United States: BNP Paribas SA Guilty Plea Shows That Integrity Is King

The recently announced criminal guilty plea by BNP Paribas SA for violating U.S. sanctions against Iran, Sudan and Cuba, along with a monetary penalty of $8.97 billion, sends a very strong message that "too big to jail" is not a barrier to criminal enforcement proceedings by U.S. Department of Justice ("DOJ") and bank regulators. This action sends a strong message to all banking organizations in the United States and overseas, as well as to any institution-affiliated party involved in the actions deemed in violation of U.S. laws and rules, that acting with integrity – which means in part, acting in compliance with applicable laws and rules – should be kept front-of-mind at all times.

The filings to-date reveal that from 2002 to at least January 2010, BNP Paribas violated U.S. Office of Foreign Assets Control ("OFAC") regulations in its dealings with Iran, Sudan and Cuba. At the same time, it omitted or concealed relevant information from payment messages that was necessary for its New York branch and other U.S. financial institutions to determine whether these transactions were carried out in a manner consistent with U.S. law. While efforts were made in 2007 and 2008 to comply with OFAC regulations, BNP Paribas continued through 2012 to process U.S. dollar denominated funds transfers through its New York branch involving a party subject to OFAC regulations. Institution-affiliated parties have also been disciplined, up to and including termination of employment. Some of those individuals may face criminal sanctions.

The implications of this second guilty plea by a global foreign banking organization, which also is the largest bank in France, will have significant implications for the banking industry.

First, it puts an exclamation point on the necessity for a banking organization to make acting with integrity an integral and primary part of its corporate culture. This needs to be continually reinforced by management, not just as lip service, but also in making it part of its corporate culture – as a key value of the organization that is appreciated by its clients and customers, its employees, and its regulators.

Second, this action sends a very strong message that the legal and compliance functions are of extremely high value to a banking organization, and they need to be implemented by individuals with a very strong sense of doing what is right with great integrity.

Third, this is just the first level of enforcement and regulatory actions, and there will very likely be fallout that is hard to predict at this time. The reactions by a broad array of constituencies remain to be seen. Those constituencies include shareholders, customers, outside lawyers and other professionals, as well as foreign governmental authorities.

Fourth, it is hard to foretell at this time the implications for BNP Paribas operations in the United States, which are fairly significant with two depository institutions, including a substantial banking operation in California. The U.S. authorities likely weighed the consequences of this enforcement action on BNP Paribas' U.S. operations and concluded that the impact would not be significant. We can assume they considered the impact on Credit Suisse AG of its guilty plea and $2.6 billion settlement regarding aiding tax evasion by customers.

Fifth, this action reflects close, cross-border coordination between and among the U.S. DOJ, the New York District Attorney, OFAC, the New York State Department of Financial Services, the Federal Reserve Board, and BNP Paribas' home supervisor, the Autorité de Contrôle Prudentiel et de Résolution.

Sixth, the most significant impact, and one that industry professionals will be watching closely, may be what this U.S. enforcement action does for efforts to achieve a common regulatory approach in such areas as capital, liquidity, and supervisions.

Seventh, it is difficult to predict at this time the impact that the one-year moratorium on BNP Paribas' U.S. dollar-clearing operations through its New York branch or its other affiliates will have on its global business. It should be noted that the suspension is focused primarily on the oil and gas business out of its overseas offices in Geneva, Paris, Singapore, Milan, Rome and London. The suspension has been delayed until January 1, 2015. In addition, for two years, BNP Paribas shall cease all U.S. dollar clearing as a correspondent bank for unaffiliated third-party banks in New York and London.

Eighth, according to press reports, it appears that PNB Paribas will remain a primary dealer with the Federal Reserve Bank of New York.

Finally, this action will have a definite effect on foreign banking organizations operating in the United States. The United States is such a major market for the global players and accounts for so much of the world's GNP – and with the United States having the most stable political system and serving as the ultimate safe haven financial investments – the outcome is likely to be an increased emphasis on complying with U.S. rules and regulations.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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