Was BNP Paribas’s $8.9 billion settlement with the Justice Department caused by a long-running criminal conspiracy or was it just a boo-boo?
The Wall Street Journal implies it was the latter in a confusing page-one story headlined “Big Bank’s $9 Billion Blunder.”
From 2002 to 2012, the French banking giant laundered hundreds of billions of dollars for Iran, Sudan, and Cuba, running roughshod over US law. The WSJ’s headline feeds the notion—which has become standard operating procedure in the wake of the financial crisis—that BNP’s crimes were somehow not intentionally orchestrated by actual bankers. The DOJ, despite extracting a guilty plea and nearly $9 billion, didn’t charge any individuals.
A big part of the WSJ’s problem comes from its reliance on anonymous BNP sources:
U.S. authorities, acting on a tip from an informant, began their probe of BNP Paribas in 2009. Senior executives, who realized the bank would have to comb through trillions of dollars worth of transactions, believed it would turn out to be a misunderstanding, people familiar with the matter said.
In other words, senior executives tell the WSJ on background that they had no idea their bank was doing anything wrong. That dubious assertion comes immediately after this paragraph:
BNP Paribas executives came to the conclusion the bank could ill-afford to alienate U.S. authorities and jeopardize its American businesses, people familiar with the matter said. In June 2007, BNP Paribas’s chief executive at the time, Baudouin Prot, gave instructions to stop all transactions involving Sudan, one person said. Similar orders followed for Iran in September, the person said, and Cuba in December.
So the CEO knew enough in 2007 to order a stop to all transactions with Sudan, Iran, and Cuba, but two years later he thought it was all just a “misunderstanding”? The statement of facts in the case, which came out the day of this story and was signed by both the DOJ and BNP, suggests otherwise. It says the reason Prot issued the Sudanese stop in June 2007 was because the Office of Foreign Assets Control at the Treasury Department met with the bank a month earlier to ask for an internal investigation of the transactions, which BNP bankers processed with what they actually called “cover payments.”
It just doesn’t make sense that top executives didn’t understand what was happening. Particularly because so many in the bank knew what was going on, as the statement of facts makes clear.
“Concerning Cuba — It is true that we are not completely in line with the text of the U.S. regulations,” reads one message sent to senior bank officials in 2006. That came after an opinion from an outside law firm that said BNP was violating the law—an opinion which prompted email deletions and an order by a senior BNP attorney to “suspend any further work on this file.”
Even more damning, a compliance offer wrote in a 2005 email about one laundering method that “This practice effectively means that we are circumventing the US embargo on transactions in USD by Sudan.” Compliance officers then met with “the highest levels of the bank” to question the practices. What happened then? (emphasis mine):
At the meeting, a senior BNPP executive dismissed the concerns of the compliance officials and requested that no minutes of the meeting be taken.
Contrast that to the WSJ’s “Senior executives…believed it would turn out to be a misunderstanding, people familiar with the matter said.”
It wasn’t exactly a secret that BNP and other European banks were doing this. Even some in the press knew what was happening at the time. The Economist’s Intelligence Unit wrote this in November 2007:
As the US has continued to seek to eliminate loopholes, the banking sector as a whole is having increasing difficulty managing US dollar transactions. Formerly, much of this market went to a French bank, BNP Paribas, but that institution has now closed its accounts and is moving out.
The Journal itself reported in 2006 that BNP Paribas was under investigation for violating US sanctions against Iran.
And all this followed a Federal Reserve settlement with BNP in 2004 over its faulty money-laundering controls. Here’s the consent order signed by the New York State Department of Financial Services and BNP as part of this week’s settlement:
During that same 2004 period, internal documents obtained from the Bank demonstrate that BNPP’s most senior operations, compliance and legal staff knew of the Bank’s serous illegal conduct in violation of laws and regulations, and, rather than report the conduct to the Bank’s regulators, actively supported it.
So the Journal’s recitation of anonymous BNP executives’ assurances doesn’t hold water. And while its quote of a former board director saying, “They claim they knew nothing but then, who was running the bank?” helps, it doesn’t make up for it.