BNP Paribas (BNP), France's biggest bank, pleaded guilty in New York state court to two felony charges for evading U.S. restrictions on doing business with Sudan, Iran and Cuba between 2002 and 2009 involving $30 billion in suspect transactions and has agreed to pay nearly $9 billion in penalties, according to the U.S. Justice Department.
"BNP engaged in a complex and pervasive scheme of moving billions through the U.S. financial system," U.S. Attorney General Eric Holder said late Monday in announcing the settlement with BNP, calling the French bank's banned transactions a "serious breach of United States law." In a statement, the Justice Department noted: "The agreement by the French bank to plead guilty is the first time a global bank has agreed to plead guilty to large-scale, systematic violations of U.S. economic sanctions."
The fine will hit BNP hard, forcing it to suspend its dividend and raise funds in the capital markets, according to these reports.
At least $2 billion of the fine will be paid to New York State's top financial regulator, Bejnamin Lawsky, who has pushed for restrictions on handling some dollar-denominated transactions. Lawsky had demanded that BNP fire 13 employees, including one of its chief operating officers, which BNP has agreed to as part of the settlement. Lawsky's office released a statement about the deal on Monday also.
French officials and BNP CEO Jean-Laurent Bonnafé recently met with prosecutors to try to soften some of the bank's penalties, according to media reports. BNP had warned investors that the penalty would be far worse than the $1 billion it first estimated.
Indeed, European officials have said they're worried that Uncle Sam is unfairly singling out BNP Paribas and other foreign banks for punishment. In a note sent to clients on Monday, veteran banking analyst Dick Bove noted that U.S. officials may harm their own interests if the bank prosecutions become overly zealous.
"As a number of emerging nations fight to gain a dominant role in the global financial system, the U.S. is retreating faster and faster into a policy of isolationism," wrote Bove, who doesn't rate BNP. "This is risking more than just U.S. banks and their clients but it is putting the dollar at risk for continuing as the world's global currency. The outlook here is not positive."
However, Bloomberg noted that prosecutors pushed for a harder line with BNP Paribas given the egregiousness of its behavior and the lack of cooperation with the investigation. As The New York Times noted, BNP employees based overseas processed illegal transactions through its U.S. operations: "In the paperwork for some transactions ... the overseas employees deleted any information that could tie the payments to entities that the United States had hit with sanctions."
Foreign banks have been hit hard by U.S. penalties. Earlier this year, Credit Suisse (CS) accepted a $2.6 billion penalty for helping rich Americans avoid paying taxes. In 2012, British bank HSBC (HSBC) was slapped with a $1.9 billion penalty for allowing drug smugglers to use it for money-laundering. That same year, U.K. bank Standard Chartered paid $327 million to settle charges that it evaded U.S. financial sanctions.