BNP's Guilty Plea: Paying $8.9 Billion For Making $70 Million In Dirty Money
As predicted, BNP Paribas pled guilty today to two felonies in US District Court and agreed to pay $8.9 billion for helping Sudan and Iran evade US sanctions. BNP's plea agreement reveals the crazy risk that BNP took in facilitating these transactions. Under federal law, a bank that knowingly violates the Trading with the Enemy Act or the International Emergency Economic Powers Act is liable for criminal penalties for the full amount of the transactions. In this case, federal and state law enforcement were able to trace $8.9 billion in blacklisted transactions that BNP facilitated. Hence, the record $8.9 billion penalty.
BNP Was A Cheap Date
So how much did BNP make in order to take on this crazy risk: $70 million. That figure can be deduced from BNP's plea agreement, which sets forth the Sentencing Guidelines calculations:
6. Pursuant to 18 USC Sections 3553 and 3572, the appropriate fine amount is $140 million (the "Stipulated Fine Amount"), representing twice the pecuniary gain to BNPP as a result of the offense conduct.
Since $140 million is "twice the pecuniary gain" to BNP from its offense conduct, BNP charged its clients $70 million to faciliate these transactions. So BNP's fee was 0.79% of the money laundered. For less than 1 cent on the dollar, BNP decided to risk its reputation, its Tier I capital and its right to conduct business in the United States. Simple math will tell you that BNP (which engaged in serious internal debate about whether to engage in these transactions) estimated its likelihood at being punished at less than 1 in 127. That is the ratio between BNP's reward and the risk it took. Basically, the bankers assumed that no one in law enforcement would ever do the tedious legwork necessary to place the real names on millions of transactions.
BNP's Rubber Crutch Could Not Support The Weight Of The Bank's Criminal Activity
As I previously noted, BNP relied upon a legal opinion from a law firm that proved as useful as a rubber crutch. The law firm almost certainly gave a highly qualified and nuanced opinion that certain activities likely would not be considered to violate the sanctions, which BNP treated as a license to run amok.
The Warning To All Banks: Blood Money Is Not Worth The Risk
Today's plea agreement was designed to send a message to all banks that it is not worth the risk to reap the relatively paltry rewards for laundering the money of rogue states. Even if you assume that international bankers only care about making money -- and are indifferent to violating moral, legal and ethical obligations -- they are less likely to engage in this behavior on a simple cost:benefit analysis. It makes no sense to steal a dollar for your client to make less than a penny for yourself when you know there is video surveillance of the cash register. Now that bankers know that US financial regulators and prosecutors are doing the hard work to ferret out banks that engage in systematic money laundering, they will be less likely to partake. As much as bankers hate spending money on cost centers like internal audit and compliance, they will be forced by their Boards and external auditors to guarantee that they will not be the next BNP. Every major finance center bank is certain to spend additional money to beef up its defenses to prevent a rogue banker (or division) from risking the entire bank for table scraps.