BP Paribas Iran Sanctions Case: Why American Bank Fines Have Gotten So Big

Friday’s announcement that U.S. bank regulators will fine BNP Paribas $10 billion for alleged violations of U.S. sanctions on Iran has caused outrage in France, where the bank is headquartered. The National Front, the right-wing party that just shocked the establishment in the European elections, accused the U.S. of “racketeering” and urged President Francois Hollande to bring up the matter at his coming meeting with President Barack Obama. But while the fine would represent the largest amount paid by a bank to settle a sanctions violation, BNP Paribas is just the latest European bank to encounter problems with the United States, which has gone after banks with unusual intensity.

In 2012, Standard Chartered, a British bank, paid $670 million over similar allegations of violating Iran sanctions, while that same year HSBC plonked down $1.97 billion upon accusations that it laundered money for drug cartels. And more recently, the Swiss giant Credit Suisse paid $2.6 billion to end a probe into how it helped U.S.-based employees dodge American taxes.

What accounts for the Washington’s regulatory fervor? In a country still recovering from the 2008-09 financial meltdown, the fines present an opportunity to punish an industry that many see as responsible for the crisis. Attorney General Eric Holder and Preet Bharara, the U.S. attorney for the Southern District of New York and a key official responsible for regulating Wall Street, have pledged that larger banks will not be immune. Bharara, in a speech in March, said, “My view on this is simple and always has been: No one should receive a get-out-of-jail-free card based on size.”

Bank fines also provide an opportunity for the United States to leverage its centrality to global finance to pursue key foreign policy goals -- including the isolation of Iran. Although the European Union also imposed sanctions on Tehran, differences have occasionally arisen between the United States and its continental allies over how to maintain pressure on the Islamic republic.

For BNP Paribas, the damage would be substantial: The current total of $10 billion represents the bank’s pre-tax profit for 2013, and a ban on using U.S. dollars -- a punishment considered by American regulators -- would greatly hinder its operations. The punishment illustrates the leverage that Washington has over its allies.

“European banks need the U.S. more than the U.S. needs them,” said Nancy L. Bush, a longtime expert on the banking industry.

Nevertheless, Bert Ely, a banking consultant, believes that the fines may foster corruption, as banks seek lucrative financial relationships with Iran. In this case, regulators may have additional weapons in their arsenal. One option would be to prosecute individual bank executives. Though banks have endured million -- and billion -- dollar fines for years, executives have generally avoided direct punishment. In the investigation of HSBC over funding Mexican drug cartels, for example, no single individual was charged.

As Hollande prepares to meet his American counterpart, however, his ability to protest Washington’s regulatory behavior is limited.

“Although you have a European Union, you don’t have a European union in banks.” Bush said.