BNP: A Window Into A Systemic Compliance Breakdown

by Michael Volkov

bnp4BNP Paribas’ recent settlement of nearly $9 billion for violating US Sanctions against Sudan, Iran and other countries is another important achievement for the US Attorney’s Office in the Southern District of New York and the Department of Justice. For other global financial institutions, the BNP settlement has to cause some anxiety.

A number of other financial institutions engaged in similar conduct with regard to economic sanctions. The Justice Department, along with other financial and state enforcement agencies, is likely to target them for further enforcement actions. That is an important development.

BNP’s conduct was critical to undermining the effectiveness of the US sanctions against Sudan and fostered the development of terrorist groups in the region.

The plea papers relating to the BNP case provide an important insight into the role that compliance officers played in BNP’s conduct. In addition, the facts raise serious questions as to the proper performance of outside counsel who provided a legal opinion of questionable accuracy. That opinion was easily discounted by US prosecutors who were not convinced that BNP acted in accordance with the legal opinion.

As outlined in the statement of facts, BNP’s business in Sudan was important to BNP’s leadership and they were not about to give it up very easily. Lawyers and compliance officers raised serious questions about the legality of BNP’s continued dealings in Sudan but they were consistently beat back, ignored, and eventually overruled by senior compliance, legal and management staff in BNP headquarter in France.bnp

BNP engaged in a number of elaborate schemes to avoid detection and blocking of its Sudan payments, resorting to the use of satellite banks to add another layer between BNP and its New York branch in the same transaction.

As early as 2004, senior compliance officers and management were aware of the practice and of stripping of Sudan-identifying information on transaction documentation. Yet they did nothing and even condoned the practice.

In response to concerns raised by the New York Federal Reserve and execution of an agreement to improve its internal sanctions compliance, senior executives at BNP developed a new mechanism to circumvent the Sudan sanctions, which was ultimately blessed incorrectly by outside counsel. The new mechanism involved an undisclosed United States bank to funnel the otherwise prohibited transactions from Sudan through the United States.

A BNP senior compliance officer sent an email to legal, business and compliance personnel at BNP Geneva, warning: “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.”

bnp2In an email from a high-level BNP employee, it was made clear that the Sudan transactions had the “full support” of management at BNP Paris:

I see that certain questions are coming back to the surface on the way in which we are processing these transactions. I remember when you . . . made me meet the Minister of Finance of Sudan and the President of the [Sudanese Government Bank 1], it had been specified that all business activity – meaning in passing – the Minister and the President had shown themselves to be very satisfied – and it had received the full support of our General Management in Paris.

According to the Justice Department, “BNP continued to process transactions involving Sudanese Sanctioned Entities — despite being well aware that its conduct violated U.S. law – because the business was profitable and because BNPP Geneva did not want to risk its longstanding relationships with Sudanese clients.” This is a very strong statement, backed up by ample evidence that is almost unbelievable in demonstrating BNP’s brazen disregard of US law.

The picture painted is a damning one in which business interests, profits and greed outweighed any consideration of compliance with US law.  BNP’s behavior is nothing new — it shows what happens when leadership and senior management have no interest in compliance with the law when doing so would cost significant revneue.

Whether the settlement was “fair” is another question. Certainly, there are a number of individuals who were responsible for these events and it will be interesting to see if they are prosecuted.



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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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