A potential $10 billion U.S. penalty against France’s largest bank BNP Paribas SA (BNP) for its alleged dealings with Iran and other sanctioned nations, is stirring outrage in the country.
It is putting pressure on President Francois Hollande, who hosts Barack Obama this week to mark the 70th anniversary of D-Day, to protect the bank from the American onslaught.
Le Monde in its May 31 edition called the possible fine a “masterful slap.” Le Figaro newspaper said the U.S. was making an example of BNP to deflect criticism it had been “lenient with the American banks responsible for the financial crisis.” The weekly L’Express said that banks involved in money laundering and tax evasion paid much-lower penalties. “Is the U.S. hitting too hard?” it asked.
U.S. authorities are seeking to impose the fine to settle allegations that BNP transferred funds for clients in violation of sanctions against Sudan, Iran, and Cuba, according to people familiar with the investigation. The fine could be the largest criminal penalty in the U.S., eclipsing BP Plc’s $4 billion accord with the Justice Department last year.
“If this results in a guilty plea, it is likely to increase debate in France and the rest of Europe about the essential fairness of U.S. criminal procedures,” said Frederick T. Davis, a lawyer at Debevoise & Plimpton LLP in Paris and a former U.S. prosecutor.
Hollande, who during his 2012 campaign described the world of finance as “my real enemy,” is now under pressure to seek leniency for BNP Paribas. The right-wing National Front, which beat France’s two mainstream political parties in the May 25 European parliamentary elections, on May 30 called on the government to “defend the national interest” in the case.
In a statement on its website, the National Front accused the U.S. of “racketeering,” in an effort to weaken BNP and aid its American rivals. “We demand that the French government not stay idle,” the statement said.
France’s central bank has said the transactions did not violate French or European laws. The U.S. is claiming jurisdiction because the transactions were processed in dollars.
“This affair is part of Washington’s hegemonic ambition in law and commerce,” said Jacques Myard, a lawmaker from Former President Nicolas Sarkozy’s UMP Party. “Washington has the annoying habit of trying to apply its laws outside its jurisdiction and use its strength for commercial ends.”
The French government hasn’t been involved in the U.S. discussions over Paris-based BNP and views the case as a legal matter that must follow its own course, three people familiar with the government’s position have said. The French Finance Ministry and BNP have declined to comment on the case.
Bank of France Governor Christian Noyer said last month that all of BNP Paribas’s transactions “conformed with European and French laws and rules.”
The fine against BNP would make it the first French bank to be penalized for doing business with sanctioned countries since President Obama took office. The largest settlement for such a case was in 2012, when the U.K.’s HSBC Holdings Plc agreed to pay $1.9 billion.
“There is just one way and one way only to deal with this type of investigation, it’s maximum cooperation from day one, anything else is an error,” said Simon Maughan, head of research at financial-analysis firm OTAS Technologies in London. “The point is that if you use dollars and make dollar transfers, you’ve got to play by U.S. rules.”
BNP Paribas says it’s cooperating with investigations and taking steps to change its practices. Chief Executive Officer Jean-Laurent Bonnafe told shareholders at the company’s annual general meeting last month that its own review focused on transactions “that took place between 2002 and 2009.”
U.S. prosecutors argue that a more severe penalty against BNP is justified because the misconduct was more egregious and the bank didn’t fully cooperate with the investigation, a person with knowledge of the matter has said.
BNP’s leverage in the case is limited, because it risks suspension of its U.S. banking license. The bank has a large corporate and investment banking operation in the U.S. and owns BancWest, which operates retail branches in California and about 20 other Western and Midwestern states, according to its website.
The amount of the fine has risen. BNP Paribas said in April that it might need to pay far more than the $1.1 billion it had already set aside for the case. A $10 billion fine would be almost equal to the bank’s annual profit. While Moody’s ratings service said on May 29 that BNP could “handle a large fine” without denting its credit rating or hurting liquidity, it warned in a note to clients that BNP faced a risk of “client defections and lost revenue.”
BNP Paribas has slumped 9.3 percent in Paris trading this year compared with an 5.2 rise in the benchmark CAC 40 index.
Authorities in the U.S. first heard about possible wrongdoing by BNP around 2007, when an informant contacted the Manhattan District Attorney’s office, according to two people with knowledge of the probe who asked not to be identified because the matter is private. About a year later the bank came forward with its own findings and views itself as having self-reported, two other people said.
While BNP’s efforts to clean up its operations were focused on a unit in Geneva that structured deals to move oil and other commodities around the world, people familiar with the investigations on the U.S. side said the transactions being probed weren’t restricted to the Swiss city.
About 30 executives who worked at BNP’s energy and commodities finance unit in Geneva and Paris have resigned, gone on leave, been fired or relocated since 2012, three people with knowledge of the staffing said last week. The review was known internally as Mars, the people said.
BNP Paribas said in 2011 that it was reviewing operations to see how they complied with the Office of Foreign Assets Control’s rules after talks with the U.S. authorities.
Societe Generale SA (GLE) and Credit Agricole SA, respectively France’s No. 2 and No. 3 bank by market value, have said in their filings this year that they are each making internal reviews and are cooperating with U.S. authorities over dollar transactions involving embargo-stricken countries.
The U.S. imposed sanctions against Iran in 1979 and Sudan in 1997. As members of the United Nations, France and Switzerland follow sanctions imposed by that body, and often those by the European Union, though Switzerland isn’t part of the EU. Both adopted some controls on dealings with Sudan in 2004 and with Iran in 2007 and expanded them in later years.
BNP may have breached U.S. sanctions because the deals were cleared in dollars from accounts in the U.S., two people with knowledge of the investigation said. Some unauthorized dollar payments were made on behalf of oil companies to Sudanese or Iranian entities, a former employee said.
In spite of the possible wrongdoing, some in France say the penalty against the bank is disproportionate. Former French Trade Minister Pierre Lellouche said in Le Monde that it was “shocking and exorbitant.”
“It would be unacceptable for the French government to do nothing at a time when the European Union is negotiating a free-trade accord with the U.S.,” he said.