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French Officials Twist U.S. Arms in Bank Inquiry

Facing the prospect of a guilty plea in the United States, the giant French bank BNP Paribas has enlisted the support of a powerful ally: its own government, including top regulators and even the French president.

President François Hollande recently reached out to the White House to raise concerns about a plea deal, according to people briefed on the matter, injecting a political undercurrent into a law enforcement investigation. French officials have also contacted the State Department and Treasury Department, the people said, and made direct appeals to the authorities investigating BNP. The bank is suspected of doing business with Sudan and other countries blacklisted by the United States.


French President François Hollande
Dursun Aydemir | Anadolu Agency | Getty Images
French President François Hollande

At a meeting last month in New York, state and federal prosecutors discussed the potential fallout from the BNP case with Edouard Fernandez-Bollo, a senior French banking regulator, according to the people briefed on the matter who were not authorized to discuss the private talks. The prosecutors — Cyrus Vance Jr., the Manhattan district attorney; Preet Bharara, the United States attorney in Manhattan; and David O'Neil, then the head of the Justice Department's criminal division — appeared to resist the overtures.

Undeterred, Mr. Fernandez-Bollo returned to New York last Tuesday with the governor of the Bank of France, Christian Noyer, arguably the country's highest-ranking financial authority. At Mr. Vance's offices in Lower Manhattan, Mr. Noyer reiterated that the criminal case could have dire repercussions for BNP and the broader global economy, according to the people briefed on the matter.

Read MoreFrance criticizes USover BNP Paribas probe

The French campaign has focused largely on the concern that BNP, unlike other big banks accused of doing business with Sudan and Iran, might be forced to suspend a core business operation in New York as a result of the guilty plea. French officials have complained that such a penalty, proposed by New York State's top financial regulator, Benjamin M. Lawsky, could erode some of the bank's bottom line.

The behind-the-scenes arm twisting — the equivalent of, say, Janet L. Yellen, the chairwoman of the Federal Reserve, intervening in a foreign investigation of an American bank — underscores the international implications of the BNP case. Unlike cases that focus solely on the letter of the law and the extent of wrongdoing, the BNP investigation has inflamed diplomatic tensions and pitted the French government against American authorities.

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The pushback from France reflects a cultural and legal divide with the United States, where political intervention in law enforcement is typically taboo. While the White House will coordinate with its allies on terrorism cases, and President Obama routinely discusses matters like trade and climate change with his foreign counterparts, it is rare that foreign leaders weigh in on behalf of specific banks or corporations ensnared in a criminal investigation.

For now, in the case of BNP, the French government has little to show for its effort. The White House did not intervene in the investigation, which began in 2007 with a tip to the Manhattan district attorney's office. And BNP is still hurtling toward at least an $8 billion fine and a guilty plea for its parent company, according to the people briefed on the matter.

Read MoreUS seeks $10 billionpenalty on BNP Paribas

French officials are hardly the first foreign leaders to lean on the Justice Department — Credit Suisse recently dispatched the Swiss finance minister to Washington on the eve of the bank's pleading guilty to enabling tax evasion — but the effort has coincided with an unusual public outcry in France. One French official recently complained that "the United States can't treat its allies like this." And the National Front, the largest far-right party in France, accused American prosecutors of operating a "racket."

Representatives for Mr. Hollande did not respond to requests for comment. A spokeswoman for the Bank of France said she could not confirm the meetings with Mr. Noyer and Mr. Fernandez-Bollo, and declined to comment further.

The two French officials also took up BNP's cause with Mr. Lawsky, who has the authority to revoke the bank's license to operate in the state, the Wall Street equivalent of the death penalty. In recent meetings, Mr. Lawsky suggested that he would not withdraw BNP's license but might temporarily suspend the bank from processing transactions through its New York branch on behalf of foreign clients, a process known as dollar clearing.

The United States investigation into BNP has centered on the bank's role, from 2002 to 2009, in processing transactions through its American operations for companies and countries that the United States government has hit with sanctions. Prosecutors suspect that BNP, aiming to flout those sanctions, purposely omitted the names of Sudanese clients from paperwork to transfer money so as to not sound alarm bells with bank employees in New York. In some transactions, according to the people briefed on the matter, BNP employees stripped away any information that could tie the payments to entities under sanctions.

Mr. Noyer recently remarked publicly that BNP's conduct "conformed with European and French rules, laws and regulations."

At the heart of the French government's campaign is the concern that American prosecutors have created a two-tiered system of justice: one in which American and British banks escape criminal charges and the other that forces BNP to plead guilty to sanctions violations and pay a record fine.

Hoping to whittle down the financial penalty — prosecutors and regulators initially sought about $10 billion — French officials have contrasted BNP's case with the fate of other big banks. The British bank HSBC, for example, paid $1.9 billion to settle money laundering and sanctions violations. Credit Suisse paid about $2.6 billion when it recently entered a guilty plea.

For BNP, a bank deemed too big to fail in France, the French officials warned that such a huge settlement could eat into the bank's capital, according to the people briefed on the matter. The bank's capital levels, the officials complained, could drop below an important threshold for financial strength.

One French official, speaking on the condition of anonymity, said that any discussions were intended to highlight the potential dangers to the financial industry as a whole, and were not meant as direct advocacy for BNP.

At first, the entreaties appeared to give American authorities some pause, the people briefed on the matter said. But when prosecutors discussed the bank's capital levels with American regulators, they concluded that the concerns were overblown.

BNP's concerns also lost some momentum after the Credit Suisse guilty plea. The Swiss bank's American chief executive, Brady Dougan, said the case would not cause "any material impact on our operational or business capabilities."

Now that a guilty plea is no longer seen as a death sentence for banks, the dollar-clearing suspension has emerged as the biggest threat to BNP, according to the people briefed on the matter. In the meetings last month with Mr. Lawsky, the French officials detailed the potential impact.

With BNP unable to handle any dollar-clearing in New York, clients could flee to competitors, the officials argued. The blow to the bank, the French officials warned, would only add to turmoil in the European financial system.

Mr. Lawsky has yet to budge. To be a credible deterrent, a guilty plea has to carry real repercussions, Mr. Lawsky explained in his meetings with the French officials, the people said. Mr. Lawsky added that the bank would receive time to prepare for a temporary suspension, allowing BNP to alert its clients and make other arrangements.

Fearing the sanctions violations at BNP were pervasive, according to two people briefed on the investigation, Mr. Lawsky installed a monitor at the bank's offices in New York. The monitor has been quietly examining the bank's operations and record-keeping since October. Mr. Lawsky, the people said, plans to install a monitor on a more permanent basis as part of the settlement with BNP.

In the series of meetings with the bank last month, Mr. Lawsky also reiterated his plans to penalize more than a dozen BNP employees for their role in the suspected scheme, the people said. Of the dozen or so employees, at least two are senior BNP executives.

The employees, however, will not face criminal charges for now. The improper dealings with Sudan and Iran appeared to stop in 2009, putting it just past a five-year legal deadline for prosecuting individuals. The aggressive stance toward BNP traces partly to a concern that the bank was slow to flag wrongdoing to authorities, according to the people briefed on the matter, undercutting their opportunity to charge individuals.

Yet prosecutors from the Justice Department and Mr. Vance's office have not ruled out charges, the people said. The investigation could benefit from a legal provision that gives Mr. Vance five extra years to pursue cases against individuals based overseas.

—By Ben Protess and Jessica Silver-Greenberg, The New York Times. Michael D. Shear, Liz Alderman, David Jolly and Peter Eavis contributed reporting.

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