Why Pick on BNP Paribas?

CAMBRIDGE – To Europeans with whom I speak, the imposed on the French financial-services company BNP Paribas for violating American sanctions against Cuba, Iran, and Sudan seems excessive. Yes, BNP did something seriously wrong. But $8.9 billion? Isn’t that extremely disproportionate for an otherwise highly responsible bank? French President François Hollande asked US President Barack Obama to intervene to have the fine reduced, as did the European Union’s commissioner for the internal market and services, Michel Barnier.

The fine is indeed much higher than those levied before. Hefty fines for currency-trading violations are not new (HSBC, for example, was hit with a in 2012); but a fine close to $10 billion is.

Three factors, not all of which are being discussed, seem to explain the size of the penalty. First, BNP’s infraction was part of a pattern of deliberate and repeated behavior. Second, the settlement came at a time when the American authorities faced heavy criticism for being soft on big banks during and after the 2008 financial crisis. Finally, and more speculatively, the United States’ effort to make finance a more efficacious foreign-policy tool could have affected its treatment of BNP.

On the first issue, European businesspeople and media organizations need to appreciate fully how US prosecutors of financial crimes think. Once an investigation shows clearly that wrongdoing has occurred, the authorities expect the target to come clean, cooperate, and restructure the firm to ensure that the infractions do not recur. But BNP continued the banned transactions and knowingly sought to cover its tracks. The transfer documentation reportedly was regularly stripped of key details such as the destination of wire transfers, so that the transaction would be harder to investigate and less likely to provide evidence of malfeasance.

In American corporate criminal actions, the targeted US firm often brings in a prominent figure – a former prosecutor or a former judge – to investigate the behavior and people involved and report to the target’s board of directors. The latest example of this practice now in the news is that of General Motors, which hired Anton Valukas, a prominent former prosecutor who examined and reported on the dealings of the failed investment bank Lehman Brothers to the bankruptcy court. Valukas’s task for GM was to investigate and report on the company’s faulty ignition switches, which have been linked to 13 deaths.

The targeted firm then typically fires the most egregious wrongdoers and puts management-control systems in place to reduce the chance that similar problems will arise in the future. Perhaps the investigation interprets ambiguity in a way most favorable to the organization and its senior management, but it is understood that the investigation will indeed uncover the core facts and lead to effective reforms.