The Washington Post this week reported on U.S. Attorney General Eric Holder’s Monday video message reiterating that no company can be “too big” to be “immune from prosecution.” The Post went on to report, as others have, that the Justice Department, in keeping with its own edict, is “getting closer to wrapping up an investigation” of French bank BNP Paribas, “which allegedly allowed millions of dollars from [Cuba, Iran, Sudan and other countries] to illegally move through the U.S. financial system.”
As the Post partially excerpts, BNP’s 2013 annual financial report stated that BNP “identified a significant volume of transactions that could be considered impermissible under U.S. laws and regulations including, in particular, those of the Office of Foreign Assets Control (OFAC).” The report went on to state the following:
The Bank has presented the findings of this review to the U.S. authorities and commenced subsequent discussion with them. Although the amount of financial consequences, fines or penalties cannot be determined at this stage, the Bank has, in accordance with [International Financial Reporting Standards] requirements, recorded a provision of USD 1.1 billion (EUR 0.8 billion) in its financial statements for the fourth quarter of 2013.
Because BNP claims there “have been no discussions” with U.S. authorities as to the amount of any penalty, “[t]he actual amount [of a penalty] could thus be different, possibly very different, from the amount of the provision.” (I am sure BNP hopes “different” means “less.”)
A set-aside of $1.1 billion is, of course, remarkable for costs associated with a sanctions penalty, but BNP’s situation should sound very familiar as OFAC, in partnership with the Justice Department, has not shied away from going after “too big” banks for sanctions violations. Banks that have settled OFAC enforcement actions with significant penalties chronologically over the last few years is a who’s who in the global banking community: Royal Bank of Scotland (over $33 million), HSBC ($375 million), Standard Chartered ($132 million), ING ($619 million), JP Morgan Chase (over $88 million), Barclays ($176 million), Lloyds TSB ($217 million) and Credit Suisse ($536 million).
What must not be lost in any action against BNP or other banks is what this means for everyone else. With credit to OFAC, the global banking system has become an effective deputy for U.S. sanctions enforcement. Banks hawkishly review activity transiting through it with sophisticated software and a discretion erring on the side of caution if anything, in the words of BNP, “could be considered impermissible.” The trickle-down effect is that any company thinking about a U.S. dollar transaction, which will almost certainly transit a U.S. correspondent account, has to ensure itself that its transactions are free and clear of U.S. sanctions violations unless it is willing to risk having funds blocked in the United States.
Although it is right to observe that OFAC has preferred of late to hunt big game, OFAC has astutely turned the game into successful hounds.