France steps in over fears of US fine against bank

Associated Press
French President Francois Hollande addresses the media during a G7 summit at the European Council building in Brussels, Wednesday June 4, 2014. The leaders of the G7 will deliberate their next steps in response to the enduring unrest in Ukraine, after sidelining Russia for its role in the crisis. (AP Photo/Yves Logghe)
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French President Francois Hollande addresses the media during a G7 summit at the European Council building in Brussels, Wednesday June 4, 2014. The leaders of the G7 will deliberate their next steps in response to the enduring unrest in Ukraine, after sidelining Russia for its role in the crisis. (AP Photo/Yves Logghe)

PARIS (AP) — A potential multibillion-dollar U.S. fine against France's largest bank is clouding a dinner Thursday between the French leader and President Barack Obama — and has the potential to reverberate across Europe's financial sector.

Investigators in New York and Washington are scrutinizing BNP Paribas' currency transactions through its New York office for clients in Iran, Sudan and Cuba in violation of U.S. trade sanctions between 2002 and 2009. Two other French banks are under separate investigations for similar activities, and the resulting fines could have repercussions on other companies that do business with those countries as well as the United States.

BNP recently warned it could face fines "far in excess" of the $1.1 billion it had set aside in response to the American investigation, and its shares have fallen more than 15 percent since February. As of Thursday, no amount for the fine had been fixed.

The French government swung into action when reports surfaced that the total had climbed to $10 billion — more than BNP's total profit for 2013. There are also concerns that BNP might be stripped of its license to do business in U.S. dollars, which would be a heavy blow for a global bank.

In France, many see the case as yet another sign of dollar imperialism — the U.S. using its economic clout and international currency dominance to force foreign institutions to bend to its law.

The normally reticent governor of the Bank of France has said that BNP had complied with all European and French laws. But BNP's activities in the United States are extensive.

The French foreign minister acknowledged that if a bank violated the law, a punishment is appropriate. But Laurent Fabius warned that any "disproportionate" punishment could hold up a trans-Atlantic free trade agreement. His comments were amplified first by the finance minister, then by the president himself.

Socialist President Francois Hollande, a vocal activist for French corporations but no fan of the world of finance, said he would bring it up Thursday at his dinner with Obama.

"It has an impact on the French economy — it has an impact on the European economy," Hollande told reporters Thursday morning.

The Socialist administration's comments oddly echoed those of the far-right National Front, which called on the government to protect "the interests of thousands of French depositers."

Despite an April 7 letter from Hollande to Obama, in which the French president wrote asking for a more "reasonable" solution, the White House had tried to stay out of the debate.

"We've made very clear that this is a matter for the Department of Justice, so at the political level it's not something that we intervene in. We respect the process that our judicial system undertakes and that's what we have said to the French and will continue to say," said Ben Rhodes, Obama's foreign policy adviser.

In two separate similar investigations, authorities are also looking at Credit Agricole and Societe Generale, according to people involved in the probes, who spoke on condition of anonymity because they were ongoing. Together with BNP Paribas, they make up France's top three banks.

The U.S. authorities pursued other big foreign banks for sanctions violations in two big cases in 2012, against HSBC and Standard Chartered, both British and with operations in New York.

Standard Chartered paid $340 million in a settlement with New York state regulators who accused the bank of scheming with the Iranian government to launder billions of dollars. The bank also paid $327 million to settle U.S. and New York charges related to currency transactions for Iranian, Sudanese, Libyan and Burmese entities that were said to be concealed from regulators.

HSBC, Europe's largest bank, agreed to pay $1.9 billion in a settlement with U.S. and New York authorities in connection with the transfer of billions of dollars on behalf of Iran, Cuba, Libya, Sudan and Myanmar.

The U.S. imposes financial sanctions on political enemies to hinder their access to the global financial system. The goal is to choke off banks and other sources of capital, limiting their economic growth and their ability to buy weapons, food and other items available through global trade. The sanctions affect both U.S. banks and foreign banks with U.S. operations.

But some criticize American authorities for what they see as a single-minded focus on European banks, while letting U.S. banks slide.

"It's kind of a worrying trend that the two sides aren't talking to each other in terms of financial regulation," said Garrett Workman, an analyst with the Atlantic Council.

Jeroen Dijsselbloem, who presides over the finance ministers of countries that use the euro, said he was concerned about the roots of the dispute at a time when European banks are trying to stabilize.

"I do think we have to ... find grounds for international harmonization on the level of the fines. If a bank has messed up they should be fined, don't get me wrong. But the height of the fine seems to be over excessive and it's not helping the recovery of the banks," he told CNBC on Thursday.

Workman said he thought it unlikely that the BNP dispute would scuttle the a European-American free trade deal, but he said the dispute shows the two sides need to open the lines of communication over financial regulation or risk new meltdowns.

"The two sides of the Atlantic are still where 75 percent of the world's financial transactions take place, so it makes sense that the two sides should be talking more," he said. "As we saw a few years ago, the entire global financial market is at the mercy of U.S. and European policy."

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Associated Press writers Eric Tucker and Marcy Gordon in Washington, Michael Virtanen in Albany, N.Y., and Nedra Pickler in Brussels contributed.

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Follow Lori Hinnant at: https://twitter.com/lhinnant

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