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US slaps $9bn fine on BNP in new sanctions warning

New York, July 2, 2014

French bank BNP Paribas has pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve accusations that it had violated US sanctions against Sudan, Cuba and Iran, in a severe punishment aimed at sending a clear message to other financial institutions around the world.

The BNP Paribas guilty plea is the direct consequence of a broader US Justice Department shift in strategy that is expected to snare more major banks for possible money laundering or sanctions violations.

In an unprecedented move, regulators banned BNP for a year from conducting certain US dollar transactions, a critical part of the bank's global business, in addition to the fine which was a record for violating American sanctions.

US authorities said the severe penalties reflected BNP's violations going back to at least 2004 and through to 2012 and its drive to put profits first, even after U.S. officials warned the bank of its obligation to crack down on illegal activity.

BNP shares rose 4.1 per cent by 0945 GMT, the strongest performer in the European bank index because of relief that the bank had finally settled the case. The stock is still down around 16 percent since mid-February because of the affair.

The bank essentially functioned as the "central bank for the government of Sudan", concealed its tracks and failed to cooperate when first contacted by law enforcement, US authorities said.

They also found BNP Paribas had evaded sanctions against entities in Iran and Cuba, in part by stripping information from wire transfers so they could pass through the U.S. system without raising red flags.

With its Sudanese clients, the bank admitted it set up elaborate payment structures that routed transactions through satellite banks to disguise their origin.

"BNPP banked on never being held to account for its criminal support of countries and entities engaged in acts of terrorism and other atrocities, but that is exactly what we did today," said Manhattan US Attorney Preet Bharara, whose office helped to prosecute the case.

"We deeply regret the past misconduct that led to this settlement," BNP's Chief Executive Officer Jean-Laurent Bonnafe told analysts and investors on a conference call on Tuesday. He said the bank would implement a significant strengthening of its internal controls and processes.

The settlement marks a stinging rebuke for BNP, the grand dame of French banking and one of the world's five biggest banks by assets. Until now BNP Paribas had managed to avoid the sort of scandals that damaged most of its rivals, including interest rate manipulation and the mis-sale of U.S. sub-prime mortgages.

From the bank's historic Parisian headquarters, where Napoleon married Josephine in 1796, BNP Paribas management has always prided itself on its tight risk controls which helped it successfully navigate the financial and euro zone debt crises.

The Swiss financial regulator said it was investigating staff at BNP Paribas' Swiss arm after the bank's general counsel appeared in a New York court to plead guilty to one count of falsifying business records and one count of conspiracy.

A pipeline of cases has built up as US prosecutors have pivoted from focusing on specific criminals to also vigorously pursuing financial institutions that move money for them, which some had in the past considered "too big to jail".

Leslie Caldwell, who leads the criminal division at Justice Department, said in an interview that a unit within the Justice Department has its sights set on a range of firms potentially involved in illicit money flows.

"I think that we'll probably see other financial institutions, regional banks, maybe some smaller banks ... ," Caldwell said during an interview on Friday, speaking of cases in the pipeline. She declined to name specific firms.

The penalties imposed on BNP Paribas dwarf any previously handed out for sanctions avoidance and are far bigger than those against Credit Suisse in May, which became the largest bank in decades to plead guilty to a US criminal charge, for helping Americans to evade taxes.

No individuals were charged on Monday, but US authorities said they had not wrapped up their inquiry. "The case which BNP is pleading to now is against the corporation alone, but our investigation into potential individual culpability is continuing," Manhattan District Attorney Cyrus Vance said.

BNP said it would take an exceptional charge of 5.8 billion euros ($7.9 billion) in the second quarter of this year. It plans to keep its dividend payment at 1.5 euros per share this year, the same as in 2013, and expects its core capital adequacy ratio to be around 10 percent at the end of June, consistent with long-term targets.

The bank had been expected to cut its dividend, sell bonds or some assets to help pay for the fine.-Reuters




Tags: Iran | US | sudan | warning | Sanctions | BNP |

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