BNP Paribas, The Success of Due Diligence And The Failure Of Management

BNP Paribas, The Success of Due Diligence And The Failure Of Management

I have just returned from a trip through Europe, the Middle East and Asia. As I traveled, the saga and ultimate fine with BNP Paribas unfolded. I listened to the financial professionals in the different regions grouse about US overreach. I also watched mortar shells and rockets explode only a few miles away while I was in the Middle East. I listened to people in Jordan who were very afraid of the well armed rebels in Syria, and Iraqi’s spilling into their country. On top of this the 600,000 Syrian and 350,000 Iraqi refugees that had arrived fleeing the violence in their countries over the last few years.

According to the documents unsealed in New York, BNP Paribas moved US$20 billion dollars in transactions linked to companies and government agencies in Sudan. The money was being moved during the time that Sudan was not only internationally sanctioned but also being accused of genocide. The internal genocide claimed 400,000 lives and displaced 2.5 million people. In June 2005 the International Criminal Court (ICC) took the first steps by launching investigations into the abuses and issued arrest warrants for Omar Bashir, the head of state, Ahmad Harun, Minister of State, and militia leader Ali Kushayb. All remain at large to this date.

Earlier this year, Syrian-made M-302 rockets were flown from Syria to Iran, then shipped from Iran’s Bandar Abbas port to Umm Qasr, Iraq, before being loaded onto the KLOS C civilian ship destined for Sudan. The ship was on its way to Sudan when it was intercepted by Israeli forces. From Sudan the rockets were to be smuggled overland through Sudan and Egypt to Gaza; a common smuggling route.

In October 2012 in Khartoum a huge explosion occurred at the Yarmouk weapons depot when numerous shipping containers of weapons were in transit to Gaza exploded.

It should not be a great surprise, as in 2006 a diplomatic cable published by Wikileaks singled out the Yarmouk weapons depot in Khartoum, Sudan for providing support to the Iranian and Syrian chemical weapons programs.

So back to BNP Paribas. As early as 2005, a senior compliance officer at the bank warned in an email that “…the firm had nine identified ‘Arab banks’ on its books that only carry out clearing transactions for Sudanese banks in dollars…This practice effectively means that we are circumventing the US embargo on transactions in US$ by Sudan.” That same year, senior compliance officers at the bank of Geneva office arranged for a meeting of executives “to express, to the highest level of the bank, the reservations of the Swiss Compliance office concerning the transactions executed with and for Sudanese customers.” The meeting was attended by several senior executives, including Georges Chodron de Courcel, the bank’s chief operating officer, who “dismissed the concerns of the compliance officials and requested that no minutes of the meeting be taken,” according to the DFS.

In 2007 it was further noted that BNP Paribas was playing a pivotal part in the support of the Sudanese government which…has hosted Osama bin Laden and refused the United Nations intervention in Darfur.”

The BNP Paribas incident is not about evading taxes; it is not about compliance failures. This is not about innocent due diligence failures. BNP Paribas was knowingly providing substantial economic assistance and services to the Sudan government whose chief activities consisted of genocide, arms manufacturing and smuggling.

Sudan runs a significant budget deficit and the economy is in perpetual crisis. In addition, the scale of this operation has to be put into context. The scale of the transaction is breathtaking in its size and scope. Assuming BNP Paribas’ criminal money laundering operation went on for four years from 2005 to 2008 and BNP Paribas moved five billion a year. In 2005 this would represent 20 per cent of the entire GDP of Sudan! So what was the origin of these US Funds? Ransoms dropped off for Somali pirates, helping Iran launder cash, kidnapping and ransom payments from the gangs in the Sinai? So what has happened to BNP Paribas? BNP Paribas has had a bad year and it ‘cut ties’ with 13 employees? The shareholders get scalped and everyone goes home. No one goes to jail.

Look at what is now happening in the West Bank, Palestine, Lebanon, Northern Iraq, the lawless Sinai, Somalia and wonder to yourself– how much of the US$20 billion laundered in violation of not only US but also international sanctions has helped in these efforts? This is where the real penalties are being paid and not by BNP Paribas or its 13 employees that had their ties cut.

What I got, and I am sure the prosecutors got, from reading the communication within BNP Paribas is that the due diligence worked. Good people in BNP Paribas raised exactly the right issues. They spoke up and openly discussed the bank’s dirty little secrets. Their reward was they were told to hush up and if they did not they would be dismissed. The senior management of BNP Paribas did not make an error or an accident. What they did was they manipulated their compliance and their wire departments such that they were able to launder money for Sudan. This was a well planned and orchestrated crime.

The French government carries on about loosing a few percentage points of their GDP to tax evasion (about three per cent) and loudly condemns the money laundering that helps the tax evaders. The subsequent French government’s condemnation of the US “over reach of the law” when one of their own is found orchestrating a multi-year money laundering crime aiding, not as tax evasion, but in genocide, arms smuggling, and multiple revolutions – rings a bit hollow.

The penalties could have been worse. BNP Paribas will pay about 30 cents on the dollars for the violation, Credit Suisse paid 45 cents and Standard Chartered paid dollar for dollar. BNP Paribas, after some time on fiscal probation, will be back and allowed to transact wires in dollars. The SEC, as I have been told, wanted a permanent ban, a dollar for dollar fine, and the people responsible turned over for prosecution.

The due diligence and AML policies and procedures worked. The functioning due diligence and AML procedures were set-aside for their BNP Paribas’ VIP Client, Sudan.

As for me, BNP Paribas’s ‘failure’ of helping Sudan was a bit more intimate. One has a very different view of BNP Paribas’s money laundering when the fruits of their failure are evident in seeing, hearing and feeling mortar and rock rounds exploding and talking to the refugees fleeing those lands blessed by their failure.

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