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BNP to Plead Guilty, But When Will a U.S. Bank Have to Do the Same?

The Justice Department is only 'getting tough' on foreign banks


Today, France’s largest bank, BNP Paribas, will become the second major financial institution this year to plead guilty to violations of U.S. law. Following Credit Suisse’s admission in May to facilitating tax evasion, BNP’s guilty plea concerns $30 billion in transactions between 2002-2009 that violated U.S. sanctions against countries like Iran, Cuba, and Sudan.

The guilty pleas are designed to prove the Justice Department’s new “get-tough” policy against big banks, though the policy actually would be better described as “look-tough.” BNP will pay $8.9 billion to settle the investigation, over four times what HSBC paid in 2012 for similar conduct. However, because BNP approved so many more illegal transactions, the penalty per dollar of violations actually comes out on the low side, compared to other banks. The guilty plea sounds strong, but the Justice Department has managed to remove all the punitive implications, from threats to the bank’s charter to loss of the license to operate as an investment adviser. Initial reports suggested that BNP would lose critical access to dollar-clearing services for a temporary period, which would hamper the bank’s ability to make even rudimentary transactions for clients. But the Financial Times reports that BNP struck a deal to avoid that penalty for up to six months, giving them time to find alternatives for their customers instead of simply losing them. BNP will also have to “fire” over two dozen employees connected with the scheme, which I put in quotes because most of them have already left the bank

You can make a case that, relative to the conduct, both BNP and Credit Suisse got off easy. But judging from the Justice Department’s actions, these banks would have received even lighter rebukes had they been based in the U.S.

BNP and Credit Suisse were caught in the crossfire of substantial criticism of the Justice Department for its failure to prosecute the worst abuses of the financial crisis. Instead of seeking criminal charges against banks central to the crisis, like JPMorgan Chase, Bank of America or Citigroup, DoJ instead pursued these foreign firms. The foreign banks’ violations at issue had nothing to do with those abuses—they’re guilty of sins against the U.S. government and its foreign policy agenda, rather than against individuals like homeowners or investors. In fact, during talks over fines for conducting business with countries like Iran, BNP was given a license by U.S. officials to… conduct business with Iran. So the penalties seem purely discretionary, in this context, and unquestionably tangential to the misconduct that caused the Great Recession. Meanwhile, the parallel investigations against domestic banks over fraudulent mortgage securities are all civil probes, with no prospect of criminal indictments. 

Even if it was committed to prosecuting foreign-policy violations, the Justice Department could have still pursued domestic banks: It’s not like they have no history of laundering money for entities officially banned by the U.S. government. The Federal Reserve cited Citigroup for failures in its anti-money laundering program last year, but included no fine or admission of wrongdoing. Citi remains under investigation for lack of compliance. Wachovia, since bought by Wells Fargo, laundered money for Mexican drug cartels to the tune of $384 billion, over ten times the amount of BNP, yet paid a grand total of $160 million in fines, less than one cent on the dollar. Bank of America also helped launder money for the Mexican drug trade. JPMorgan Chase engaged in a series of transactions with Iran, Sudan and Cuba from 2005-2011, the exact same violations of trade sanctions that BNP engaged in. Their fine? $88.3 million, without a guilty plea. 

This critique only goes so far. As Pro Publica’s Jesse Eisinger points out, the Justice Department has been notoriously weak in its prosecutions of every major financial firm, foreign or domestic. As noted previously, DoJ made sure to scrub recent guilty pleas of any consequences, and no individual bankers have been indicted in any of these cases. Credit Suisse and BNP seem guilty mostly of being the next bank up when the pressure got too great on DoJ, forcing them to at least make a show of getting tough. But we’re really talking about the relative strength of slaps on the wrist.

However, since the standard of meting out justice to financial institutions seems so arbitrary, it’s hard to escape the absence of domestic banks in the conversation. Though still weak, BNP’s fine will wipe out a substantial portion of its 2013 profits (BNP plans to cut its dividend to pay the fine, showing how ultimately shareholders pay for this misconduct, not bank executives). The guilty plea could cause some risk to the bank’s reputation. And it’s notable that other European banks under investigation for similar violations have grown worried, while their domestic counterparts remain nonchalant by comparison.

Domestic banks simply know how to play this game better. They get direct meetings between their CEOs and the Attorney General, a luxury not typically afforded to lawbreakers. They threaten to fight any fine in court, wracking the nerves of Justice Department lawyers afraid of losing a big case. They use allies in Congress and K Street to fend off accountability. And it works well.

To be clear, everyone in global financial services can avoid punishment for their crimes with minimal damage. But the Justice Department appears to bend even further backwards if you’re headquartered in New York or Charlotte, instead of Paris or Geneva.