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U.S. Seeking More Than $10 Billion Penalty From BNP 

By Tom Schoenberg and Fabio Benedetti-Valentini
May 30, 2014 12:48 PM EDT 75 Comments
Manhattan U.S. Attorney Preet Bharara.
Photographer: Victor J. Blue/Bloomberg
Manhattan U.S. Attorney Preet Bharara.

BNP Paribas SA (BNP) fell in Paris trading after a person familiar with the matter said U.S. authorities are seeking more than $10 billion to settle federal and state investigations into dealings with sanctioned countries.

The shares declined as much as 6.1 percent, the largest intraday drop since February 2013, and closed 2.4 percent lower at 51.37 euros. BNP Paribas, the largest French bank, has fallen 9.3 percent this year, compared with a 3.8 percent increase in the Bloomberg Europe Banks and Financial Services Index.

A final deal between BNP and the U.S. is probably weeks away, said the person, who asked not to be identified because the talks aren’t public. The amount to settle has escalated: the bank said in April that it might need to pay far more than the $1.1 billion it had already set aside for the case. Prosecutors are also pressuring the company to plead guilty to moving funds for clients in violation of sanctions against Sudan, Iran and Cuba, people familiar with the matter have said.

“Beyond the uncertainty related to the potential financial settlement, the key issues remain the type of potential charges and impact on BNP’s operational capability,” Kinner Lakhani, a London-based analyst at Citigroup Inc., said in a note.

The settlement could be the largest criminal penalty in the U.S., eclipsing BP Plc (BP/)’s $4 billion accord with the Justice Department last year.

Tougher Stance

Jean Pierre Lambert, an analyst at Keefe, Bruyette & Woods, said in a May 21 report that he expected BNP to pay a fine of about $7 billion to avoid being excluded from the U.S. dollar payment system. Last week, Bloomberg News reported that prosecutors were seeking more than $5 billion.

Negotiations are being handled by Leslie Caldwell, head of the Justice Department’s criminal division, Manhattan U.S. Attorney Preet Bharara and Manhattan District Attorney Cyrus Vance Jr. Benjamin Lawsky, superintendent of New York’s Department of Financial Services, is also involved in the discussions, along with the Federal Reserve and the Treasury Department’s Office of Foreign Assets Control.

Spokesmen for BNP Paribas, the Justice Department, the Fed, the Treasury, Lawsky, and Vance declined to comment. The amount requested by the U.S. was reported earlier by the Wall Street Journal.

U.S. Attorney General Eric Holder is taking a tougher stance following criticism from lawmakers for settlements that let banks escape criminal charges while paying fines, admitting wrongdoing and improving controls.

National Front

Credit Suisse Group AG (CSGN) agreed on May 20 to pay $2.6 billion and have a unit plead guilty for helping Americans evade taxes. Shares of the second-biggest Swiss lender have gained 2.1 percent since the settlement was announced, while the bank has won “a number of new mandates” in private and investment banking, Chief Financial Officer David Mathers said this week.

U.S. authorities are seeking a record fine against BNP that would make it the first French bank since President Barack Obama took office to be penalized for doing business with sanctioned countries. The French government hasn’t been involved in the U.S. discussions over Paris-based BNP and views the case as a legal matter that must follow its own course, three people familiar with the government’s position have said.

The National Front, the anti-euro party that won the most votes in France in European parliamentary elections on May 25, in a statement today pressed the government of President Francois Hollande to defend French interests in the BNP case. A finance ministry spokeswoman declined to comment on the probe.

More Egregious

BNP said in 2011 that it was reviewing operations to see how they complied with the Office of Foreign Assets Control’s rules after talks with the U.S. authorities. OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. The bank’s review focused on transactions made between 2002 and 2009, BNP said this month.

Prosecutors argue that a more severe penalty against BNP is justified because the misconduct was more egregious and the bank didn’t fully cooperate with the investigation, a person with knowledge of the matter has said.

BNP hasn’t breached any European rules, Bank of France Governor Christian Noyer said last week. The bank’s transactions fall under U.S. rules because they were processed in U.S. dollars.

Prosecutors met with BNP officials this month and are still discussing settlement terms, including the type of charges and whether the parent company or a subsidiary would plead guilty, one of the people has said.

Escalating Fine

A guilty plea would be a departure from previous OFAC cases, which typically ended with deferred prosecution agreements that spared offending companies from criminal prosecution. The largest settlement was in 2012, when HSBC Holdings Plc agreed to pay $1.9 billion.

In addition to HSBC’s settlement, fellow British banks Standard Chartered Plc (STAN) and Barclays Plc reached accords with the U.S. over their dealings with countries covered by OFAC rules. Swiss and Dutch banks have also settled investigations into transactions with states subject to U.S. sanctions. As part of their settlements, they acknowledged responsibility for the conduct without having to plead guilty.

Those six settlements together are less than half of the $10 billion-plus BNP is said to face to resolve the case.

To contact the reporters on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net; Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net Joshua Gallu, Frank Connelly

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