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US punishes French bank to add teeth to its sanctions

business Updated: Jul 01, 2014 10:01 IST
Yashwant Raj
Yashwant Raj
Hindustan Times

In a clear signal to financial institutions around the world, the US on Monday fined French banking giant BNP Paribas $8.9 billion for doing business with countries sanctioned by it.

BNP was also made to plead guilty — first such admission by any financial institution — to violating US sanctions, in this instance, against Sudan, Iran and Cuba.

The bank was also forced to fire 16 employees as part of a deal with US authorities, including its COO, and suspend dollar clearing operations through its New York branch.

This punishment, said FBI director James Comey, will send a “powerful deterrent message to any company that places its profits ahead of its adherence to the law”.

The US is currently running many unilateral sanctions — as opposed to those imposed by the US — targeting countries like Iran, once India’s largest suppliers of crude.

BNP was charged with “knowingly and willfully” moving more than $8.6 billion through the US financial system over eight years, including $4.3 billion for specially designated entities.

Here is how BNP pulled it off:

It routed illegal payments through third party financial institutions to conceal not only the involvement of the sanctioned entities but also BNP’s role in facilitating the transactions.

BNP instructed other financial institutions not to mention the names of sanctioned entities in payments sent through the United States.

And, it removed references to sanctioned entities from payment messages to enable the funds to pass through the US financial system undetected.

The majority of these transactions were conducted for Sudan and some of its specifically designated units — roughly $6.4 billion from July 2006 through to June 2007.

They were processed through “satellite banks” — nine were identified in BNP’s internal communications — set up to mask the involvement of BNP and its sanctioned clients.

BNP gave Cuban entities access to the US financial system by hiding their identity. And it helped Iran by dealing with a front company based in Dubai, and an oil firm.

These transactions did not go unnoticed within BNP, which employs around 1000 people to police itself. And they alerted the bank to these operations.

An officer wrote to his seniors in 2007 that some of BNP’s Sudanese clients had supported “the Sudanese government which . . . has hosted Osama Bin Laden”.