A Grieving Father Pulls a Thread That Unravels BNP’s Illegal Deals

http://dealbook.nytimes.com/2014/06/30/a-grieving-father-pulls-a-thread-that-unravels-illegal-bank-deals/

by r0h1n • 12 years ago

90 106 12 years ago

dealbook.nytimes.com

protonfish3• 12 years ago

Were any people actually convicted and punished with prison time, or was the resolution for a bank to have to give up some money?

snarfy• 12 years ago

They mentioned criminal penalties, but no mention of jail times. Tens of billions in transactions, 8.9 billion in fines. It was probably worth it even after getting caught.

scotch_drinker• 12 years ago

They are likely to also be forbidden from dollar clearing for a time, possibly up to a year. This is an unheard of penalty and is actually very punitive. It's a new strategy by the US prosecutors and there was a good Planet Money podcast recently on what it means. Essentially, because we control the reserve currency of the world, we control the ability to transfer foreign currencies into dollars. This is a very powerful thing to control and being restricted from dollar clearing will likely be pretty painful.

joosters9• 12 years ago

With the size of the fine, there is no chance that it was worth it (to the bank). This fine is over four times bigger than the previous record fine ($1.9 billion, HSBC, also for sanctions violations)

However, it could have been worth it to the individuals who arranged the transactions and (presumably) got large bonuses as a result.

dragonwriter7• 12 years ago

Tens of billions in transactions, 8.9 billion in fines. It was probably worth it even after getting caught.

For the bank? It would have to be retaining a ludicrously high share of the value of each transaction for that to be true -- the transactions were $30 billion, so BNP Paribas would have to have retained nearly a third of the values of the transactions it concealed to break even with a $9 billion fine.

mnw21cam2• 12 years ago

Could someone explain to me (as a non-American non-financial type) the basis of US jurisdiction over banks not based in the US? Is it because they have a presence in the US, or some other reason?

privong• 12 years ago

Is it because they have a presence in the US

That is essentially it.

awjr2• 12 years ago

I believe it has to do with the way US dollars are traded on the world market. In effect any bank holding US dollars has to hold them on US soil which, by default, brings US dollar transactions under US jurisdiction.

viggity• 12 years ago

Do you have a source on that, doesn't pass the sniff test for me. I thought it was because they have a presence in the US.

radmuzom2• 12 years ago

Even though BNP is a foreign bank, it has to have a license to conduct banking in the United States. If they refuse to co-operate, the US will cancel that license. Given the amount of fine they are willing to pay, it is clear that the US business is important and profitable to them.

DangerousPie• 12 years ago

From what I read about this case the US threatened to withdraw BNP's US banking license. So even though the US does not actually have jurisdiction, they can choose to prevent a bank from trading in their country if they don't like their actions.

snowwrestler• 12 years ago

If a bank is operating in a country, then it seems obvious that that country's courts would have jurisdiction over it.

dragonwriter7• 12 years ago

Could someone explain to me (as a non-American non-financial type) the basis of US jurisdiction over banks not based in the US?

Entities physically present in, doing business in, and subject to licensing by the US and individual US states are subject to US law and the law of those states no matter where they are headquartered.

mnw21cam2• 12 years ago

But an entity that is doing business in the US doesn't need to obey US law outside of the US. US-owned hotels in the UK are allowed to cut the tags off mattresses, even if their US branches are not.

jackgavigan5• 12 years ago

Basically, the US government's approach is "If you want to clear US dollars, you must conform to our laws."

The following explanation will simplify things somewhat in the interest of brevity.

Basically, all dollars (the ones that aren't physical cash, anyway) are ultimately held in accounts at one of the Federal Reserve banks. Banks like Citi, Wells Fargo, JP Morgan and Bank of America have accounts at the Federal Reserve. When clients of those banks transfer US dollars to someone who's a client of another bank, the real transfer of dollars takes place between the banks' accounts at the Federal Reserve.

If your bank doesn't have an account at the Federal Reserve, then it needs to have an account with a bank that has an account at the Federal Reserve. (Or with a bank that has an account with a bank that has an account at the Federal Reserve, etc.)

To be a member of the Federal Reserve, you need to hold a banking license in the US, which means that you are subject to US laws (because, if you ignore them, the US authorities will take your banking license away). You'll also have an office there (probably in New York) but that's kind of incidental.

So, if you're a bank with a US banking license, and one of your clients annoys the US authorities, they can basically say "Stop doing business with that client." (or, in other words, impose sanctions). If you refuse to comply, they can take your licence away.

That's effectively what happened with BNP Paribas - they were clearing US dollar transactions for clients that were subject to US sanctions. So, BNP has been effectively grounded for a year. Instead of going direct to the Federal Reserve to transfer US dollars to other banks, it will need to become a client of another bank that's a member of the Fed.

It's embarassing, it'll cost them money (they'll have to pay the other bank) and they may well lose some business (from clients who want to deal with a top-tier US dollar clearing bank).

In theory, they could have just turned around and said "Screw you, we're not paying any fine!", in which case the US authorities would have withdrawn their US banking license, seized any assets they could get their hands on (e.g. the dollars they have in their account at the Federal Reserve) and blacklisted the company, so no other US bank would do business with them. That would effectively have prevented them from doing any business in US dollars.

To be a proper, credible international bank like BNP, you need to be able to handle US dollars. Hence, BNP is prepared to pay the fine. The alternative would be to effectively downsize massively.

pcrh5• 12 years ago

It is not necessary to clear dollars through the US, they can be cleared through other financial centers, such as London or Frankfurt. If they had kept all their transactions outside of the US, they would not have been technically subject to US law.

However, they did use US clearing houses, so they're subject.

ivanca• 12 years ago

What I take from this is that you pretty much can get away with anything (including terrorism) as long as you do it from within a corporation and have enough money to pay the USA government any fine it imposes.

joosters9• 12 years ago

$9 billion is hardly 'getting away with anything'...

Drakim• 12 years ago

It depends, if the thing you were doing net you profits above $9 billion then it's not so painful.

Zikes2• 12 years ago

The corporation is responsible for that fine, not the individuals responsible for running the corporation.

If you were a skilled member of the finance industry, do you think you'd have any trouble at all finding a job elsewhere if your current company suddenly fell on hard times? Would it even be necessary, given the type of "severance package" likely to be awarded?

radmuzom2• 12 years ago

True. And I also think we are going to see many more like these unless humans, rather than corporations, are prosecuted for these kind of incidents.

lostcolony• 12 years ago

We've already decided corporations can have political beliefs (Citizens United) and religious beliefs (Hobby Lobby); I say it's high time we also decide they can also be declared criminal, and be subject to more than just fines.

joosters9• 12 years ago

What? Like put them behind bars?

rtpg3• 12 years ago

Slightly off-topic but the SC did not rule on corporations being capable of religious exercise in Hobby Lobby, it just ruled on what the law says (RFRA talks about corporations being allowed to get religious exemptions). There is nothing unconstitutional about the law, but the "religious exercise" did not spawn from the constitution, and the repeal of the law would make those religious beliefs disappear

rayiner2• 12 years ago

Corporations can have criminal convictions. It's just rarely invoked, because it's effectively a death sentence. The criminal conviction of Arthur Andersen (later overturned) destroyed a $10 billion/year accounting firm, the vast majority of which had absolutely nothing to do with the conduct that led to the conviction. http://en.wikipedia.org/wiki/Arthur_Andersen

Zikes2• 12 years ago

Not even the latter, as those corporations could simply declare bankruptcy and the individuals responsible could just walk away with no criminal record.

chriscool2• 12 years ago

Yeah, you even pretty much can get away with money-laundering for drug cartels too, see:

http://www.rollingstone.com/politics/blogs/taibblog/outrageo...

But note that dealing with Iran, Sudan and some other countries forbiden by the US State Department is legal in many european countries.

mercurial• 12 years ago

Sure. But they knew exactly what they were doing. They took a risk in order to make a profit, and it looks like it's going to cost them a lot more than the money they made from it, which is, IMHO, how it should work most of the time (though I'd also like to see individual executives prosecuted).

As a French national, I have extremely little sympathy for them. Maybe they will think twice about breaking the rules next time.

evmar• 12 years ago

I found this quote particularly sad: "The prosecutors offered the banks a choice: turn over records related to Iranian banks or face a criminal case."

If it's a criminal case, you'd think they could subpoena the necessary records. It's not something to be making a plea bargain over.

mark2122• 12 years ago

avoiding a criminal prosecution is a very big thing. Banks are typically much more eager to pay a massive civil fine rather than a much smaller criminal fine. Having any kind of conviction as a corporation disqualifies a corporation (particularly a bank) from all kinds of things that it's effectively a death sentence. A major example of this was Arthur Andersen -- the criminal conviction for aiding the Enron fraud was enough to kill the business entirely, even though the conviction was later overturned on appeal.

dragonwriter7• 12 years ago

If it's a criminal case, you'd think they could subpoena the necessary records.

Yes, but they may not be able to meet the threshold of not having a criminal case against the bank, as such thrown out without evidence that the bank was obstructing the investigation into criminal behavior for which there was significant evidence occurred at the bank.

So there can certainly be some sense where obstruction by the bank provides additional reason to believe that what is going on is criminal action by the bank, rather than merely criminal action at the bank.

It's not something to be making a plea bargain over.

When both civil and criminal charges by the government could potentially apply to the same conduct, limiting action to civil charges is a frequent negotiating tool in seeking a settlement that achieves the objectives of stopping the conduct, imposing a penalty for the conduct, and providing access to information necessary to assess the scope of the conduct and to assure that it is, in fact, stopped.

zhengyi13• 12 years ago

In addition to what's said below, if the prosecutors are being driven by federal/national-level concerns, then the goal is probably less about punishing a bank's officers, and more about getting more information on hostile nation states, and possibly financially neutering them. That's powerful, and far further up the chain of national interests.

Apart from that, my sincere apologies for arguing even slightly against against jail time for the banksters.

joosters9• 12 years ago

A conspiracy theorist might note that all the recent huge banking fines have been against non-US banks. Could it be that US prosecutors are much keener to investigate foreign banks and do not look as closely at banks back home? Or are the US banks miraculously less corrupt?

bernardom• 12 years ago

From TFA: "It is a cautionary tale of how European banks, spotting a lucrative business opportunity that American rivals shunned, opened their doors to countries under sanctions and ultimately exposed their reputations to the stain of criminal cases."

joosters9• 12 years ago

How do we know that American banks shunned it? They too could have been disguising transactions and hiding illegality. It's not like US banks are known for avoiding 'lucrative business opportunities' that aren't entirely legal. Perhaps the whistleblowers required haven't come forward, or perhaps the investigators just haven't looked too hard...

the_ancient• 12 years ago

US Banks are defacto part of the Federal Reserve which a quasi dept of the government.

So any "investigation" into a US bank is like an Internal Investigation, and we all know how those work... can you say coverup?

bhouston2• 12 years ago

I noticed that clear trend as well.

Just off the top of my head... I think that foreign banks do not have local political weight to throw around because they do not give many political donations and are not part of the revolving door of political appointments from the banking industry to the various regulatory agencies.

pizza234• 12 years ago

Sadly, you're wrong with your conspiracy theory.

It's sad because it's not that they don't look closely. They do, but they condone - publicly.

HSBC "spent years committing serious crimes, involving money laundering for terrorists", and there's been no penal prosecution, with the public (let me repeat: public) justification that prosecuting it penally would lead to a too big loss for the economy.

There has been some discussion previously. Links here:

http://www.theguardian.com/commentisfree/2012/dec/12/hsbc-pr...

http://www.rollingstone.com/politics/blogs/taibblog/outrageo...

update: added links

joosters9• 12 years ago

But HSBC isn't a US bank, it's UK-based. So the pattern still holds.

rayiner2• 12 years ago

The U.S. has historically had more robust anti-corruption laws and has been more aggressive about extending them to conduct of U.S. businesses operating abroad. For example, it is illegal under U.S. law for U.S. companies to bribe foreign officials, while it is not necessarily illegal under European laws, or not as aggressively prosecuted. U.S. banks have more experience operating under this regime and are more familiar as to how to toe the line. European companies are more likely to trip up, either because they have less experience with compliance or because they think they are less likely to get caught.

MartinMond• 12 years ago

That's exactly what the French government alleges: http://dealbook.nytimes.com/2014/06/02/french-officials-twis...

  At the heart of the French government’s campaign is the
  concern that American prosecutors have created a two-tiered
  system of justice: one in which American and British banks
  escape criminal charges and the other that forces BNP to
  plead guilty to sanctions violations and pay a record fine.

jcampbell1• 12 years ago

It is hard to reconcile this with the fact the governement just rejected a settlement of $12B from Bank of America, and is seeking $17B. They just settled with JP for $13B.

European banks are getting fined for Illegal tax shelters and violating sanctions, and US banks are getting hammered on mortgage fraud.

I don't see a conspiracy.

pacofvf• 12 years ago

1. February 2012 $25 billion: Wells Fargo, JPMorgan Chase, Citigroup, Bank of America.

2. November 2013 $13 billion: JPMorgan Chase

3. January 2013 $11.6 billion: Bank of America

4. March 2014 $9.5 billion: Bank of America

5. June 2011 $8.5 billion: Bank of America

6. January 2014 $1.7 billion: JPMorgan Chase

http://timesofindia.indiatimes.com/world/us/Top-10-fines-imp...

thefreeman2• 12 years ago

Man I would give an arm and a leg to see some jail time in that list. Aren't corporations people supposedly?

joosters9• 12 years ago

Perhaps this is splitting hairs, but those charges are either the result of settlements from complaints brought by their customers, or are the fallout from the market crash and general marketwide mortgage mis-selling.

In other words, no-one needed to seek out hidden wrongdoing by these banks, their own customers were complaining about their behaviour, or there was conspicuous obvious malfeasance. (I'm not trying to downplay the banks' bad play and criminality in these events though). It would have been difficult not to act on these things (at least, I'd like to think so!)

The spate of huge fines against the non-US banks has been direct investigations that haven't been broadly obvious from the outside, i.e. someone had to go digging.

Kroem3r• 12 years ago

Interesting, but it does not settle the question as to whether the US justice system is inconsistent based on the nationality of the corporation. This list might carry some weight if it discussed the fact that some of these are settlements, and how did these compare to the size of the infraction.

Given that there is a serious and ongoing discussion about the lack of criminal proceedings, but that there are other kinds of very much lesser processes, it is legitimate to be concerned that financial institutions, and their employees and directors, are getting off too lightly. Then, in light of successful prosecutions against foreign corporations, the original question is legitimate.

Actually, the pattern of national bias is well established from well before the last great meltdown. And given that, these foreign prosecutions make one wonder why there have been so few against US banks.

jackgavigan5• 12 years ago

US banks have been prosecuted for anti-money laundering failures too. For example, in 2010, Wachovia (now part of Wells Fargo) paid $160m to settle charges relating to anti-money laundering failures. http://online.wsj.com/news/articles/SB1000142405274870405900...

Last year, the Federal Reserve took enforcement action against Citi for poor anti-money laundering controls. http://www.forbes.com/sites/halahtouryalai/2013/03/26/fed-hi...

bhouston2• 12 years ago

Why is there so much more motivation on the part of authorities to go after this type of crime rather than those that caused the financial collapse of 2008/2009? The financial collapse affected a lot more people here in North America, but I guess the issue is that it was local banks, not foreign ones.

It does seem like authorities like to go after foreign banks for large fines rather than local ones.

confluence4• 12 years ago

It's much easier to prosecute money laundering than it is to prosecute stupidity. Some people did illegal stuff way back then and got totally destroyed (see what we did to the mortgage brokers). That didn't extend to the vast majority of people though because they were just stupid, not criminal.

LanceH• 12 years ago

Additionally, the government itself was a large player in pushing the mortgage crisis. From keeping interest rates low, to encouraging lenders to get loans for those who couldn't afford them, to the implied bailouts (which turned out to be true) that only encouraged reckless behavior. If they look too hard they'll have to look in the mirror and that will never happen.

pessimizer4• 12 years ago

We didn't prosecute any mortgage brokers.

cdibona• 12 years ago

It's interesting to juxtapose all the bitcoin articles with this kind of story..

x1798DE3• 12 years ago

Frankly, I'd be happy if bitcoin facilitated these "criminal" transactions to a much greater degree. I'm absolutely no fan of Iran or Cuba or any of the other sanctioned countries, but I think the idea that economic sanctions do more harm than good.

If BTC (or some analogous currency) does become a standard value store on the international market, I'll be interested to see if governments continue pursuing the impossible goal of imposing economic sanctions like this or if they change tactics. My guess is they'll continue pursuing the impossible goal.

FedRegister2• 12 years ago

Are you saying that sovereign nations don't have the right to decide who they're willing to trade with? Because that's in essence what you're saying when you say economic sanctions should end.

rtpg3• 12 years ago

if BTC became the standard currency, finding out who trades with Iran would become even easier, due to the public ledger.

jackgavigan5• 12 years ago

Don't forget that anyone who converts bitcoins into US dollars is classified as a money services business by FinCEN, which means that it must get a license. http://www.fincen.gov/statutes_regs/guidance/html/FIN-2013-G...

MtGOX had its accounts with Dwolla and Wells Fargo seized by US authorities for operating as a money transmitter without a license. http://www.theverge.com/2013/8/23/4651926/us-government-seiz...

phantork2• 12 years ago

Won't watch French Open tennis anymore. I hope the players will boycott as well, as long as BNP is sponsoring that event.

chriscool2• 12 years ago

While at it, HSBC is sponsoring Wimbledon:

http://www.wimbledon.com/en_GB/suppliers/

And JP Morgan, Chase and American Express are sponsoring the US Open:

http://www.usopen.org/sponsorship/

...

phantork2• 12 years ago

Stopped watching those as well! Sigh

A Grieving Father Pulls a Thread That Unravels BNP’s Illegal Deals

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