US threatened BNP with $20 billion penalty

US threatened BNP with $20 billion penalty

WASHINGTON/NEW YORK - US authorities negotiating with BNP Paribas over alleged sanctions violations at one point suggested that France's biggest bank pay a penalty as high as US$16 billion (S$20 billion), according to people familiar with the matter.

While the sources said that number was only proposed as a negotiating tactic in response to an offer from BNP of about $1 billion, the dollar figures being thrown around demonstrate what bankers and their allies say is an alarming trend of ever-increasing record penalties.

A $16 billion settlement would have pushed BNP's penalty above the biggest ever for a bank -- JPMorgan Chase & Co, which paid $13 billion last year to resolve a number of civil mortgage-related allegations.

More recently, authorities have been discussing a settlement with BNP in the range of $10 billion, sources have said. US authorities are probing whether BNP evaded US sanctions relating primarily to Sudan between 2002 and 2009, and whether it stripped out identifying information from wire transfers so they could pass through the US financial system without raising red flags.

The New York State Department of Financial Services, one of the five offices negotiating the settlement with BNP, could receive at least $2 billion of an eventual $10 billion deal, according to a source familiar with the matter. That would be more than three times that office's $552 million annual budget this year.

A $10 billion fine would almost wipe out BNP's entire 2013 pretax income of about 8.2 billion euros ($11.2 billion). BNP reserved $1.1 billion against a potential fine.

Representatives of the Justice Department and BNP declined to comment on the negotiations.

In the past two years the US Justice Department has said it's broken records on penalties for corporate misconduct at least seven times, including three times this year alone. The most recent was Credit Suisse in May, which paid $2.6 billion over charges that it helped American evade US taxes, the largest penalty ever levied in a criminal tax case.

Total corporate criminal penalties in the United States overall increased about 647 per cent between 2001 and 2012 to about $4.3 billion, according to figures compiled by University of Virginia law school professor Brandon Garrett.

The robust growth in corporate penalties, especially for banks, has defence lawyers questioning how authorities calculate each landmark settlement and how institutions can prepare for such fines they might face.

Banks are also deploying strategies to try to keep the numbers from growing, including enlisting top executives in settlement negotiations and taking their chances going to trial.

"I think everyone realises that it's an exuberant market," said one defence lawyer who has negotiated recent settlements with the Justice Department and declined to be named.

There are multiple explanations for the rising fines. For one, cases related to the 2007-2009 financial crisis have produced big settlements connected to trillions of dollars in subprime mortgage financial products. US authorities have also turned their attention to other crimes involving big dollar amounts, including money laundering, sanctions violations and the rigging of benchmark interest rates.

The Justice Department may also be responding to political pressure, especially because no high-profile bankers have gone to jail for the role they played in fueling the financial crisis.

Critics say recent penalties have not been nearly stiff enough, and amount to the cost of doing business.

Regardless, the upward push of the settlements is stark.

In cases over banks' money laundering controls, for example, criminal penalties have skyrocketed since 2010, when Wachovia forfeited $110 million to resolve charges that it willfully failed to establish a compliance programme.

By comparison, JPMorgan paid $1.7 billion earlier this year to resolve criminal charges over its failure to maintain an effective anti-money laundering programme in connection with its business with convicted Ponzi schemer Bernard Madoff.

A BNP settlement of $10 billion would be more than 14 times higher than the $667 million Standard Chartered paid to resolve sanctions violations in 2012, the highest fine for such violations to date.

A former DOJ official said: "It's almost like more is law now."

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