After BNP, US may hit other banks for sanctions-busting

US authorities on Monday slammed BNP, France’s largest bank, with a record USD 8.9 billion in penalties for violating US economic sanctions against Iran, Sudan and other countries and pleaded guilty to criminal charges.

The blow raised speculation that some of its rivals in Europe would be punished, but less severely.

The United States has focused its investigations on dollar operations of a handful of European banks with countries blacklisted by the US: Iran, Sudan, Cuba, Syria and North Korea.

The probes, begun in 2009, are looking at the alleged transfer of billions of dollars to the accounts of blacklisted entities, which benefited from a US legal loophole that closed in 2008.

The investigations are being led by several US authorities: the Justice and Treasury departments, the Federal Reserve and New York state’s Department of Financial Services.

French bank Societe Generale recently opened an internal investigation and said it was holding talks with the Office of Foreign Assets Control, the Treasury’s agency that enforces US economic sanctions.

French rival Credit Agricole is investigating dollar transactions, especially by Credit Agricole CIB, its corporate and investment banking arm.

Both banks say they are cooperating with US authorities.

Germany’s largest bank, Deutsche Bank, is suspected of having business transactions with entities in Sudan, Iran and Syria, according to people close to the situation.

Deutsche Bank has steadfastly denied allegations that it has violated US sanctions. Credit Suisse analysts estimated the German bank is facing a USD 3.3 billion US fine.

Deutsche Bank insists that a US penalty would not weigh on its operating profits or sully its reputation.

The second-largest German bank, Commerzbank, revealed in 2010 that its Iran-linked dollar transactions were under investigation by the United States. It has not estimated the size of a potential penalty.

US authorities also are investigating the German subsidiary of Italy’s largest bank, UniCredit, for transactions with Iran. UniCredit has set aside more than a billion euros (USD 1.4 billion) for legal costs.

In addition, the US has probes under way on manipulation of interbank interest rates, tax evasion and foreign-exchange market rigging.

British bank Barclays and Switzerland’s UBS and Credit Suisse have already been severely punished as part of US efforts in these areas, and other decisions are in the pipeline.

Large legal provisions

The European banks’ large provisions for US investigations come as European regulators, including the European Central Bank, insist they maintain sufficient capital buffers to weather a financial crisis.

The banks are expected to set aside USD 39 billion in litigation costs this year after taking USD 37 billion so far, Credit Suisse analysts said in research note, adding the banks would still be able "to absorb other costs".

The massive BNP fine has raised fears that the US is particularly targeting European banks. Those concerns have been raised by the French president, Francois Hollande, and the ECB.

In Europe, some have argued the US is forgetting that European banks are not violating European laws.

But US banks have paid heavy penalties in recent years tied to the sale of dodgy mortgage investments at the center of the 2008 financial crisis.

JPMorgan Chase, the biggest US bank, paid a record USD 13 billion fine in 2013 to settle US mortgage claims.

Bank of America, the number-two US bank by assets, reportedly is facing a USD 17 billion penalty.

It already paid USD 9.5 billion to the Federal Housing Finance Agency.

Luc Olinga / AFP / Expatica