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Economic Sanctions Work, Just Ask BNP Paribas (for the second time)

Clients often ask, “do economic sanctions really work?” I could take this thread many ways, however, they do. They really do.

A nuisance to some, irritant to others, economic sanctions are, bar none, some of the most effective economic foreign policy tools available to the United States.

They are relatively cheap to implement and can cause extensive economic and political disruptions beyond the target country or persons.

Take the recent case of the European banking giant, BNP Paribas. According to the The Wall Street Journal, alleged violations of U.S. economic sanctions on Iran, Cuba, and the Sudan have:

… sparked a debate within BNP Paribas executive suites over whether top officials, including the French bank’s chairman, Baudouin Prot, should resign …

And this has been going on for several years:

Over the past two years, the bank has tried to contain the crisis, cutting back on employees at its trade-financing unit, which is at the heart of the investigation, in Paris and Geneva, said a person with direct knowledge of the matter.

You can read the entire WSJ article here.

BNP Paribas, surprise, even tried to blame outside counsel for their problems. From The New York Times:

BNP argued that it lacked the intent to commit a crime, according to the people, saying that it followed the law firm’s directive. That legal argument, known as the “advice of counsel” defense, prompted prosecutors to pore over the single-page memo and weigh the bank’s argument.

You can read The New York Times article, “BNP Paribas Pinned Hopes on Legal Memo, in Vain,” here.

This entire matter could end up costing the BNP Paribas a mind-numbing $8,000,000,000, or more, in fines alone. Add a few million for legal costs and future compliance efforts.

Then we have the intangible and mostly unquantifiable costs such as loss of reputation for the company in the marketplace.  Internal politics that end up ruing careers. In this case, diplomatic tensions that invariably spill over into other issue areas of importance to both countries. And much more.

Cases such as these also send a clear signal to the marketplace, be careful where you decide to do business. If you want to trade with the enemy, such as Cuba, there could be consequences.

It is also a reminder that it pays to invest, early and often, in compliance, and if you get caught, don’t jerk around with U.S. officials. You will always lose.

So next time U.S. economic sanctions opponents, especially special interest groups lobbying to ease sanctions on countries such as Cuba, urge ending sanctions, just dig out this story, and many more to come.

P.S., this is not the first time that BNP Paribas has been in legal trouble for sanctions violations. The bank was in the thick of the UN oil-for-food scandal. The scheme included paying close to $2 billion in illegal payments to the Saddam Hussein regime.

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