BNP Paribas expects ‘heavy penalty’ for sanctions violations

Authorities to impose fine of $9bn on French bank for transferring dollars on behalf of countries blacklisted by US

BNP Paribas in Paris.
The penalty is thought to be based on $30bn of transactions processed to Sudan, Iran and Cuba. Photograph: John Schults/Reuters

US authorities were expected to impose a record-breaking fine of almost $9bn (£5.2bn) on BNP Paribas, France’s biggest bank, for dealing with countries that were the subject of sanctions.

The bank’s boss, Jean-Laurent Bonnafe, was preparing to issue an apology after having put the bank’s staff around the world on notice that they were about to be hit with the fine for channelling billions of pounds of dollars around the financial system.

In a memo over the weekend, Bonnafe, the boss since 2011, said: “I want to say it clearly here: we will receive a heavy penalty. However, the difficulties that we are currently experiencing must not affect our plans for the future.”

The fine is particularly bruising for BNP Paribas, which escaped the fallout from the 2008 financial crisis relatively unscathed and unlike many rival banks has not paid any fines or other penalties related to the crisis.

But after months of discussion and and an intervention by French president François Hollande, the bank is also expected to plead guilty to the offences and some of its divisions will be barred, temporarily, from clearing US dollars. The bank will still be able to do business in the US.

The penalty is thought to be based on $30bn of transactions processed between 2002 and 2009 to Sudan, Iran and Cuba. The main offences appear to be transactions processed for Sudanese oil exporters.

Bonnafe had told staff that the impending settlement with the US authorities would be good news for staff and clients. “It will enable us to remove the current uncertainties that are weighing on our group. We will be able to put behind us these occurrences, which belong to the past,” he said.

The fine is the latest against a number of foreign-owned banks in the US but, unusually, it includes what is expected to a guilty plea.

Swiss bank Credit Suisse was fined $2.6bn in May 2014 for helping US citizens evade tax, offences to which it also pleaded guilty.

The latest fine surpasses the $1.9bn penalty imposed on HSBC in December 2012 for sanctions-busting and money laundering offences, largely involving Mexican drug barons.

US banks have also faced a number of heavy penalties, including JP Morgan, which reached a record $13bn settlement with the US authorities in November over the sale of home loan bonds. But this sum included $9bn of compensation to settle federal and civil claims over the sale of the bonds.

The BNP Paribas investigation, thought to have begun as long ago as 2007, involved a number of US regulators including the Justice Department and Benjamin Lawsky, the head of the New York department of financial services, which took action against Standard Chartered in 2012. The fine will be split between the agencies.

As part of the settlement, at least a dozen BNP Paribas employees have left or will leave, the most senior being Georges Chodron de Courcel, the chief operating officer. His intention to leave after 42 years was announced in June without any mention of the discussions with US regulators. Other staff face demotions and bonus cuts.

At the height of the talks, Hollande wrote to Barack Obama to complain that the fine would be disproportionate, and in June, France’s foreign minister Laurent Fabius said the fine was not “reasonable”.

There have been concerns that the scale of the fine could weaken the bank by lowering its all-important capital ratios, although Michel Barnier, the European commissioner for financial services, was quoted as saying that he bank “can handle” the fine.

The bank appears to have underestimated the scale of the penalty after taking a provision of $1.1bn only a few months ago to cover the cost of the action by the US authorities, which has already knocked 15% of its share price.

BNP may be forced to scale back its dividend to shareholders. In the memo to staff, reported by Reuters, Bonnafe said: “When the announcement is made, I will again be in contact with all of you. It is my responsibility to explain to you what has happened, the lessons that we have learned and, most importantly, how we plan to go forward in the future”.