Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Guilty plea to 3 criminal counts, $8.8B fine, and 1 year ban on dollar settlements for BNP Paribas’ laundering of $190B

with one comment

BNP Paribas has settled up for their systemic efforts to use the U.S. banking system to launder money for Iran, Sudan, and Cuba.

Criminal pleas

Here are the plea agreements:

  • federal level, 1 guilty plea – 1 count of violating the International Emergency Economic Powers Act
  • state level, 2 guilty pleas – 1 count Falsifying Business Records in First Degree and 1 count Conspiracy in the Fifth Degree.

Volumes

The dollar amount of laundered money is 6 times larger than any previous press reports suggest. All earlier comments said about $30B was involved.

In the written consent decree with the NY Department of Financial Services, the bank agreed it laundered these volumes of dollars:

  • >$20B – Sudan
  • $160B – Iran
  • $7B – Cuba
  • $6B – 18 Specially Designated Nationals – specifically listed individuals banks are not allowed to have transactions with
  • $190B – total dollar amount of wires knowingly violating U.S. sanctions

Penalties

Fines – The bank agrees to a $8.83 billion fine. That will be split up:

  • $508M – Federal Reserve
  • $2,243.4M – NY State Department of Financial Services
  • $2,243.4M – NY County District Attorney
  • $3,838.8M – Department of Justice. Amount adjusted to whatever is left over after crediting penalties from the above agencies to the total forfeiture amount.
  • $8,833.6M – total forfeiture amount

Update: I misread the plea deal. The total penalty is just over $8.97B. The additional $140M is a criminal fine. The above $8.8B is civil forfeiture. More explanation here.

The dollar amount of the fine is pegged to the amount the feds could prove in court is felonious.

Both the federal plea deal and state consent decree say the bank agrees not to take a tax deduction for any of the penalties.

Termination of staff – Thirteen specific staff will be terminated. A total of 45 staff have been disciplined.

BNP agrees not to rehire any of the terminated staff.

Suspension of dollar clearing services – For calendar year 2015, six specific departments of BNP will be prohibited from settling wire transfers in New York.

These are reportedly the departments who were most egregious in flouting US laws.

Laundering techniques

The bank used a wide variety of techniques.

A standard technique is called “stripping”, which is a simple process of just him removing all identifiers to the band persons or countries and resubmitting a cleaned up wire. Used extensively.

Regional banks – BNP set up relationships with 9 regional banks for the sole purpose of laundering money (para 16 of DFS consent). Funds would be transferred from a BNP account in Geneva to a BNP account in the regional bank. Then the regional bank would wire the money to the other party. This wire would not show where the money came from. To get money into the country, this process was reversed.

Another technique was to space out these wires by several days so it would be more difficult to tie the two separate transactions together. Sometimes several transactions to or from Cuba were bundled into one wire.

Another technique was to run wires through an unaffiliated bank in the US instead of the BNP operations in New York. I don’t quite understand how this would work, but the DFS consent decree cites this as another scheme. As an aside, that technique would explicitly be a violation of a previous memorandum of understanding that the bank had with regulators.

None of these were accidents or mishaps. Hiding the origin or destination of tens of thousands of wires was deliberate.

The federal and state documents make clear that the compliance department was well aware of the widespread laundering.

A wide range of policy papers and memorandums indicate there was common knowledge that laundering was going on. Staff were repeatedly reminded to drop individual and country names.

In 2005, the Chief Operating Officer attended a meeting in which the compliance staff shared their concern about violating sanctions. The COO brushed off their concerns and directed there be no minutes of the meeting. (para 22 DFS consent) Thus we can count as willfully false any statements that the most senior level staff didn’t know what was going on.  The COO is one of the individuals fired.

Snark

The flagrant, wide-spread, intentional efforts which were known throughout the compliance department and known by the COO as early as 2005 leave me amazed at the brazenness of BNP Paribas’ efforts to flout US law. They put extensive, considered, creative, entity-wide effort into evading American law.

I am amazed.

Pardon me a moment for a few snarky comments. Sometimes a huge dose of ridicule is not only needed but well deserved and justly earned:

1. With 3 felony pleas in place, I think we can now call BNP Paribas a convicted felon. I don’t think it is a stretch after reading the federal and state plea deals to say the bank, as a whole, is a criminal enterprise. At least in the way I understand the English language that description applies. Of course, three felony convictions and a nine billion dollar fine would tend to support my assertion.

2. Thirteen specific staff will be fired and the bank agrees it will never rehire them or use them as consultants or advisors.  I am assuming that means those staff are free to take their specialized skills to one of the other banks in France. Such evasion skills are in high demand by European banks.

If they can’t work in the wire departments, perhaps they could apply for positions on a Libor futures trading desk. I understand there are open positions across Europe, especially in London.

If multilingual, perhaps they can move to Geneva. There are some openings there for dealing with customers from North and South America. Great opportunities for good customer service representatives to generate large-balance consumer deposits and cross-sell high-margin services. On the other hand, the volume of customers from the U.S. has been dropping recently. Long-term growth potential on that career path might be limited.

3. Mighty bold for the French president to lobby for mitigating penalties when BNP served as the de facto Sudan central bank and knowingly laundered 190,000,000,000 US dollars.

4. The WSJ calculated the penalty per dollar laundered in a graph here. The graph currently shows a fine of 27 to 30 cents per dollar laundered ($8-$9B / $30B). The penalty is actually 4.6 cents per laundered buck ($8.83B / $190B).

Standard Chartered paid $1.00 per dollar. The lowest penalty per dollar laundered is for ABN Amro at 15 cents.

If the written admission by BNP Paribas (which they agree in writing not to contest) is correct, they got a great deal at 4.6 cents.

5. If you are trying to raise money to build a couple of nukes and import all the needed parts, it really helps to have an understanding bank partner that can economically launder all your U.S. dollar transactions. Not having to worry about those pesky money details lets you keep your focus on building bombs.

Okay.  I feel better now.

Articles

You can find a variety of information on the settlement. Here are few places you can look:

Written by Jim Ulvog

June 30, 2014, 20:34 pm at 8:34 pm

Posted in Fraud, Other stuff

Tagged with ,

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