Big Bank gets Spanked to the Tune of $9 Billion

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Explore:  Banks EU Fraud OFAC

Last week French bank BNP Paribas (BNPP) became the latest financial institution to be penalized for violating the OFAC sanctions programs.  BNPP was accused of processing thousands of transactions through U.S. banks for countries, entities and individuals subject to the sanctions on Iran, Cuba, Sudan and Burma.  BNPP systematically scrubbed references to sanctioned parties or countries from interbank messages sent to U.S. financial institutions procesing those transactions.

BNPP now shares the rarified air with HSBC, Standard Chartered, ING Bank, Barclays Bank, Credit Suisse and Lloyds TSB Bank, each of which had engaged in similar conduct and received multi-million or -billion dollar penalties as a result.  How BNPP failed to learn a lesson from its peers is astounding.  The U.S. enforcement agencies have made it clear that foreign financial institutions are in the crosshairs for exactly this type of behavior.

What sets BNPP apart from the others is the sheer magnitude of the penalty: $9 billion.  This record-setting fine takes into account a number of aggravating factors, such as (i) senior management’s awareness of the conduct; (ii) a pattern of violating behavior spanning several years; (iii) BNPP’s failure to institute adequate, internal compliance systems; (iv) BNPP’s status as a large and sophisticated financial institution; and (v) BNPP’s failure to self-disclose the violation.  Reports have surfaced that the bank failed to cooperate with investigators and even continued to process violating transactions during the course of the investigation.  According to OFAC, the base penalties for these violations equaled $19 billion, so an optimist might say BNPP got off relatively easy!

Aside from the scale of the penalty, this case is interesting because both state and federal agencies coordinated in the investigation.  OFAC, DOJ, the Federal Reserve, the NY County District Attorney’s Office and the NY Department of Financial Services all played a part, and all will share in the financial reward.  The BNPP settlement highlights New York State’s ongoing activism in punishing financial institutions for sanctions violations and its desire to recover some of the bank-related revenues it lost during the financial crisis.

So what can the BNPP case tell us?  First, if you’re a foreign financial institution, you had better comply with the OFAC sanctions programs – the DOJ and the State of New York are gunning for you.  Second, regardless of your industry, adopting internal compliance systems is critical if you provide overseas sales or services.  Most companies won’t be hit with a $9 billion fine, but the sting can be significant no matter your company’s size.  Third, expect increased enforcement activity in the coming years.  OFAC sanctions enforcement has proven a lucrative business for the government, and the trend is not about to stop.

 

Topics:  Banks, EU, Fraud, OFAC

Published In: General Business Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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