On Monday U.S. state and federal authorities announced a criminal case against France’s BNP Paribas, which has pleaded guilty to several U.S. sanction violations. According to the Justice Department, BNP concealed billions of dollars in transactions for clients in Cuba, Iran, and Sudan and has agreed to pay $8.9 billion in fines.
The agreement by the French bank to plead guilty is the first time that a global bank has agreed to plead guilty to large-scale violations of U.S. economic sanctions. Along with the monetary penalty that BNP must pay, the settlement includes a temporary ban on dollar-clearing transactions and the cutting of ties with some employees.
In addition, BNP 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.
BNP committed the violations despite several warnings within the firm about the illegality, and immorality, of their actions. According to Attorney General Eric Holder, who made the announcement of the criminal case, “BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive U.S. authorities.”
“These actions represent a serious breach of U.S. law. Sanctions are a key tool in protecting U.S. national security interests, but they only work if they are strictly enforced. If sanctions are to have teeth, violations must be punished. Banks thinking about conducting business in violation of U.S. sanctions should think twice because the Justice Department will not look the other way,” Holder said.
According to the investigation, BNP moved more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the U.S. Government as being cut off from the U.S. financial system.
BNP set up an expansive web of “satellite banks” which were used to disguise its role in the illicit concealed transactions. The investigation claims that as early as August 2005, a senior compliance officer at BNP warned several legal, business and compliance personnel at BNP’s subsidiary in Geneva that the satellite bank system was being used to evade U.S. sanctions: “As I understand it, we have a number of Arab Banks (nine identified) on our books that only carry out clearing transactions for Sudanese banks in dollars. . . . This practice effectively means that we are circumventing the U.S. embargo on transactions in USD by Sudan.”
The criminal case against BNP is a result of Washington stepping up efforts after the September 11, 2001 terrorist attacks to root out global money laundering. The 2002 Patriot Act, in an attempt to “strengthen U.S. measures to prevent, detect and prosecute international money laundering and financing of terrorism,” required the Treasury Department to investigate banks and individuals suspected of terrorist associations.
Richard Weber, the Chief of the IRS Criminal Investigation department, claimed that the investigation’s “outcome is a testament to U.S. efforts to stem the exploitation of the American financial system and ensure that if you chose to do business in our country you must abide by our laws.”