Access to the U.S. financial system is a privilege, not a right. France’s BNP Paribas, as well as French government officials, are learning that obvious lesson the hard way. It will be a costly process. In fines alone, the European banking giant faces at least $8 billion or more in fines for helping countries such as Cuba and Iran get around U.S. economic sanctions. Business and political careers ruined. The bank’s corporate reputation sullied.
According to professionals who study this industry, BNP Paribas is too big to fail. Their global investment portfolio spans the world over and is worth a pretty penny. Even if the fines and legal fees effectively wipe out 2014 profits, the bank could still survive. I also think French politicians will see to it that the one of the favorite employer of the political class once they leave government service, survives this latest round of scrutiny from regulators.
Why do I say this? Many reasons, however, it’s mainly the French “I really don’t care about you Americans” attitude that keeps surfacing that I’m certain must have U.S. prosecutors fuming. During the course of last week alone, several French government officials, as well as bank personnel, kept deflecting or minimizing seriousness of the matter. Consider these remarks from the French Finance Minister:
“What is being criticized by the U.S. authorities is the violation of a strictly American law. The same acts committed in France in euros would not have been reprehensible,” French Finance Minister Michel Sapin told the media. Although he quickly added: “That said, it is the American law, it should have been respected.”
Are we on the same planet, much less the same galaxy, “strictly American law”? If even half of the evidence coming to light is true, BNP Paribas, and several other European banks under investigation by U.S. authorities, will be lucky, after all this is said and done, to have access to the U.S. dollar. Allow me to decode what the Sapin really said: We don’t care about your policies toward Iran or Cuba. We are allowed to trade with religious fanatics and tin horn Latin American and African dictators, even bribe them, if we so wish. Go away Americans.
Today we’re learning from French newspapers that a U.S. Treasury Department official warned bank officials as far back as 2006 to be careful about their dealings with Iran, Cuba, and the Sudan. That is less than a year after the United Nations oil-for-food investigation team released the Volcker Report. BNP Paribas was the sole bank handling the illegal money transactions that sent money to Iraqi dictator Sadaam Hussein in violation of economic sanctions. It seems absolutely nothing has changed since.
Making fun of or slighting U.S. policy, especially economic sanctions on bad actors is a favorite pastime of many a European politico, especially those on the Left. “You’re all Boy Scouts,” one European Ambassador in Washington, DC told me a few years ago. Why do they think this way? Pride, mostly. I also think that, deep down, they envy the United States. We have become what they wish they could’ve been. Rest assured, if they had the economic and political clout to do so, I guarantee they’d be imposing sanctions to advance foreign policy and national security goals. But, they can’t and, frankly, they will never be able to do so.
In the case of Iran, the Europe’s seemingly neurotic approach toward the Iranian regime is also partly to blame for lax compliance by European companies. Iran may be building a nuclear reactor for non-peaceful purposes but several European countries need access to Iranian natural gas. Just this weekend, unconfirmed reports were leaking in the press that Switzerland, Greece, and Germany, possibly others, were in secret talks with the Iranians to ink new natural gas trade deals. None of this should surprise anyone, nor does it give companies a green light to use U.S. financial systems to break the law.
BNP Paribas has a lot of housekeeping to do if it wishes to survive for the long-term. Beyond weathering this storm, they’ll need to put in place a genuine compliance culture that goes beyond green-eye shade policy manuals and procedures. While these are important tools, you can hire armies of lawyers and compliance professionals and get nowhere. This case proves that. This is why I believe, as I posted last week, that U.S. Congressional oversight committee staff are closely monitoring the outcome of this case. It will be precedent setting at many levels and there are many lessons to extract that will help improve current and future country-based economic sanctions programs.
What BNP Paribas needs to really do in the near-term is focus on people at the very top, some of its mid-level managers as well as its board of directors. Great institutions need top quality senior-level managers, and board members, that have, indeed, a “Boy Scout” (or Girl Scout) mindset. At least a few. And it would be well worth it. Despite its recent problems, BNP Paribas remains a great bank with a rich history. There are just a few rotten apples that need replacing.