BNP may face one year ban on processing some dollar payments

Thursday 26 June 2014 08.10
BNP Paribas set to pay a nearly $9 billion as part of a larger settlement with US authorities
BNP Paribas set to pay a nearly $9 billion as part of a larger settlement with US authorities

BNP Paribas is likely to be suspended from converting foreign currencies to dollars on behalf of clients in some businesses for as long as a year, according to sources familiar with the matter.

This would be an untested and severe penalty for the French bank accused of persistently violating US sanctions laws.

The New York State Department of Financial Services, headed by Benjamin Lawsky, is near a deal with Paribas on the ban on currency conversions, known as dollar clearing.

The bar would be the first of its kind for a global bank.

The temporary ban is expected to be limited to certain business lines related to the underlying transactions in question, and it would span various geographic regions, one of the sources said.

Business lines that have come under scrutiny include oil trade financing.

"It won't be a death mallet, but it's a serious hit," the source said.

BNP clears hundreds of billions of dollars through New York every day, according to sources, serving customers in trade finance and commodities businesses, custodian accounts and foreign exchange. 

Much business worldwide is done in dollars, and dollar clearing is a key banking activity.It is unclear when the ban would take effect. It may be phased in, another source said.

It is also not clear if Paribas has found a workaround to soften the blow, such as identifying another bank to temporarily meet clients' needs.

Lawsky's office proposed the suspension as one condition for not revoking Paribas's license to operate in New York in light of the lengthy alleged violations, Reuters reported last month. At that time the length of the possible ban was not clear.

The bank is also expected to plead guilty to a federal criminal charge and pay nearly $9 billion as part of a larger settlement with multiple enforcement authorities that could be announced as early as next week, sources said.

The bank's chief executive, Jean-Laurent Bonnafe, told shareholders in May that the bank had improved its control operations to avoid sanctions-related failures in the future, without providing specifics.

US authorities are probing whether BNP evaded US sanctions relating primarily to Sudan, Iran and Cuba between 2002 and 2009.

The investigation has turned up some $100 billion in transactions processed by BNP that disguised identifying information in order to pass through the US financial system without raising red flags, Reuters has reported. Around $30 billion of the transfers specifically violated US sanctions, one of the sources has said. 

Bank of France Governor Christian Noyer warned earlier this month that a threat to BNP's dollar-clearing operation "could put the smooth functioning of the international financial system in danger." 

The bank is one of 50 participants in the Clearing House Interbank Payments System (CHIPS), the largest private-sector US-dollar funds-transfer system in the world, which clears an average of $1.5 trillion in payments every day.

Banking experts have said it is hard to quantify the impact of a temporary dollar-clearing ban. The experts note that it could be hard to win customers back after they have turned to other banks to meet their dollar-clearing needs.

BNP could ask another institution to take on its dollar clearing temporarily as a so-called correspondent bank. But doing so might still result in an exodus of clients and additional headaches for those clients who do stay, according to industry experts.