Before BNP Paribas pleaded guilty to violating United States economic sanctions laws, the bank’s chief executive, Jean-Laurent Bonnafé, said in a message to employees that “malfunctions have occurred and mistakes were made.” It was much more than that, costing to the bank nearly $9 billion. But even then, the misconduct leading to that kind of penalty did not result in criminal charges against any individuals.
The Justice Department noted BNP’s failure to cooperate promptly with an investigation into its dealings with customers in Sudan, Iran, and Cuba that were subject to economic sanctions. That was the primary reason the government demanded a guilty plea rather than entering into a deferred prosecution agreement, which is typically done with large financial institutions. The government also pointed out that the bank continued to violate the law after being informed about the inquiry.
Much like Credit Suisse’s recent guilty plea to criminal charges for aiding tax evasion, the government worked to limit the collateral consequences of the conviction. New York’s financial regulator, Benjamin M. Lawsky, extracted his own sanctions that for one year will keep BNP from processing some payments in dollar denominations, known as dollar clearing. But the suspension does not begin until January 2015, giving the bank time to set up alternate measures for clearing on behalf of its clients, and it will not lose its license to operate in the United States.
Like so many corporate criminal prosecutions, no individuals have been accused of wrongdoing, although some employees lost their jobs at BNP. Still, the Justice Department can point to the downfall of the notion that some banks are “too big to jail.”
But there is the issue of individual accountability, especially for the top executives of global banks who allow wrongdoing to persist by never asking hard questions. For them, there seems to be little threat of criminal prosecution.
In remarks about the settlement, James M. Cole, the deputy attorney general, said, “This failure to cooperate had a real effect – it significantly impacted the government’s ability to bring charges against responsible individuals, sanctioned entities and satellite banks.” What is unclear is how much of an effect the lack of cooperation really had. BNP was not accused of obstruction of justice. And unanswered is the question of whether the United States government can successfully pursue individuals for misconduct in a large organization based outside the country.
Companies often blame a small number of individuals for problems, pointing to “rogue” employees who can somehow steer a course for a number of years that results in significant violations. The Wall Street Journal reported that BNP blamed employees at its trade finance unit in Switzerland and elsewhere for continuing to violate the sanctions law even after the investigation began. The bank’s leaders were apparently unaware of the problem even after lawyers warned the bank to stop engaging in transactions in Sudan.
This sounds like the approach taken by Credit Suisse in explaining how it helped numerous American clients evade paying taxes on secret accounts. The bank’s chief executive, Brady W. Dougan, told a Senate subcommittee that the problem could be traced to a small number of employees at the bank and that senior management was ignorant of the conduct.
General Motors took much the same approach in its internal investigation about how a faulty ignition switch went unnoticed for years despite numerous accidents that resulted in at least 13 deaths. An engineer was singled out as the one employee primarily responsible for the problem by not properly recording a change in the part in the company’s records, although the government, in its investigation, is questioning whether he alone should bear responsibility. But senior management avoided much of the blame for leaving a defective product on the road by pointing the finger at a midlevel employee.
The notion of the rogue employee is a convenient one, allowing senior management to admit to corporate misconduct while avoiding personal responsibility for violations. Coupled with a promise to reform the organization by instituting new compliance programs, the guilty plea hardly causes any real harm beyond paying the multibillion-dollar penalty. The penalty, after all, comes out of the pockets of shareholders, not management.
Nor do senior executives lose their positions often, even when admitting a failure to properly monitor corporate operations. Mr. Dougan, who has been called the “Teflon man,” remains in his position at Credit Suisse. Mr. Bonnafé became the chief executive of BNP in December 2011, after most of the violations of the economic sanctions law took place. So it is unlikely he will be held responsible.
The bank did reserve only $1.1 billion to cover the costs of a settlement, far short of what it now has to pay. But Mr. Bonnafé rallied the French government to support BNP, including a plea by President François Hollande to President Obama asking that the case proceed on a “reasonable basis” — in other words, not too much money should be extracted in the settlement. The United States government was said to have been demanding more than $10 billion to resolve the investigation. In that regard, then, Mr. Bonnafé helped save the bank money.
No bank is too big to jail any longer, at least when there is a failure to cooperate. Whether anyone working inside a bank will have to face criminal charges for violations remains to be seen.