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#Governance, Risk and Compliance

BNP Paribas: this time it's personal

International Compliance Association

BNP Paribas , financial , regulatory

I wrote recently about the emerging phenomenon of guilty pleas in US regulatory enforcement cases, and their apparent lack of substance following the Credit Suisse plea. In the Credit Suisse case no individuals were punished, no licenses revoked, no activities suspended, and the bank itself confirmed that the impact of the guilty plea on business had been "very limited", leaving many to wonder whether the bank's plea served any purpose other than to add some window dressing to an admittedly large fine.

However, with the recent conclusion of the BNP Paribas case (another guilty plea) the US authorities have upped the ante in their enforcement approach... and this time it's personal. The fine is a record 8.9bn US dollars, although this is not the only noteworthy feature of the case. Indeed, in re-cent weeks reports had suggested that the penalty might be in the region of 15bn dollars. But while the figure may have been reduced slightly from what some had anticipated (perhaps a concession to the political pressures emanating from France) the prosecutors have found instead two new lines of attack:

  1. A suspension of activities, with certain parts of the bank being banned from clearing US dollar transactions
  2. Penalties for individuals, with 13 members of staff being sacked (three of whom were in senior positions, including the COO), and a further 32 being disciplined (either through pay cuts or demotions)

It is this second area that really captures the attention. Since the financial crisis there has been a public appetite for penalties for wrongdoing to be felt at the level of the individual. For some, this represents the "witch hunt" mentality of the public at large: the desire for scapegoats and retributive justice. For others, it is a perfectly reasonable desire, reflecting in part an understandable frustration with the nebulousness of the process of sanctioning entire companies for actions which individuals must have been implicated in at at least some level. Yes, a lack of systems and controls at an organisational level allows bad behaviour to flourish, and organisational culture further fuels these conditions, but ultimately individuals do knowingly break the rules (or allow them to be broken) and it is individuals (particularly those in senior positions) who shape and guide organisational cultures.

In many ways, then, the BNP Paribas case appears to fill a gap which has been widely perceived within many recent high profile enforcement cases. The implications for senior managers may be significant. Jobs may be on the line. Personal loss is a clear and present threat. Having to account to shareholders and the board for losses through regulatory fines is doubtless an uncomfortable experience, but the reality of a P45 speaks that much louder. And with the US authorities lining up a number of other European banks in their sights (including Commerzbank, Credit Agricole, SocGen, Unicredit and Barclays) that threat has become significantly clearer and ever more present.

So is BNP Paribas a watershed moment or a flash in the pan? Does it signal a permanent change in stance by the authorities, or is it merely a gesture? As always, I’d be very keen to hear your thoughts.


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