
A Grieving Father Pulls a Thread That Unravels BNP’s Illegal Deals - r0h1n
http://dealbook.nytimes.com/2014/06/30/a-grieving-father-pulls-a-thread-that-unravels-illegal-bank-deals/
======
joosters
A conspiracy theorist might note that all the recent huge banking fines have
been against non-US banks. Could it be that US prosecutors are much keener to
investigate foreign banks and do not look as closely at banks back home? Or
are the US banks miraculously less corrupt?

~~~
pacofvf
1\. February 2012 $25 billion: Wells Fargo, JPMorgan Chase, Citigroup, Bank of
America.

2\. November 2013 $13 billion: JPMorgan Chase

3\. January 2013 $11.6 billion: Bank of America

4\. March 2014 $9.5 billion: Bank of America

5\. June 2011 $8.5 billion: Bank of America

6\. January 2014 $1.7 billion: JPMorgan Chase

[http://timesofindia.indiatimes.com/world/us/Top-10-fines-
imp...](http://timesofindia.indiatimes.com/world/us/Top-10-fines-imposed-on-
banks-by-US/articleshow/37479502.cms)

~~~
thefreeman
Man I would give an arm and a leg to see some jail time in that list. Aren't
corporations people supposedly?

~~~
icebraining
Hard to imprison a corporation, though.

~~~
aroch
Just use the Prisoner Work-Experience model -- for every hour of work the
company does pay them ¢19. So if they have 1000 employees, the company gets
$19/h to split amongst itself. Its the same rate we would pay prisoners who
are on work detail.

~~~
thefreeman
I love it.

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bhouston
Why is there so much more motivation on the part of authorities to go after
this type of crime rather than those that caused the financial collapse of
2008/2009? The financial collapse affected a lot more people here in North
America, but I guess the issue is that it was local banks, not foreign ones.

It does seem like authorities like to go after foreign banks for large fines
rather than local ones.

~~~
confluence
It's much easier to prosecute money laundering than it is to prosecute
stupidity. Some people did illegal stuff way back then and got totally
destroyed (see what we did to the mortgage brokers). That didn't extend to the
vast majority of people though because they were just stupid, not criminal.

~~~
LanceH
Additionally, the government itself was a large player in pushing the mortgage
crisis. From keeping interest rates low, to encouraging lenders to get loans
for those who couldn't afford them, to the implied bailouts (which turned out
to be true) that only encouraged reckless behavior. If they look too hard
they'll have to look in the mirror and that will never happen.

~~~
res0nat0r
Unfortunately much of the things which were happening leading up to 2008 were
not illegal, which is why there haven't been many prosecutions. Doing shady
things and passing the buck, moving risk to other parties? Yes, but
unfortunately not against the law.

~~~
confluence
Indeed. If we criminalized being shady most business owners in the continental
US would be behind bars. Selling overpriced phones? Apple. Selling overpriced
junk food? McDonalds. Selling overpriced headphones? Beats. Selling overpriced
housing loans? Banks. Selling overpriced jeans? Levis. Selling overpriced
smelly water? Perfume companies. Selling overpriced hydrocarbons? Deodorant
companies. Overpriced sugar water? Coca cola. The list goes on and on and on.

The system we live in is designed around rewarding people who can extract
capital from others. That means everyone's fucking over everyone and only the
most clearly fraudulent transactions are regulated away to minimize
externalities.

Is it optimal? No. But that's the reality of the system we live in.

------
ivanca
What I take from this is that you pretty much can get away with anything
(including terrorism) as long as you do it from within a corporation and have
enough money to pay the USA government any fine it imposes.

~~~
evmar
I found this quote particularly sad: "The prosecutors offered the banks a
choice: turn over records related to Iranian banks or face a criminal case."

If it's a criminal case, you'd think they could subpoena the necessary
records. It's not something to be making a plea bargain over.

~~~
mark212
avoiding a criminal prosecution is a very big thing. Banks are typically much
more eager to pay a massive civil fine rather than a much smaller criminal
fine. Having any kind of conviction as a corporation disqualifies a
corporation (particularly a bank) from all kinds of things that it's
effectively a death sentence. A major example of this was Arthur Andersen --
the criminal conviction for aiding the Enron fraud was enough to kill the
business entirely, even though the conviction was later overturned on appeal.

~~~
mikegioia
I think what evmar is saying is that the US District Attorney should not have
given BNP the choice, but instead just filed the criminal case against them.
They could have gotten the necessary documents through the subpoena, so the
offer to comply and take the civil case is meaningless.

What I think a lot of people would want to see is someone going to jail for
this, hence the criminal case.

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cdibona
It's interesting to juxtapose all the bitcoin articles with this kind of
story..

~~~
x1798DE
Frankly, I'd be happy if bitcoin facilitated these "criminal" transactions to
a much greater degree. I'm absolutely no fan of Iran or Cuba or any of the
other sanctioned countries, but I think the idea that economic sanctions do
more harm than good.

If BTC (or some analogous currency) does become a standard value store on the
international market, I'll be interested to see if governments continue
pursuing the impossible goal of imposing economic sanctions like this or if
they change tactics. My guess is they'll continue pursuing the impossible
goal.

~~~
FedRegister
Are you saying that sovereign nations don't have the right to decide who
they're willing to trade with? Because that's in essence what you're saying
when you say economic sanctions should end.

~~~
x1798DE
I'm saying I would prefer it if their _governments_ didn't have the ability to
limit who their _citizens_ can trade with, yes.

~~~
eropple
They have that ability through the power vested in them by the citizens, to
effectively project the force that the citizenry, as a whole, desires to
project.

If the citizenry cared, they can do something about that. (They don't, for a
lot of reasons. And they're wrong, but they don't.)

~~~
icebraining
But if the citizenry, like you said, doesn't care, how can it be a force that
the citizenry desires to project?

~~~
eropple
They don't care to _stop_ it. Status quo wins.

------
mnw21cam
Could someone explain to me (as a non-American non-financial type) the basis
of US jurisdiction over banks not based in the US? Is it because they have a
presence in the US, or some other reason?

~~~
jackgavigan
Basically, the US government's approach is "If you want to clear US dollars,
you must conform to our laws."

The following explanation will simplify things somewhat in the interest of
brevity.

Basically, all dollars (the ones that aren't physical cash, anyway) are
ultimately held in accounts at one of the Federal Reserve banks. Banks like
Citi, Wells Fargo, JP Morgan and Bank of America have accounts at the Federal
Reserve. When clients of those banks transfer US dollars to someone who's a
client of another bank, the real transfer of dollars takes place between the
banks' accounts at the Federal Reserve.

If your bank doesn't have an account at the Federal Reserve, then it needs to
have an account with a bank that has an account at the Federal Reserve. (Or
with a bank that has an account with a bank that has an account at the Federal
Reserve, etc.)

To be a member of the Federal Reserve, you need to hold a banking license in
the US, which means that you are subject to US laws (because, if you ignore
them, the US authorities will take your banking license away). You'll also
have an office there (probably in New York) but that's kind of incidental.

So, if you're a bank with a US banking license, and one of your clients annoys
the US authorities, they can basically say "Stop doing business with that
client." (or, in other words, impose sanctions). If you refuse to comply, they
can take your licence away.

That's effectively what happened with BNP Paribas - they were clearing US
dollar transactions for clients that were subject to US sanctions. So, BNP has
been effectively grounded for a year. Instead of going direct to the Federal
Reserve to transfer US dollars to other banks, it will need to become a client
of another bank that's a member of the Fed.

It's embarassing, it'll cost them money (they'll have to pay the other bank)
and they may well lose some business (from clients who want to deal with a
top-tier US dollar clearing bank).

In theory, they could have just turned around and said "Screw you, we're not
paying any fine!", in which case the US authorities would have withdrawn their
US banking license, seized any assets they could get their hands on (e.g. the
dollars they have in their account at the Federal Reserve) and blacklisted the
company, so no other US bank would do business with them. That would
effectively have prevented them from doing any business in US dollars.

To be a proper, credible international bank like BNP, you need to be able to
handle US dollars. Hence, BNP is prepared to pay the fine. The alternative
would be to effectively downsize massively.

~~~
pcrh
It is not necessary to clear dollars through the US, they can be cleared
through other financial centers, such as London or Frankfurt. If they had kept
all their transactions outside of the US, they would not have been technically
subject to US law.

However, they did use US clearing houses, so they're subject.

~~~
jackgavigan
Really? How would you clear US dollars in London or Frankfurt?

~~~
pcrh
It is perfectly possible to exchange other currencies for dollars outside the
US (the issue at hand in the BNP affair).

SWIFT, based in Belgium, can also be used to settle accounts between banks.

[http://en.wikipedia.org/wiki/SWIFT](http://en.wikipedia.org/wiki/SWIFT)

Edit: Here's another example in Hong Kong:

[http://www.hkicl.com.hk/clientbrowse.do?docID=119&](http://www.hkicl.com.hk/clientbrowse.do?docID=119&)

~~~
jackgavigan
SWIFT is a messaging system. It is used to send messages and/or instructions
between banks, and between client and their banks. The settlement still takes
place between the banks.

Let's take a look at the Hong Kong link you provided.

 _The Hong Kong Monetary Authority ( "HKMA") appointed the Hongkong and
Shanghai Banking Corporation Limited as the Settlement Institution ("SI") for
the USD clearing system in Hong Kong._

"The Hongkong and Shanghai Banking Corporation Limited" is HSBC.

 _The USD SI is a commercial bank. Each direct participant has to open and
maintain a settlement account with the USD SI and USD transactions are settled
across the books of the USD SI._

So, to use the USD clearing system in Hong Kong, you need to open an account
with HSBC. They then allow you to settle USD transactions with other members
of the HK USD clearing system - who _also_ must have an account at HSBC.

 _All USD on-line transactions are settled real time on a gross basis and
across the books of the USD SI._

So, all HSBC is doing is debiting one client's account and crediting the other
client's account. Because it's all internal to HSBC, HSBC's USD balance at the
Federal Reserve doesn't change. In other words, you can _not_ use the USD
clearing system in Hong Kong to settle USD with someone who doesn't have an
account with HSBC.

And, if you'd been blacklisted or sanctioned by the US authorities, you
wouldn't be allowed to open a USD account with HSBC.

I'm going to take a wild stab in the dark here: You don't have any experience
working in financial markets, do you?

~~~
pcrh
I realize that _most_ US dollar transactions take place through the US, I have
read that it is something like 95% of such transactions. My point was that it
is not _necessary_ for this to be the case, as in there is no law stating that
it has to be done so.

Of course, attempting large oil transactions as in the BNP case, while
avoiding using the US dollar and clearing houses would be difficult, to say
the least.

And no, I am not a financier, but am aware of some basic principles of
property ownership.

Since you appear to know about this topic, could you clarify is US dollar
transactions settled through HSBC in HK are (in a legal sense) done in HK, or
in the US?

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protonfish
Were any people actually convicted and punished with prison time, or was the
resolution for a bank to have to give up some money?

~~~
snarfy
They mentioned criminal penalties, but no mention of jail times. Tens of
billions in transactions, 8.9 billion in fines. It was probably worth it even
after getting caught.

~~~
scotch_drinker
They are likely to also be forbidden from dollar clearing for a time, possibly
up to a year. This is an unheard of penalty and is actually very punitive.
It's a new strategy by the US prosecutors and there was a good Planet Money
podcast recently on what it means. Essentially, because we control the reserve
currency of the world, we control the ability to transfer foreign currencies
into dollars. This is a very powerful thing to control and being restricted
from dollar clearing will likely be pretty painful.

~~~
joosters
Yes, they are banned from some dollar-based transactions for a year, from the
start of 2015

[http://www.bbc.co.uk/news/business-28099694](http://www.bbc.co.uk/news/business-28099694)

~~~
joezydeco
Here's the link to that Planet Money podcast. It's a very well-done story, but
frustrating that in the end nobody is going to jail.

[http://www.npr.org/blogs/money/2014/06/18/323045793/episode-...](http://www.npr.org/blogs/money/2014/06/18/323045793/episode-547-how-
to-punish-a-bank)

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phantork
Won't watch French Open tennis anymore. I hope the players will boycott as
well, as long as BNP is sponsoring that event.

~~~
chriscool
While at it, HSBC is sponsoring Wimbledon:

[http://www.wimbledon.com/en_GB/suppliers/](http://www.wimbledon.com/en_GB/suppliers/)

And JP Morgan, Chase and American Express are sponsoring the US Open:

[http://www.usopen.org/sponsorship/](http://www.usopen.org/sponsorship/)

...

~~~
phantork
Stopped watching those as well! _Sigh_

