Update June 3: The French government has now weighed in on negotiations over the BNP fine. Bloomberg’s Fabio Benedetti-Valentini and Mark Deen report that it’s likely to be a subject of discussion when Barack Obama meets with Francois Hollande. You can see why the French see American imperialism (one Le Monde columist’s word) at work. It is striking that when U.S. prosecutors start extracting criminal guilty pleas, European banks seem to have come first. Notably, several of the cases brought against U.S. banks — think of JPMorgan’s “London Whale” fiasco and the civil trial of Goldman Sachs’s Fabrice Tourre — have conspicuously involved European bankers.
The French bank BNP Paribas SA seems close to following Credit Suisse into the bank hall of infamy with a likely guilty plea to charges of evading sanctions on Iran, Sudan and Cuba. Having once expected to confine the bottom-line damage to $1.1 billion, Paribas is now seeing the numbers multiply, with the costs of a settlement now potentially as high as $5 billion.
It’s hard not to notice that after extensive discussions among regulators and prosecutors about the advisability of bringing criminal charges against “too big to fail” banks, U.S. officials are finally demanding criminal sanctions … of foreign banks. Yes, U.S. banks have paid billions and billions in fines. But as yet, the whole financial crisis with its cesspool of mortgage fraud has not resulted in any criminal charges. Notably, the one major bank executive who did go to jail for financial crisis misdeeds, as Jesse Eisinger detailed in the New York Times magazine, also came from Credit Suisse.
Conceivably, one factor in the lack of charges against any U.S. banks is that the activities involved in the Credit Suisse and Paribas cases precede the financial crisis. In Credit Suisse’s case, its tax evasion efforts go back for decades, and arguably the evasion of U.S. taxes was a core value proposition that Credit Suisse held out to clients. Paribas’s sanctions violations allegedly go back to 2002; Royal Bank of Scotland, another foreign bank, got much more lenient treatment after disclosing similar problems after an internal investigation. It’s worth mentioning that a U.S. financial institution, Riggs Bank, pleaded guilty to criminal money laundering charges in 2005 (the disgraced bank was swiftly sold off).
The significance of a guilty plea to criminal charges may be largely symbolic. So far, based on the experience of Credit Suisse, the main difference between civil and criminal sanctions is in the public relations value for prosecutors (cf. Matt Levine’s mercilessly funny analysis). Still, if another country embarked on criminal cases against U.S. banks while routinely handing out civil charges to its own, American eyebrows would likely rise high up the national forehead. Setting up a situation in which other countries retaliate in kind against U.S. banks would be an unfortunate price to pay for political theater.