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BNP Paribas Dollar-Clearing Ban Said to Start in 2015

By Tiffany Kary, Greg Farrell and Fabio Benedetti-Valentini
June 30, 2014 9:19 AM EDT 16 Comments
Preet Bharara, U.S. attorney for the Southern District of New York. The probes are being conducted by the Justice Department, U.S. Attorney Preet Bharara, Manhattan District Attorney Cyrus Vance Jr. and Benjamin Lawsky, superintendent of New York’s Department of Financial Services.
Photographer: Andrew Harrer/Bloomberg
Preet Bharara, U.S. attorney for the Southern District of New York. The probes are being conducted by the Justice Department, U.S. Attorney Preet Bharara, Manhattan District Attorney Cyrus Vance Jr. and Benjamin Lawsky, superintendent of New York’s Department of Financial Services.

June 30 (Bloomberg) -- BNP Paribas SA won a reprieve during final talks to settle a criminal probe into U.S. sanctions violations, giving the bank six months to prepare for a ban on handling certain dollar transactions, according to a person with direct knowledge of the matter.

U.S. authorities rebuffed a last-ditch push by the bank to slash an $8.9 billion penalty, two other people said, asking not to be identified because talks are private. The yearlong ban on dollar clearing could affect specific business lines, such as oil and gas transactions, and certain offices, such as Geneva, where the alleged illegal transactions took place, a person familiar with the terms said last week.

BNP Paribas, France’s largest bank, is poised to plead guilty today in Manhattan federal court, ending years of investigation by accepting a record penalty for violating U.S. sanctions against blacklisted nations, people familiar with the case have said. The talks with state and federal authorities in the U.S. had drawn warnings from French officials against levying disproportionate fines that could harm their nation’s economy and Europe’s banking system.

BNP Paribas, suspected of hiding about $30 billion in transactions, will probably plead guilty to conspiring to violate the International Emergency Economic Powers Act, a person familiar with the discussions said last week.

Bertrand Cizeau, a spokesman at BNP Paribas, declined to comment on the final terms.

Money Transfers

BNP fell 0.2 percent to 49.32 euros by 3:17 p.m. in Paris trading, valuing the bank at 61.4 billion euros ($83.9 billion). The shares slumped 13 percent this year and closed at a more than nine-month low on June 26.

Banks transfer money around the world for clients trading goods, making investments and paying suppliers. While the business of moving money isn’t a significant source of revenue for banks, it’s an essential service clients rely on to conduct business globally.

Temporarily restricting its ability to handle transactions in dollars would present BNP with administrative costs and could test the willingness of clients to remain with the bank.

A targeted yearlong ban could cost BNP Paribas $40 million or less, Jean-Pierre Lambert, a Keefe, Bruyette & Woods Ltd. analyst in London, said in a report on June 26. That estimate was based on all wire transfers going through the U.S. and would come down significantly under a narrower restriction.

Justice Department

U.S. authorities aren’t ruling out the possibility of charging individuals in the future, one of the people said. Doing so would probably require additional investigation, such as pushing for more evidence from overseas, that person said.

The probes are being conducted by the Justice Department, U.S. Attorney Preet Bharara, Manhattan District Attorney Cyrus Vance Jr. and Benjamin Lawsky, superintendent of New York’s Department of Financial Services. They involve alleged violations of sanctions against Sudan, Iran and Cuba, mostly dating from 2002 to 2009, with some continuing until 2011, another person familiar with the matter has said. Spokesmen for the Justice Department, Bharara, Vance and Lawsky declined to comment.

BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe told employees in a letter that the bank’s negotiations were “accelerating” and would conclude “very soon,” according to a June 28 report on the website of French broadcaster i-Tele.

‘Sanctioned Heavily’

“I want to say clearly: We will be sanctioned heavily,” wrote Bonnafe, 52, adding that “dysfunctions happened and mistakes were made,” according to i-Tele. Carine Lauru, a bank spokeswoman, declined to comment on the report.

The fine will reduce BNP’s Basel 3 common equity Tier 1 ratio, a key measure of financial strength, to 9.5 percent from 10.6 percent at the end of March, estimated Mediobanca Securities analyst Alain Tchibozo, in a note today.

“We also estimate that it will move back above 10 percent by end of 2014, thanks to organic capital generated,” the analyst said. That should put the company back in a position to support its development plans, he said.

U.S. authorities first learned about possible wrongdoing by BNP Paribas around 2007, when the Manhattan District Attorney’s office started investigating. The bank conducted its own probe and about a year later came forward with its findings, people familiar with the matter have said.

Credit Suisse

BNP Paribas will be the second major European bank to plead guilty in the U.S. this year. In May, Credit Suisse Group AG agreed to pay $2.6 billion, the largest penalty in an offshore tax case, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service. Its main banking unit pleaded guilty.

In a non-sanctions case, JPMorgan Chase & Co. (JPM) agreed in January to pay $1.7 billion to settle U.S. claims that it facilitated imprisoned money manager Bernard Madoff’s Ponzi scheme, the largest in U.S. history. New York-based JPMorgan, the biggest bank in the U.S. by assets, entered into a deferred-prosecution agreement with Bharara’s office, acknowledging oversight lapses related to an account Madoff used to fund his multibillion-dollar fraud.

In 2012, HSBC Holdings Plc (HSBA) agreed to pay $1.9 billion to resolve allegations of laundering drug money from Mexico and sanctions violations, while it avoided a guilty plea by admitting wrongdoing as part of its accord.

‘Good News’

U.S. prosecutors argued that a more severe penalty against BNP Paribas was 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 “can handle” the expected fine, European Commissioner for Financial Services Michel Barnier said today on France Info radio. BNP’s failure to heed earlier warnings from U.S. authorities “explains the severity” of the fine the French bank is expected to pay, he said.

A settlement ending the investigation “is good news for all our teams and clients because it will lift the current uncertainties that weigh on our company,” Bonnafe said in the letter, according to i-Tele. “This difficult time we are going through shouldn’t impact our road map.”

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Greg Farrell in New York at gregfarrell@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; Frank Connelly at fconnelly@bloomberg.net; Andrew Dunn at adunn8@bloomberg.net Frank Connelly, Cindy Roberts

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