French bank BNP Paribas has pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve allegations that in many financial dealings it violated U.S. sanctions against Sudan, Cuba and Iran.
In an unprecedented move, regulators also banned BNP for a year from conducting certain U.S. dollar transactions, a critical part of the bank's international business.
The authorities said the severe penalties were warranted because of BNP's persistent and deliberate violations and desire to put profits first, even after U.S. officials warned the bank of its obligation to police for illicit money flows.
The bank essentially functioned as the "central bank for the government of Sudan," concealed its tracks and failed to cooperate when first contacted by law enforcement, Deputy Attorney General James Cole said in announcing the settlement.
The bank's general counsel, Georges Dirani, briefly appeared in New York state court to plead guilty to one count of falsifying business records and one count of conspiracy.
U.S. authorities also found BNP Paribas had evaded sanctions against entities in Iran andCuba, in part by stripping information from wire transfers so they could pass through the U.S. system without raising red flags. With its Sudanese clients, the bank admitted it set up elaborate payment structures that routed transactions through satellite banks to disguise their origin.
"BNPP banked on never being held to account for its criminal support of countries and entities engaged in acts of terrorism and other atrocities, but that is exactly what we did today," said Manhattan U.S. Attorney Preet Bharara, whose office helped prosecute the case.
U.S. authorities said BNP took steps to evade U.S. sanctions going back to at least 2004 and through to 2012.
The penalties against France's largest bank dwarf any previously handed out for sanctions avoidance and are far bigger than those against Credit Suisse CSGN.VX in May, which became the largest bank in decades to plead guilty to a U.S. criminal charge, for helping Americans evade taxes.
No individuals were charged on Monday, but U.S. authorities said they have not wrapped up their probes.
"The case which BNP is pleading to now is against the corporation alone, but our investigation into potential individual culpability is continuing," Manhattan District Attorney Cyrus Vance said in an interview.
BNP said it would take an exceptional charge of 5.8 billion euros ($7.9 billion) in the second quarter of this year.
"We deeply regret the past misconduct that led to this settlement," BNP's chief executive officer Jean-Laurent Bonnafe told analysts and investors on a conference call on Tuesday. "The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate."
He said the bank would implement a significant strengthening of its internal controls and processes.
It said it plans to keep its dividend payment at 1.5 euros per share this year, the same as in 2013, and expects its core capital adequacy ratio to be around
10 percent at the end of June, consistent with its long-term targets. The bank had been expected to cut its dividend, sell bonds or some assets to help pay for the fine.
"While the settlement is very significant it does not call into question the solidity of BNP Paribas," Bonnafe said.
The bank would need to suspend its so-called dollar-clearing operations through its New York branch and other U.S. affiliates during all of 2015 at the business lines where the misconduct took place, the U.S. authorities said.
The temporary ban could trigger a client exodus, and it is not clear how BNP may blunt its impact.
It said it would clear the affected dollar-clearing operations through another bank, which it did not name.
Some of the business lines affected were dollar clearing on behalf of the oil and gas financebusiness from Geneva, Paris and Singapore, the trade finance business from Milan, and for oil and gas-related clients from Rome.
During the negotiations, Benjamin Lawsky, the head of the New York state bank regulator, had proposed the ban as one condition for not revoking BNP's license to operate in New York, sources had previously told Reuters.
In addition, the bank will need to prohibit all U.S. dollar clearing as a correspondent bank for unaffiliated third-party banks in New York and London for two years.
Of the total payment, $2.24 billion would go to Lawsky's Department of Financial Services as a civil penalty, and 13 individuals - including Group Chief Operating Officer Georges Chodron de Courcel - would leave the bank.
The details of the scale and length of wrongdoing at the bank is expected to renew pressure on BNP's senior executives.
"This conduct, this conspiracy was known and condoned at the highest levels of BNP," Assistant District Attorney Ted Starishevsky said. In total, the bank disciplined 45 employees in connection with the investigation.
The Department of Justice said BNP's illicit Iranian transactions were conducted on behalf of its clients, including a petroleum company based in Dubai that was effectively a front for an Iranian petroleum company.
Manhattan's Vance said prosecutors had insisted on a guilty plea because of how long the conduct went on, even well after the probe began, the volume of the transactions, and the nature of the conduct itself.
Richard Weber, chief of the Internal Revenue Service Criminal Investigation, said BNP committed "literally thousands of flagrant violations."
Internal bank memos showed that BNP officials, while aware of the humanitarian crisis in Sudan and the ties of the government with al Qaeda founder
Osama bin Laden, chose to continue to do business with Sudan because it was commercially attractive.
France's bank supervisor ACPR said that the bank could cope with the sanctions without risking its financial health, and the country's Finance Minister Michel Sapin said the bank "will still be able to finance economic activity" in France.
The fine comes as the global banking industry faces mounting legal woes due to investigations into a string of alleged misdeeds, including fixing benchmark interest rates and manipulating foreign-exchange markets.
BNP said the settlement will not affect its strategic plan, as the bank is targeting expansion in North America as a key plank of a new strategy to raise revenue and profits outside traditional European markets.
Its strategy, announced in March, is based on growing earnings by at least 10 percent over the next three years, increasing its dividend payout and improving its return on equity to 10 percent or more by 2016.