BNP Paribas: Another Big Bank Gets Put on the Chopping Block

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Karma appears to be catching up with the “too big to fail” banks that have engaged in all kinds of financial misdemeanor over the last decade. BNP Paribas is the latest among the big banks that is paying up for “financial oversight,” and the European lender may have to cough up as much as $8.9 billion in penalties.

According to Bloomberg Businessweek, the Paris-based bank is expected to plead guilty to criminal charges for violating U.S sanctions against Sudan, Iran, and Cuba between 2002 and 2011 on Monday. A probe launched by the U.S Justice Department and Manhattan U.S. Attorney Preet Bharara found that the French lender concealed transactions worth $30 billion that violated U.S sanctions. To be specific, BNP Paribas hid the names of some of its Sudanese clients while processing the American leg of these transactions, violating sanctions put in place against Sudan, which back then had a dictatorial genocidal regime. Apart from the financial penalty, regulators may also restrict the bank from processing payments in dollars, also called dollar clearing.

BNP Paribas is the second major European bank in a single year to plead guilty in the U.S for financial wrongdoings. In May, Swiss lender Credit Suisse Group AG (NYSE:CS) was forced to pay $2.6 billion in penalties for helping American clients hide money from the Internal Revenue Service.

Prosecutors have been playing hardball with banks over the past few years in an attempt to fix accountability for all kinds of financial crimes that were rampant in the last decade. These crimes range from selling faulty mortgage-backed securities to selling complex derivatives to helping wealthy clients hide money in off shore accounts and financing Ponzi schemes. Regulators have been urged by everyone from the public to policymakers to President Barack Obama to take an aggressive stance against financial institutions accused of misconduct, and the massive fines are designed to ensure that banks receive more than just a slap on the wrist.

For example, in January, JPMorgan Chase (NYSE:JPM) agreed to pay $1.7 billion to settle charges for facilitating Bernard Madoff’s Ponzi schemes, and last year, the bank had to pay $13 billion to settle investigations in selling faulty mortgage-backed securities between 2005 and 2008.

Bank of America (NYSE:BAC) and Citigroup (NYSE:C) have been negotiating similar penalties with the Department of Justice. Prosecutors have asked Bank of America to pay around $17 billion to close all federal and state investigations in the bank’s role in selling questionable mortgage-backed securities in the run-up to the financial crisis. Bank of America drew a line at $12 billion, and its argument is that most of the bad loans had been inherited by the bank when it acquired subprime lender Countrywide Financial Corp. and Merrill Lynch.

Citigroup has been asked to cough up $10 billion by the Department of Justice for similar charges. The bank is unwilling to pay that much, as it reportedly believes it was not as active as the others in selling and packaging faulty mortgage securities before 2008. Citigroup has offered to pay around $4 billion to settle the charges. However, according to the DOJ, it is not just about the size of the securities but also the quality of it and the securities packaged and sold by Citigroup were far more toxic (securities had a higher percentage of bad loans) than its competitors, The Wall Street Journal reports. The DOJ has threatened to sue the bank if it does not agree to pay.

Regulators want to make it as painful as it can be made for the banks in terms of penalties to set a prosecutorial precedence after almost a decade of public criticism that not enough has been done to make these banks accountable for the financial crisis.

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