Markets
U.S. Wants Firings at France's BNP
Authorities Push for BNP Workers to Be Sacked, in Addition to $10 Billion in Fines, Over Sanctions Issue
By Devlin Barrett,
Updated May 30, 2014 7:08 p.m. ET
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U.S. authorities are seeking to punish individual employees at BNP Paribas SA and pressing the bank to fire at least a dozen people, in part because of the bank's conduct in allegedly evading sanctions related to Sudan, according to people familiar with the discussions.
The New York Department of Financial Services is pressing for some of the stiffest punishments, including pushing for executives to be axed and seeking a temporary suspension of the bank's dollar-clearing privileges as part of any settlement with the U.S. Justice Department, the Manhattan district attorney's office and regulators, these people said. Prosecutors and regulators are pushing BNP to pay more than $10 billion to resolve the probe.
BNP Paribas hasn't agreed to those demands, and it isn't clear anyone will be fired or a settlement will be finalized. It still could take weeks to complete any deal, according to people familiar with the discussions. A BNP spokesman declined to comment.
U.S. authorities have been most alarmed by the scope of the efforts made to allegedly evade sanctions related to Sudan and by what prosecutors have come to view as the deliberate nature of the apparent deception involved in allegedly hiding transactions for Sudanese entities, these people said.
The transactions were allegedly conducted by the bank's trade-finance unit, mostly out of Geneva and Paris offices, according to a person familiar with the bank's activities.
Prosecutors are also unhappy with the bank's initial response to requests in 2009 for documents or interviews with employees, which they contend was slow or incomplete, people familiar with the case said. A person with knowledge of the matter said BNP responded to U.S. authorities' requests in a timely manner.
BNP has said in the past that its internal investigation into the matter uncovered "a significant volume of transactions" from 2002 to 2009 that could be "considered impermissible under U.S. laws and regulations" related to sanctions.
News of the potential penalties triggered concern among investors and some French politicians, who accused Washington of wielding unilateral sanctions as an extraterritorial hammer against French business interests.
Shares in the bank ended down 2.4% in Paris, making it the second-biggest loser in the French CAC-40 index, and the cost of insuring BNP's debt against possible default rose, while its bond prices fell.
"This, unfortunately, isn't the first such case in the history of Franco-U.S. relationships, and is the trademark of Washington's judicial and trading hegemony," said French lawmaker Jacques Myard, of the conservative opposition UMP party.
A spokesman for French President François Hollande referred calls about BNP Paribas to the Finance Ministry. An official at the Finance Ministry declined to comment. A French foreign-ministry spokesman said the government was closely monitoring the situation regarding BNP but declined to comment further.
Mr. Hollande will meet with President Barack Obama next week during ceremonies marking the 70th anniversary of D-Day, though it wasn't clear BNP would be among topics addressed.
Senior French officials have said the government was following the situation very closely but that they could ill afford to appear to be trying to influence the course of U.S. justice.
The prospect of an 11-figure penalty has raised the specter of BNP needing to scale back some of its ambitious international growth plans, curtail its dividend payments or sell shares to replenish its capital buffers, analysts say. BNP officials, while hoping to negotiate a smaller settlement, share some of those market concerns and are working on contingency plans, according to a person familiar with the bank's thinking.
BNP officials and analysts are concerned that a penalty in the $10 billion range would knock a full percentage point off an important capital ratio. That has the potential to compromise the bank's ability to pump money into rekindling its growth in countries like the U.S., where the bank has sought to expand its business to secure better access to North American investors, said the person familiar with the bank's thinking.
The push by Benjamin Lawsky, the New York state regulator, for heads to roll at the bank is one of four vital issues in the continuing settlement talks. The other three elements being sought in the deal by U.S. authorities, according to people familiar with the negotiations, are a guilty plea by the bank or a subsidiary, a financial penalty of more than $10 billion and a temporary suspension of the bank's ability to process dollar transactions through New York, where it is licensed.
The bank hasn't agreed to any of those terms, and the final outcome could look different from what U.S. authorities are seeking, these people said.
Mr. Lawsky has proposed the temporary ban as an alternative to the more serious step of stripping the firm of its banking license, which in effect would shut down its New York operations, these people said.
"There's no way to recover from that," said Andy Schmidt, research director at CEB TowerGroup, a research arm of Corporate Executive Board Co. "The temporary suspension [of dollar clearing] is a nuisance. It will have certainly a short-term impact. You're going to lose business. If I had to choose between the suspension and the revocation [of a license], absolutely I would choose the suspension."
Such a suspension would affect BNP's ability to perform even the most mundane transactions in the U.S. for business clients, such as processing payrolls for businesses and payments made by a company to its suppliers. It would also hinder the bank's ability to handle payments related to trade financing, foreign-exchange transactions and customer loan payments, according to analysts.
"A bank that loses its ability to clear in U.S. dollars loses access to the biggest payments market on the planet," Mr. Schmidt said.
Mr. Lawsky, in a March speech, said institutions should face more than stiff fines when found to have committed wrongdoing. "Individuals should face real, serious penalties and sanctions when they break the rules,'' Mr. Lawsky said. "That can mean putting people in jail when they break the law in the context of criminal prosecutions. But it can also mean suspensions, firings, bonus clawbacks, and other types of penalties in the regulatory context.''
The number of years that have elapsed since BNP allegedly engaged in the conduct in question, however, means the statute of limitations may prevent criminal charges against any employees involved in illegal transactions, something that has irked prosecutors, some of these people said. The limit is five years under the International Emergency Economic Powers Act, the law that allows the U.S. government to implement sanctions. BNP itself can waive the statute of limitations as part of a settlement, but banks can't compel their employees to do so.
—David Enrich and Christopher M. Matthews contributed to this article.
A branch of French bank BNP Paribas in Paris. European Pressphoto Agency
The New York Department of Financial Services is pressing for some of the stiffest punishments, including pushing for executives to be axed and seeking a temporary suspension of the bank's dollar-clearing privileges as part of any settlement with the U.S. Justice Department, the Manhattan district attorney's office and regulators, these people said. Prosecutors and regulators are pushing BNP to pay more than $10 billion to resolve the probe.
BNP Paribas hasn't agreed to those demands, and it isn't clear anyone will be fired or a settlement will be finalized. It still could take weeks to complete any deal, according to people familiar with the discussions. A BNP spokesman declined to comment.
U.S. authorities have been most alarmed by the scope of the efforts made to allegedly evade sanctions related to Sudan and by what prosecutors have come to view as the deliberate nature of the apparent deception involved in allegedly hiding transactions for Sudanese entities, these people said.
The transactions were allegedly conducted by the bank's trade-finance unit, mostly out of Geneva and Paris offices, according to a person familiar with the bank's activities.
Prosecutors are also unhappy with the bank's initial response to requests in 2009 for documents or interviews with employees, which they contend was slow or incomplete, people familiar with the case said. A person with knowledge of the matter said BNP responded to U.S. authorities' requests in a timely manner.
BNP has said in the past that its internal investigation into the matter uncovered "a significant volume of transactions" from 2002 to 2009 that could be "considered impermissible under U.S. laws and regulations" related to sanctions.
New York's Benjamin Lawsky is among officials seeking penalties. Reuters
Shares in the bank ended down 2.4% in Paris, making it the second-biggest loser in the French CAC-40 index, and the cost of insuring BNP's debt against possible default rose, while its bond prices fell.
"This, unfortunately, isn't the first such case in the history of Franco-U.S. relationships, and is the trademark of Washington's judicial and trading hegemony," said French lawmaker Jacques Myard, of the conservative opposition UMP party.
A spokesman for French President François Hollande referred calls about BNP Paribas to the Finance Ministry. An official at the Finance Ministry declined to comment. A French foreign-ministry spokesman said the government was closely monitoring the situation regarding BNP but declined to comment further.
Mr. Hollande will meet with President Barack Obama next week during ceremonies marking the 70th anniversary of D-Day, though it wasn't clear BNP would be among topics addressed.
Senior French officials have said the government was following the situation very closely but that they could ill afford to appear to be trying to influence the course of U.S. justice.
The prospect of an 11-figure penalty has raised the specter of BNP needing to scale back some of its ambitious international growth plans, curtail its dividend payments or sell shares to replenish its capital buffers, analysts say. BNP officials, while hoping to negotiate a smaller settlement, share some of those market concerns and are working on contingency plans, according to a person familiar with the bank's thinking.
BNP officials and analysts are concerned that a penalty in the $10 billion range would knock a full percentage point off an important capital ratio. That has the potential to compromise the bank's ability to pump money into rekindling its growth in countries like the U.S., where the bank has sought to expand its business to secure better access to North American investors, said the person familiar with the bank's thinking.
The push by Benjamin Lawsky, the New York state regulator, for heads to roll at the bank is one of four vital issues in the continuing settlement talks. The other three elements being sought in the deal by U.S. authorities, according to people familiar with the negotiations, are a guilty plea by the bank or a subsidiary, a financial penalty of more than $10 billion and a temporary suspension of the bank's ability to process dollar transactions through New York, where it is licensed.
The bank hasn't agreed to any of those terms, and the final outcome could look different from what U.S. authorities are seeking, these people said.
Mr. Lawsky has proposed the temporary ban as an alternative to the more serious step of stripping the firm of its banking license, which in effect would shut down its New York operations, these people said.
"There's no way to recover from that," said Andy Schmidt, research director at CEB TowerGroup, a research arm of Corporate Executive Board Co. "The temporary suspension [of dollar clearing] is a nuisance. It will have certainly a short-term impact. You're going to lose business. If I had to choose between the suspension and the revocation [of a license], absolutely I would choose the suspension."
Such a suspension would affect BNP's ability to perform even the most mundane transactions in the U.S. for business clients, such as processing payrolls for businesses and payments made by a company to its suppliers. It would also hinder the bank's ability to handle payments related to trade financing, foreign-exchange transactions and customer loan payments, according to analysts.
"A bank that loses its ability to clear in U.S. dollars loses access to the biggest payments market on the planet," Mr. Schmidt said.
Mr. Lawsky, in a March speech, said institutions should face more than stiff fines when found to have committed wrongdoing. "Individuals should face real, serious penalties and sanctions when they break the rules,'' Mr. Lawsky said. "That can mean putting people in jail when they break the law in the context of criminal prosecutions. But it can also mean suspensions, firings, bonus clawbacks, and other types of penalties in the regulatory context.''
The number of years that have elapsed since BNP allegedly engaged in the conduct in question, however, means the statute of limitations may prevent criminal charges against any employees involved in illegal transactions, something that has irked prosecutors, some of these people said. The limit is five years under the International Emergency Economic Powers Act, the law that allows the U.S. government to implement sanctions. BNP itself can waive the statute of limitations as part of a settlement, but banks can't compel their employees to do so.
—David Enrich and Christopher M. Matthews contributed to this article.
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