Access to the U.S. market is a privilege, not a right. So long as the U.S. dollar remains the world’s lead reserve currency and, foreign banks continue to want access to that dollar, they’ll need to play by the laws of the United States. This week Uncle Sam will, again, repeat this warning to foreign banks and corporations.
According to French news reports this weekend, BNP Paribas CEO Jean-Laurent Bonnafe told bank employees last Friday that the French banking giant is going to be “heavily sanctioned” by the United States. Citing the settlement with federal prosecutors as ‘good news,’ Bonnafe added that some money has been set aside to pay the fines but more money will be needed. He claims the bank plan to change how it does business. Wax me skeptical.
In the national security arena, economic sanctions are tools that government can and should wield to advance matters that are in the national interest. In 1993, radical Islamic jihadists tried to bring a centuries-old struggle to the United States by attacking the World Trade Center in New York. They failed, but about eight years later on 09.11.01 they tried again and succeeded in rather dramatic fashion. The United States has opted to lead in a post-09/11 world. At least up until the Presidency of George W. Bush. Contrast U.S. exceptionalism to old Europe that seems at times seems to struggle with its role in the post-Cold War world.
Why does any of this matter to you and me? Alright, this subject may not be as exciting as marijuana legalization or beating up on an increasingly unpopular Congress and President. But, laws matter. It may sound Pollyannaish, but obeying the law becomes increasingly important in a global economy, especially over the long haul. That is why savvy investors and businesses, and people, prefer to to business in the United States and not places such as Cuba, Venezuela, or Iran. A transparent and strong legal system keeps a civilized society from a Lord of the Flies existence. In an increasingly interconnected world, these things matter.
If the fine reaches the rumored $10 billion mark, it will dwarf prior fines in similar sanctions cases (a partial list):
- 2013 Royal Bank of Scotland – $33 million (Iran, Cuba, Burma)
- 2012 HSBC Holdings Plc – $1.9 billion (Money laundering drug money from Mexico, and sanctions-violations)
- 2012 ING – $619 million (Iran, Cuba, and other countries)
- 2011 JP Morgan – $88 million (Cuba, Iran, Sudan)
- 2009 Lloyds of London – $217 million (Iran, Syria, Libya)
- 2008 Credit Suisse – $536 million (Iran, Sudan, Burma, Cuba, North Korea)
- 2009 Australia and New Zealand Ban Group – $5.75 million (Cuba, Sudan)
In addition to the fines, BNP may also be barred from conducting certain monetary transactions in U.S. dollars, albeit for a limited time. This case should send a clear signal to the global financial community to get its act together, get its compliance shop in order, and once and for all, stop resisting U.S. policy.
If you have a problem with U.S. policy or aims in Iran, Cuba, or just do not like U.S. economic sanctions, take it up with your host government. Evading U.S. sanctions is illegal and bad for business. At BNP Paribas, a little humility would also be good. If the bank were to fail over this, highly doubtful, it may create short-term dislocations; however, the world will adapt and competitors, small and large, can and will readily fill the void.