Why Pick on BNP Paribas?

Some might view this way of proceeding as moralism, though some of it results from under-staffed, under-funded prosecutors economizing on resources. The target pays for its own investigation. BNP did not seem to do any of this with gusto; its investigation did not match the effort made, for example, by GM. It did not prevent subsequent violations by implementing effective controls to detect problems.

The second factor is that BNP’s case came to a head at a time when US prosecutors were being accused of treating banks as too big to jail, for fear that pressing charges against them would weaken them too much and thus undermine the real economy. BNP just happened to be one of the next banks in line for prosecution and thus found itself in the crosshairs.

BNP did lobby European authorities to make a too-big-to-jail plea to the US authorities. The European authorities made the plea, claiming that the large fine would cripple BNP; it did not work.

Finally, bear in mind that the case coincided with the crises in Ukraine and elsewhere, with the major US enforcement action being , the largest of which are still being threatened. Recall BNP’s transgressions: the US barred financial transactions with Sudan, Iran, and Cuba through banks that touched US soil (or the US dollar) in their dealings. Most banks complied. BNP did not, engineering secret transactions involving all three countries.

At a time when the US is reluctant or unable to project military might to back up its foreign-policy goals, it is seeking to use financial might as a surrogate. The effort might induce a financial backlash in the future, but BNP’s problems emerged when effective sanctions were at the forefront of policymakers’ minds – and, one suspects, not absent from prosecutors’ minds.

If the US is to make its financial weaponry an effective foreign-policy tool, big banks cannot blithely proceed to do what US authorities have prohibited. It would take only a few noncompliant banks to render financial sanctions ineffective. And it is difficult to detect which banks are not complying and to what extent.

So when one miscreant is discovered, the enforcement authorities hit it hard, to signal to others that, while they might not get caught, the financial penalties will far exceed the limited benefits of disobeying the government’s foreign-policy edicts. This general move for criminal enforcement – greater penalties to account for the difficulties of detection – is a standard prosecutorial move in the US and around the world.

Thus, European critics of the fine imposed on BNP Paribas are right to emphasize its disproportionate nature. What they overlook is that this was precisely the point.

Mark Roe is a professor at Harvard Law School.

Copyright: Project Syndicate, 2014.