French lender BNP Paribas pleaded guilty on Monday to criminal charges and agreed to pay $9 billion in penalties for defying U.S. sanctions and doing business with outlaw nations such as Sudan, Iran and Cuba.
BNP, France’s largest bank, pleaded guilty to conspiring to violate the International Emergency Economic Powers Act and the Trading with the Enemy Act by, according to a Department of Justice statement, processing billions of dollars of transactions through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban entities facing U.S. economic sanctions.
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The DOJ said the plea agreement marks the first time a global bank has agreed to plead guilty to “large-scale, systematic violations of U.S. economic sanctions.”
"BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive U.S. authorities. These actions represent a serious breach of U.S. law," Attorney General Eric Holder said during a press conference Monday.
“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,” Holder added.
Court documents related to the investigation show that over the course of eight years, BNP “knowingly and willfully” moved more than $8.8 billion through the U.S. financial system on behalf of sanctioned entities.
More than $4.3 billion of that money was part of transactions involving entities that were specifically designated by the U.S. Government as being cut off from the U.S. financial system, the DOJ said.
BNP used “various sophisticated schemes” designed to conceal from U.S. regulators the nature of the illicit transactions, the DOJ said, including routing illegal payments through third party financial institutions to conceal both the involvement of the sanctioned entities but also BNP's role in facilitating the transactions.
BNP will formally enter its guilty plea before in federal court in New York on Tuesday.
The plea agreement, which is subject to approval by a judge, requires BNP to pay in total $8.9736 billion, including forfeiting $8.8336 billion and paying a fine of $140 million.
The penalties could hit BNP's dividend payout, regulatory capital ratios and its investment banking targets, analysts have said.
In addition to the deal with the DOJ, BNP also pleaded guilty on Monday in in New York State Supreme Court to falsifying business records and conspiring to falsify business records.
The New York State Department of Financial Services said BNP has agreed to fire 13 employees, including the Group Chief Operating Officer and several 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 $2.2 billion.
The bank reportedly had been faced with a fine possibly as large as $16 billion.
Analysts have said a significant fine could reduce BNP Paribas' capital ratio to below 10%, or below thresholds set under new international guidelines established in the wake of the 2008 financial crisis.
The stakes rose significantly for BNP Paribas as the investigation by U.S. authorities dragged on. According to reports, in February, the bank said it had put aside $1.1 billion to cover the expected settlement, considered a large amount at the time. Two months later, the bank warned of “the possibility that the amount of the fines could be far in excess” of what the bank previously had set aside.
The large U.S. fine has raised concerns by French authorities. Christian Noyer, the governor of the Bank of France, has said BNP's alleged actions didn't violate European or French laws.
Guilty pleas in addition to huge fines represent a significant shift in the U.S. government’s strategy for cracking down on big banks accused of large-scale misconduct. Credit Suisse (NYSE:CS) pleaded guilty last month to helping Americans evade taxes by hiding money from the IRS, the first such plea by a major financial institution in more than a decade.
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