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From Banking and Finance Law Daily, July 01, 2014

BNP Paribas fined $8.9 billion for violating U.S. sanctions laws

By John M. Pachkowski, J.D.

A number of governmental agencies have reached settlement agreements with BNP Paribas, S.A., Paris, France, for the bank’s violations of U.S. sanctions laws prohibiting financial transaction with the countries of Iran, Sudan, Cuba, and Burma.

The settlement agreements, totaling $8.9736 billion, were reached between BNP Paribas and the Justice Department, the Office of the U.S. Attorney for the Southern District of New York, the Office of Foreign Assets Control, the New York County District Attorney's Office, the New York Department of Financial Services (NY DFS), and the Federal Reserve Board.

Guilty plea. To the settle the action brought by the Justice Department, BNP Paribas agreed to enter a guilty plea to conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) by processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions.

IEEPA and TWEA violations. Specifically, BNP Paribas was charged in a one-count felony criminal information, with knowingly and willfully conspiring to commit violations of IEEPA and TWEA, from 2004 through 2012. In a statement of facts, BNP Paribas acknowledged that, during that eight-year span, it knowingly and willfully moved over $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban sanctioned entities. The statement of fact noted that the majority of illegal payments were made on behalf of sanctioned entities in Sudan, which was subject to U.S. embargo based on the Sudanese government’s role in facilitating terrorism and committing human rights abuses. BNP Paribas further admitted that it has processed approximately $6.4 billion through the United States on behalf of Sudanese sanctioned entities from July 2006 through June 2007, including approximately $4 billion on behalf of a financial institution owned by the government of Sudan, even as internal emails showed bank employees expressing concern about the bank’s assisting the Sudanese government in light of its role in supporting international terrorism and committing human rights abuses during the same time period.

 The bank provided Cuban sanctioned entities with access to the U.S. financial system by hiding the Cuban sanctioned entities’ involvement in payment messages. Specifically, from October 2004 through early 2010, BNP Paribas knowingly and willfully processed approximately $1.747 billion on behalf of Cuban sanctioned entities. In the statement of facts, the bank admitted that it continued to do U.S. dollar business with Cuba long after it was clear that such business was illegal in order to preserve BNPP’s business relationships with Cuban entities. The bank further admitted that its conduct with regard to the Cuban embargo was both “cavalier” and “criminal,” as evidenced by the bank’s 2006 decision, after certain Cuban payments were blocked when they reached the United States, to strip the wire messages for those payments of references to Cuban entities and resubmit them as a lump sum in order to conceal from U.S. regulators the bank’s longstanding, and illicit, Cuban business.

Finally, the statement of facts described BNP Paribas’ role in providing more than $650 million of transactions involving entities tied to Iran. The transactions with sanctioned Iranian entities occurred between 2006 and 2012, nearly two years after the bank had commenced an internal investigation into its sanctions compliance and had pledged to cooperate with the government. The illicit Iranian transactions were done on behalf of BNP Paribas clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company, and an Iranian oil company.

Fed action. The Fed issued a $508 million civil money penalty and cease and desist order against BNP Paribas which requires the bank to implement a program to ensure global compliance with U.S. sanctions laws. The cease and desist order also prohibits BNP Paribas from re-employing or otherwise engaging 11 individuals who were involved in the actions that resulted in the violations of U.S. sanctions laws. The Federal Reserve is pursuing separate enforcement actions against these individuals, which could include fines and orders prohibiting them from participating in the business of banking, including working for any institution subject to the jurisdiction of U.S. federal banking supervisors. The Federal Reserve is also pursuing enforcement actions against individuals who may have personally violated U.S. sanctions laws, and is investigating whether other individuals may have been involved in the conduct underlying the enforcement actions against the institution. BNP Paribas has agreed to cooperate in these investigations, but is not the subject of these investigations.

OFAC compliance office. The Fed also issued a joint cease and desist order with the Autorité de Contrôle et de Prudentiel et de Résolution, the home country supervisor of BNP Paribas. Under that joint order, BNP Paribas is required to include, as part of its global U.S. sanctions compliance program, a U.S. OFAC compliance office, which will be located in the United States and have authority over all of the U.S. sanctions compliance programs of BNP Paribas's global offices and business lines. The U.S. compliance office will be subject to oversight by U.S. regulators and have the authority to audit any transaction and overall compliance efforts by any office or business line of the institution regarding U.S. sanctions laws, according to the joint order. BNP Paribas and its branches, affiliates, and global business lines must also comply with payment messaging standards that prohibit the omission, deletion, or alteration of information in payment messages to conceal relevant information from other financial institutions in the payment process.

OFAC settlement. BNP Paribas’ settlement with OFAC resolves the agency’s investigation into the bank’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012 in apparent violation of the Sudanese Sanctions Regulations, 31 C.F.R. part 538; the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; the Cuban Assets Control Regulations, 31 C.F.R. part 515; and the Burmese Sanctions Regulations, 31 C.F.R. part 537. Under the OFAC settlement, BNP Paribas agreed to pay $963 million; and to establish and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future.

New York settlements. The bank also entered into a settlement with the NY DFS whereby the bank will pay a civil penalty of $2.24 billion, which is part of the overall $8.9 penalty. In addition, BNP Paribas is required to terminate the employment of 13 individuals, including five senior executives, and suspend U.S. dollar clearing operations for one year at business lines on which the misconduct centered.

Finally, the Manhattan District Attorney Cyrus R. Vance, Jr., announced that BNP Paribas entered into a guilty plea to charges of Falsifying Business Records in the First Degree, a class E felony, and Conspiracy in the Fifth Degree, a class A misdemeanor under New York State law. In a Superior Court Information, allocution, and corresponding Factual Statement filed in New York State Supreme Court, the bank admitted that it violated New York State law by conspiring to and falsifying the records of New York financial institutions.

Comments and reaction. In a press conference, Attorney General Eric Holder said, “This landmark resolution demonstrates the Justice Department’s firm commitment to enforcing embargoes and other measures designed to protect America’s security and our vital national interests. This outcome should send a strong message to any institution—anywhere in the world—that does business in the United States: illegal conduct will not be tolerated. And wherever it is uncovered, it will be punished to the fullest extent of the law.”

Deputy Attorney General James Cole noted, “Corporate choices have consequences” and that “is why we are here today, because of the choices BNP made over and over again—from deciding to act as a defacto central bank for the government of Sudan and aiding other sanctioned regimes to dragging their feet once the Justice Department put them on notice that their illegal conduct was under investigation.” Cole added, “The lesson to be learned from this case is that violating U.S. law carries serious consequences. Full and timely cooperation with law enforcement can go a long way to mitigating those consequences, but BNP did not choose that path. We trust that other corporations and financial firms who find themselves in a similar situation will take a lesson from this.”

Assistant Attorney General Leslie R. Caldwell added, “The nature and scope of BNPP’s criminal conduct far exceeded that in any previous criminal sanctions case resolved by the Department of Justice. Today’s $8.973 billion penalty represents the staggering total volume of provable criminal conduct. And BNPP’s conduct was uniquely sophisticated, involving the manipulation of documents, records and transactions, and the use of other ‘satellite’ banks as ‘fronts’ to evade detection. So the criminal conduct itself is a big part of the reason why criminal charges and a guilty plea by BNPP are the only appropriate resolution here.”

New York Governor Andrew M. Cuomo stated, “New York State will not allow companies to break the law, especially when they put our national security at risk,” Governor Cuomo said. “This enforcement action should serve as a warning to any company that provides financial support to global terrorism and enables human rights atrocities: our Department of Financial Services is an effective and forceful regulator, and we will continue to enforce our anti-money laundering rules.”

Benjamin M. Lawsky, New York Superintendent of Financial Services, said, “BNPP employees —with the knowledge of multiple senior executives—engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct—bankers do.”

OFAC Director Adam J. Szubin commented, “Today’s settlement is OFAC’s largest-ever and reaffirms OFAC’s determination to aggressively enforce U.S. sanctions rules and regulations. The settlement is the result of an interagency effort to investigate institutions that abuse the U.S. financial system and undermine U.S. sanctions programs. OFAC will continue to coordinate these efforts with other federal and state agencies in order to protect the U.S. financial infrastructure from the risks inherent in this type of illicit activity.”

District Attorney Vance noted, “Today’s guilty plea marks the seventh major case involving sanctions violations by a large international bank that my Office has pursued and resolved since 2009. These cases are critically important for international public safety and the security of our banking system, which is put at risk when it is used to further criminal activity. The seven investigations have revealed a series of widespread schemes to falsify the business records of financial institutions in Manhattan and have resulted in the forfeiture of approximately $12 billion in total. But, more importantly, they have resulted in a fundamental change in the way all banks conduct their business, have heightened vigilance worldwide with respect to dealing with sanctioned entities, and have increased the integrity of our Manhattan-based financial institutions.”

Jean-Laurent Bonnafe, CEO of BNP Paribas, said, “We deeply regret the past misconduct that led to this settlement. The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate. We have announced today a comprehensive plan to strengthen our internal controls and processes, in ongoing close coordination with the US authorities and our home regulator to ensure that we do not fall below the high standards of responsible conduct we expect from everyone associated with BNP Paribas.”

Public Citizen, a consumer advocacy group, provided comments from by Lisa Gilbert, Amit Narang, and Bart Naylor of the group’s Congress Watch division. Gilbert noted that the “Extensive negotiations regarding the actual punishment BNP Paribas suffers from its guilty plea demonstrate that a separate justice system may continue to prevail at large financial institutions.” Narang added, “Though we appreciate the magnitude of the BNP guilty plea, we believe this does not signify the end of ‘too big to jail’ that Attorney General Holder promised several weeks ago. Once again, federal prosecutors decided against the strongest possible punitive measures for egregious criminal activity at a large bank.” Finally, Naylor stated, “Requiring the bank to suspend temporarily certain operations represents only a modest penalty. The DOJ introduced too-big-to-jail when it failed to prosecute HSBC. The DOJ has now invented the pain-free guilty plea.”

Companies: BNP Paribas, S.A.

MainStory: TopStory BankSecrecyAct BankingOperations DirectorsOfficersEmployers EnforcementActions NewYorkNews

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