Tour de Fraud: BNP to Plead Guilty, Pay Nearly $9 Billion

BNP Paribas S.A. (BNPP), one of the world’s largest banks, will plead guilty 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 U.S. dollar transactions through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities subject to U.S. economic sanctions.

The bank will pay nearly $9 billion in penalties.

The agreement by the French bank to plead guilty is the first time a financial institution has agreed to plead guilty based on large-scale, systematic violations of U.S. economic sanctions.

BNP was represented by Karen Patton Seymour of Sullivan & Cromwell in New York.

Brandon Garrett, a professor of law at the University of Virginia, author of the upcoming book Too Big to Jail: How Prosecutors Compromise with Corporations (Harvard University Press, October 2014), and a frequent critic of corporate crime settlements, was impressed with this one.

“This is the Gargantua of bank prosecutions,” Garrett said. “The BNP plea will provide the largest forfeiture ever in a criminal case. It will amount to the largest total monetary payment in a corporate prosecution agreement. Those payments are far in excess of the criminal fine in the case. And the payments dwarfs any in prior bank prosecutions.”

“That real effort went into ensuring that the parent bank pleaded guilty. And it shows some newfound resolve to address ‘too big to jail’ concerns. With many more investigations of banks, including domestic banks, pending, we will see whether this newfound resolve sticks.”

The bank has also agreed to extended oversight – a probation term of five years.

“One concern with deferred and non-prosecution agreements that have been so common over the past decade is that they are short-lived and whether compliance is achieved is often doubtful,” Garrett said. “Requiring court-supervised probation for five years, together with a corporate monitor supervised by regulators, is a real improvement.”

The agreement provides that the payment is not tax deductible, Garrett said.

“BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive U.S. authorities,” said Attorney General Eric Holder. “These actions represent a serious breach of U.S. law. Sanctions are a key tool in protecting U.S. national security interests, but they only work if they are strictly enforced.  If sanctions are to have teeth, violations must be punished.  Banks thinking about conducting business in violation of U.S. sanctions should think twice because the Justice Department will not look the other way.”

Deputy Attorney General James Cole said that “BNP ignored US sanctions laws and concealed its tracks.”

“And when contacted by law enforcement it chose not to fully cooperate,” Cole said. “This failure to cooperate had a real effect — it significantly impacted the government’s ability to bring charges against responsible individuals, sanctioned entities and satellite banks.  This failure together with BNP’s prolonged misconduct mandated the criminal plea and the nearly $9 billion penalty that we are announcing today.”

U.S. officials said that by providing dollar clearing services to individuals and entities associated with Sudan, Iran, and Cuba – in clear violation of U.S. law – BNPP helped them gain illegal access to the U.S. financial system.

In doing so, BNPP deliberately disregarded U.S. law of which it was well aware, and placed its financial network at the services of rogue nations, all to improve its bottom line.

BNPP continued to engage in this criminal conduct even after being told by its own lawyers that what it was doing was illegal, the officials said.

U.S. Attorney Preet Bharara called it a “tour de fraud.”

“BNPP banked on never being held to account for its criminal support of countries and entities engaged in acts of terrorism and other atrocities,”  Bharara said. “But that is exactly what we do today.  BNPP, the world’s fourth largest bank, has agreed to plead guilty and pay penalties of almost $9 billion for performing the hat trick of sanctions violations, unlawfully opening the doors of the U.S. financial markets to three sanctioned countries, Sudan, Iran, and Cuba.  For years, BNPP provided access to billions of dollars to these sanctioned countries, as well as to individuals and groups specifically identified and designated by the U.S. government as being subject to sanctions.  The bank did so deliberately and secretly, in ways designed to evade detection by the U.S. authorities.  For its years-long and wide-ranging criminal conduct, BNPP will soon plead guilty in a federal courthouse in Manhattan.”

Federal officials alleged that over the course of eight years, BNPP knowingly and willfully moved more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities, including more than $4.3 billion in transactions involving entities that were specifically designated by the U.S. Government as being cut off from the U.S. financial system.

BNPP engaged in this criminal conduct through various sophisticated schemes designed to conceal from U.S. regulators the true nature of the illicit transactions.

BNPP routed illegal payments through third party financial institutions to conceal not only the involvement of the sanctioned entities but also BNPP’s role in facilitating the transactions. BNPP instructed other financial institutions not to mention the names of sanctioned entities in payments sent through the United States and removed references to sanctioned entities from payment messages to enable the funds to pass through the U.S. financial system undetected.

 BNPP will waive indictment and be charged in a one-count felony criminal information, filed in federal court in the Southern District of New York, charging BNPP with knowingly and willfully conspiring to commit violations of IEEPA and TWEA, from 2004 through 2012.  BNPP has agreed to plead guilty to the information, has entered into a written plea agreement, and has accepted responsibility for its criminal conduct.

BNPP is also pleading guilty in New York State Supreme Court to falsifying business records and conspiring to falsify business records.

In addition, the Board of Governors of the Federal Reserve System said that BNPP has agreed to a cease and desist order, to take certain remedial steps to ensure its compliance with U.S. law in its ongoing operations, and to pay a civil monetary penalty of $508 million.

The New York State Department of Financial Services (DFS) is announcing BNPP has agreed to, among other things, terminate or separate from the bank 13 employees, including the group COO and other senior executives; suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered; extend for two years the term of a monitorship put in place in 2013, and pay a monetary penalty to DFS of $2.2434 billion.

In satisfying its criminal forfeiture penalty, BNPP will receive credit for payments it is making in connection with its resolution of these related state and regulatory matters.

The Treasury Department’s Office of Foreign Assets Control has also levied a fine of $963 million, which will be satisfied by payments made to the Department of Justice.

In a detailed statement of facts, BNPP has acknowledged that, from at least 2004 through 2012, it knowingly and willfully moved over $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian and Cuban sanctioned entities, in violation of U.S. economic sanctions.

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.

BNPP 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 BNPP 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.

In March 2007, a senior compliance officer at BNPP wrote to other high-level BNPP compliance and legal employees reminding them that certain Sudanese banks with which BNPP dealt “play a pivotal part in the support of the Sudanese government which . . . has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.”

One way in which BNPP processed illegal transactions on behalf of Sudanese sanctioned entities was through a sophisticated system of “satellite banks” set up to disguise both BNPP’s and the sanctioned entities’ roles in the payments to and from financial institutions in the United States.

As early as August 2005, a senior compliance officer at BNPP warned several legal, business and compliance personnel at BNPP’s subsidiary in Geneva that the satellite bank system was being used to evade U.S. sanctions: “As I understand it, we have a number of Arab Banks (nine identified) on our books that only carry out clearing transactions for Sudanese banks in dollars. . . . This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan.”

Similarly, BNPP provided Cuban sanctioned entities with access to the U.S. financial system by hiding the Cuban sanctioned entities’ involvement in payment messages.  From October 2004 through early 2010, BNPP knowingly and willfully processed approximately $1.747 billion on behalf of Cuban sanctioned entities.

In the statement of facts, BNPP 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.  BNPP 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.

Further according to court documents, BNPP engaged in more than $650 million of transactions involving entities tied to Iran, and this conduct continued into 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 BNPP clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company, and an Iranian oil company.

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