(Bloomberg) -- BNP Paribas SAs settlement talks with the U.S. over sanctions violations have headed out of the ballpark, compared with previous punishments levied by the Obama administration in such cases.
The U.S. has been said to seek more than $5 billion or even $10 billion during talks in the past month -- a penalty higher than the combined $4.9 billion levied against 21 other banks for transactions tied to sanctioned countries since President Barack Obama took office.
An accord of such a magnitude, described by people familiar with the talks, would eclipse BP Plcs record $4 billion settlement of criminal allegations last year. Prosecutors are pressuring the BNP Paribas parent company to plead guilty to moving funds for clients in violation of sanctions against Sudan, Iran and Cuba, the people have said, asking not to be identified because the negotiations are confidential.
I think law enforcement is seeing that a $1 billion, $2 billion or $3 billion fine is not necessarily material or fatal to these organizations, James Odell, a former general counsel at a UBS AG unit, said in an interview. If the number is seen as insignificant, theres going to be a lot of backlash.
'SHOCKING, EXORBITANT'
Prosecutors see a severe penalty against BNP Paribas as justified because the misconduct was egregious and the bank didnt fully cooperate with the inquiry, a person with knowledge of the matter has said. BNP Paribas has said its cooperating with inquiries and taking steps to change practices. The potential fine has prompted criticism in France, where former Trade Minister Pierre Lellouche called it shocking and exorbitant.
The U.S. has brought at least 22 cases against financial firms since 2009 for doing business or handling funds linked to sanctioned countries, according to announcements on government websites. Most of those cases targeted overseas banks, with less than $90 million in fines imposed on U.S. firms.
At least six cases were handled as criminal matters by the Justice Department, resulting in deferred-prosecution agreements that spared companies a felony conviction. The largest such settlement was in 2012, when HSBC Holdings Plc reached a $1.9 billion deal to resolve charges it handled transactions for customers in sanctioned nations and enabled drug cartels to launder funds.
CIVIL CASES
Other cases included civil settlements with the Treasury Departments Office of Foreign Assets Control, which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. Those penalties -- sometimes combined with fines levied by New York and federal regulators -- ranged from $12,500 for Trans-Pacific National Bank in 2011 to $152 million in January for Deutsche Boerse AGs Clearstream Banking SA unit.
At least five U.S. banks have been punished for violating sanctions, and none of those cases was criminal.
In 2011, JPMorgan Chase & Co. paid $88.3 million to settle allegations over transactions involving Cuba, Iran and Sudan. OFAC called some of the conduct egregious, said bank managers and supervisors recklessly failed to exercise a minimal degree of caution or care and faulted compliance managers for not initially turning over requested documents.
BNP Paribas is the first French bank to face criminal charges under Obama. While Societe Generale SA, the countrys No. 2 lender by market value, paid a civil fine of $111,000 in 2011 over transactions involving Iran, it didnt fully end U.S. probes. The bank said in filings this year its conducting an internal review and cooperating with U.S. authorities over dollar transactions involving embargoed countries.
BNP Paribas said in 2011 that it was reviewing operations to see how they complied with OFAC rules. The examination focused on transactions made between 2002 and 2009, BNP Paribas said last month. Most of the BNP Paribas trades under investigation wouldnt have broken French or European law, a person familiar with the matter has said. They fall under U.S. rules because they were processed in U.S. dollars.
