of two years from clearing as a correspondent bank for unaffiliated third party banks in New York and London.
According to the various court and related filings, BNP processed billions of dollars through the U.S. financial system on behalf of Cuban, Sudanese and Iranian entities subject to U.S. economic sanctions. From 2002 to 2012, BNP employees outside the United States processed improper transactions through its U.S. operations, sometimes deleting information that would have enabled U.S. authorities to tie the payments to sanctioned entities. Communications quoted in the Statement of Fact suggest that BNP was fully aware that it was breaking U.S. law by evading sanctions.
In its defense, BNP argued that it acted in accordance with the advice of counsel, and produced a 2004 single-page memo drafted by a well-respected U.S. law firm that has remained unnamed. The memo authorized BNP to process certain Sudanese transactions, as long as those transactions did not involve BNP’s New York employees. The U.S. Attorney’s Office in New York and the Justice Department’s Criminal Division in Washington, D.C. rejected the defense on the grounds that BNP was not fully forthcoming when requesting advice from its outside counsel; the advice was limited to certain transactions within a defined period of time; and BNP failed to follow to the letter its outside counsel’s advice.
Although the penalties to be paid by BNP are unprecedented, they are more likely to be cautionary than to become customary. According to statements released by the Justice Department, the penalties were warranted by the extreme nature and scope of the conspiracy. The widespread, deliberate deception of U.S. regulators, financial institutions and BNP’s own U.S. subsidiary reveal sophisticated, systemic misconduct intended to maximize profit while undermining U.S. sanctions.