US had threatened $16 billion BNP fine - sources

Friday 06 June 2014 07.52
US had threatened BNP Paribas with fine of $16 billion - sources
US had threatened BNP Paribas with fine of $16 billion - sources

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 $16 billion.

This is 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 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 mainly to Sudan between 2002 and 2009.

They are also probing whether the bank 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 $552m annual budgett his year.
              
A $10 billion fine would almost wipe out BNP's entire 2013 pretax income of about €8.2 billion ($11.2 billion). BNP had reserved $1.1 billion against a potential fine.
              
Representatives of the Justice Department and BNP declined to comment on the negotiations.

But France warned today that the record $10 billion fine that the US wants to impose on BNP Paribas bank for violating sanctions could hurt negotiations on a mega transatlantic trade deal. 

Speaking a day after French President Francois Hollande raised the issue over dinner with US leader Barack Obama, France's foreign minister said the fine could have "negative consequences" on talks over the EU-US pact, which aims to establish the world's largest free trade and investment zone.

Growth in corporate penalties

In the past two years the US Justice Department has said it has 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 US overall increased about 647% 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 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. 

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 sub-prime 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 US Justice Department may also be responding to politica lpressure, 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.