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BNP Paribas is the latest major European bank forced to pay billions for breaking rules imposed by Washington

In September, 2005, anxious compliance officers at BNP Paribas summoned executives from the French bank’s Paris headquarters to an emergency summit at its offices in Geneva.

The seven-storey building by the lake housed the bank’s little known trade-finance arm, where hundreds of bankers assembled complex deals that allowed companies and countries to move oil and other commodities around the world.

The unit had been expanding fast and had become an increasingly important part of BNP’s global empire, generating billions in profits in recent years. But it had also become a concern for the people in charge of policing the bank’s dealings in a regulatorily difficult but lucrative corner of global finance.

During a tense meeting, the company’s Swiss compliance officers explained to their senior French colleagues, including Georges Chodron de Courcel, BNP Paribas’s chief operating officer, that they were troubled by transactions uncovered involving the Sudanese government, a regime blacklisted by the United States. Even though the US authorities had threatened severe punishment for anyone trading with rogue states, Chodron de Courcel stunned those in the room by dismissing the concerns and requesting that no minutes of the meeting be taken.

Last week, the consequences of ignoring those warnings finally caught up with one of the titans of Europe’s banking system. After an in-depth investigation into BNP Paribas’ activities, officials from the US Department of Justice announced that France’s biggest bank had pleaded guilty to violating sanctions for more than a decade and agreed to pay a record-breaking $9bn (£5.25bn) fine to state and federal authorities.

BNP Paribas had engaged in a “long-term, multi-jurisdictional conspiracy” and repeatedly flouted US sanction laws through tens of billions of dollars of transactions with Sudan, Iran, and Cuba, one prosecutor told the packed Manhattan courtroom.

“BNP Paribas went to really elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive US authorities,” said the US attorney general, Eric Holder.

While the fine is a record for sanctions violations, BNP Paribas is the seventh major financial institution to be caught trying to evade US rules. HSBC, Standard Chartered, ING Bank, Barclays Bank, Credit Suisse and Lloyds have paid about $12bn in penalties and forfeited funds. The only difference being that where the other institutions simply settled financially, BNP was forced to admit its guilt.

In Europe the sanctions have ruffled feathers, with executives and politicians angry at what they perceive to be US meddling in the affairs of other countries.

US authorities began delving into the activities of BNP Paribas and its lucrative Swiss trading unit after a tip-off from a whistleblower in 2009. However, despite the trades with Sudan and other outlawed states being brought to the attention of some of BNP Paribas’ senior executives on numerous occasions, management initially refused to comply with the US investigation, believing that there had been some sort of mix-up.

“This conspiracy was known and condoned at the highest levels of BNP,” Edward Starishevsky, the US assistant district attorney, said in court last week.

Last summer, the bank finally came clean. A team of executives flew to New York and confessed BNP Paribas had uncovered hundreds of illicit transactions with countries blacklisted by Washington, including many after the investigation had begun.

BNP Paribas grossly underestimated the fallout. It set aside $1.1bn for possible penalties, approved by French regulators, and in March announced a pay rise for Chodron de Courcel, the most senior executive to be implicated.

In recent months, as the scale of the penalties the US was planning to impose began to emerge, the bank sought help from the French government. President François Hollande wrote to President Barack Obama to complain that the fine would be “disproportionate”.

The French establishment has been left bewildered by the $9bn fine for the bank, which unlike many of its European counterparts had largely managed to escape the financial crisis unscathed.

So what is driving Washington’s regulatory fervour? BNP complains it is the latest victim of authorities desperate to dispel criticism that they were too soft on the giant institutions that brought down the financial system in 2008. “There has been a huge swing in the political and public mood, which is keen to see people perceived to be responsible for the financial crisis brought to book for wrongdoing,” said Barry Vitou, a lawyer at Pinsent Masons.

There are other forces at work, too. The great financial and human costs of the wars in Iraq and Afghanistan have meant the US government has been increasingly reluctant to take military action overseas, forcing it instead to rely more heavily on sanctions to influence the behaviour of rogue countries. In Washington, heavy sanctions are widely credited with eventually bringing Iran to the negotiating table over its nuclear programme.

The advantage American policymakers have is the might of the dollar and its centrality to the global financial system, which means most transactions have to be processed through a US bank at some point, so most large corporations cannot avoid US jurisdiction.

“For many years, the US has adopted the role of 'global cop’ and this is another example of it exercising the long arm of its jurisdiction. If you have no nexus there and don’t use dollars then you might be a bit miffed if they come after you. However, if you’re a major financial institution then you’ll probably have operations in the US so it’s hard to complain,” Vitou said.

However, the big fines indicate many banks around the world aren’t happy to play by US rules and are angry at America’s ability to dictate the terms that foreign banks operate under, as well as its increasingly aggressive enforcement.

A senior executive at Standard Chartered is said to have told US officials in 2012, when the bank was fined $674m under US sanctions for laundering more than $250bn for Iran and other countries: “You Americans, who are you to tell us, the rest of the world, that we’re not going to deal with the Iranians?”

At BNP Paribas, there was a similar reaction when the compliance team raised its concerns at the Geneva meeting and again several months later. Despite the doubts being backed by several prominent law firms, the bank’s executives weren’t prepared to allow US law to jeopardise lucrative relationships with countries they had shared commercial and cultural ties with since colonial times.

From 2004 to 2012, the bank’s Geneva-based trade finance arm went to great lengths to evade US sanctions, conducting trades with Sudan, Iran and Cuba worth many tens of billions of dollars mainly in oil exports. Traders managed to conceal their lucrative dealings by removing any mention of entities subject to sanctions and routing others through accounts in other countries.

Michel Sapin, France’s finance minister, has said the BNP fine should give Europe the reason to “mobilise” more deals in euros, so that the Continent’s big banks aren’t so exposed to the strong arm of US law.

Such suggestions seem fanciful. The dollar is the currency of the global financial system, so for anyone who wants to be a part of it that means playing by US rules. Until that changes, those who refuse to should expect the world’s policeman to keep coming after them.