Paris trade talks threat over US BNP fine

Michael Stothard, Hugh Carnegy, Kara Scannell and Shawn Donnan
The logo of BNP Paribas sits outside a branch of the bank in Paris, France.
Balint Porneczi| Bloomberg| Getty Images

France on Tuesday warned of potential consequences for transatlantic trade talks if the U.S. pushed ahead with a $10 billion-plus fine for BNP Paribas, the country's biggest bank.

"This poses a very, very big problem," declared Laurent Fabius, foreign minister, in the first public comments by President François Hollande's Socialist government since it emerged that U.S. regulators were poised to hit BNP for breaking U.S. sanctions on Iran, Sudan and Cuba.

"We are in talks with the U.S. for a transatlantic partnership," Mr Fabius said in a television interview. "This trade partnership can only be established on a basis of reciprocity . . .  One cannot imagine that reciprocity can be the rule if at the same time there is a decision of this type." Such a "unilateral" punishment would be "completely unreasonable", he added.

Read MoreUS seeks $10 billion penalty on BNP Paribas: WSJ

France is among those pressing for financial services to be included in the trade talks, which would amount to biggest regional trade agreement ever struck. Officials in Brussels and Washington sought to play down the threat to the talks, though analysts said Mr Fabius's comments were significant.

"His opinions matter... We need the French to be on board for this to happen," said Garrett Workman, who tracks the EU-U.S. talks for the Washington-based Atlantic Council.

French officials fear that a big fine and potential suspension of dollar trading would damage BNP's capital base, curb its ability to lend to the struggling French economy and lose it international customers. The bank is concerned that a temporary suspension would in effect become permanent, people familiar with the matter say.

Read MoreBNP mulls $3B deal to end US probe over sanctions: Sources

They have also sought to portray the case as a potential threat to the wider European economy. "If this spreads to other European banks it could have a cost for Europe," said one official.

The government has stressed it does not dispute the right of the U.S. authorities to punish BNP. "If there is an error or a violation, then it's normal that there is a fine, but the fine has to be proportionate and reasonable," Mr Fabius said.

But his intervention indicated Paris is concerned its message is not getting across.

The French pleas have so far fallen on deaf ears at the U.S. Treasury Department, with Treasury secretary Jack Lew and other officials telling their French counterparts that it is up to prosecutors to decide the BNP fine, according to people with direct knowledge of the matter.

Read MoreFrance criticizes US over BNP Paribas probe

The tepid response is partly due to criticism of previous action. Many U.S. lawmakers slammed the Treasury department and other authorities for not imposing tougher penalties on banks accused of wrongdoing, including HSBC, which faced a $1.9 billion fine in 2012 for money-laundering allegations.

France has been lobbying hard behind the scenes, including via contact between Michel Sapin, the finance minister, and Mr Lew. Last week Christian Noyer, head of the Bank of France, flew to New York to meet Cyrus Vance, the Manhattan district attorney.

Mr Hollande is expected to raise the issue with Barack Obama when the U.S. president visits Paris on Thursday.

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The government is under domestic pressure on the issue, following a public outcry over the weekend at the scale of the potential fine after unconfirmed reports on Friday that it could be more than $10 billion. Among those attacking the government for not defending BNP was Marine Le Pen, leader of the far-right National Front, which won last month's European parliamentary elections.

Apart from a big fine, a suspension of dollar clearing would be "dangerous because BNP could lose a lot of clients" and it could have a "huge impact on the bank", said one French official.

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Mr Noyer was accompanied to New York by the new French banking regulator Edouard Fernandez-Bollo, who has been the head of the prudential and control body ACPR since the beginning of this year.

The two men met Benjamin Lawsky, New York's bank regulator, to argue for leniency.

The investigation by U.S. authorities focuses on whether BNP violated U.S. sanctions and anti-money-laundering rules between 2002 and 2009 by disguising transactions in U.S. dollars with countries including Iran, Sudan and Cuba.

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Mr Lawsky's office is also pushing for the termination or suspension of employees involved in the alleged stripping of names of sanctioned entities from accounts.

A fine as high as $10 billion would represent one of the largest penalties ever sought by the U.S. Department of Justice against a bank in a criminal case, and could see the bank lose its right to clear dollar transactions for a time.

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A $10 billion fine would be likely to leave BNP with a core tier one capital ratio still above the 9 per cent required by regulators under Basel III rules, but below the 10 per cent mark that has recently been demanded by investors.

The bank is likely to consider paying its dividend in scrip form or raising extra capital, according to analysts. A significant concern is the long-term impact on the business if BNP was banned from dollar clearing, even for a short time.