Compliance culture an issue for non-US banks, expert warns

The recent fine against BNP Paribas for sanctions violation has shone a light on the issues non-US banks face in trying to comply with US regulations, says one legal expert

BNP Paribas agrees to pay $9bn fine

Non-US banks are still shying away from compliance with US regulations, one legal expert has warned. Two weeks after French bank BNP Paribas agreed to pay a fine of $8.97 billion to US regulators for breaching sanctions against trading with Iran, Sudan and Cuba, James Odell, a New York-based partner at law firm Blank Rome, says there are still issues to be addressed when it comes to non-US banks complying with US regulations on such matters.

"If the worry is that large banks might not be taking some of these regulations seriously, unfortunately that does not surprise me. And if the reports about BNP Paribas are true, they seem to confirm that a number of institutions may have cultural issues still with compliance, particularly when they are not US institutions."

Banks domiciled outside the US may be more "cavalier" in their approach to compliance with non-home country regulations, Odell warns. "The culture of compliance in a number of organisations isn't exactly where it should be, particularly with senior managers," he adds.

Odell also points out that the different US regulatory environment contributes to the issue. "One of the consequences of the US regulatory environment is it breeds a different culture within the non-US institutions operating in it, and you won't necessarily see those type of cultures in other places where the regulatory environment is different."

Henry Balani, Chicago-based head of innovation at compliance solutions provider Accuity, agrees that non-US banks face cultural challenges in complying with US regulations. "Culture definitely has a part to play in this. A key issue for these European, non-US based banks is that there is a stiffer emphasis on local regulations, so there's a bit more awareness on some of the challenges around those. This contributes to the issue with the culture of compliance for these banks, because there are local regulatory requirements they have to meet as well as whatever the external US requirements are."

In the case of BNP Paribas, Balani points out that different social norms in different jurisdictions may also have been at play.

"BNP Paribas' Swiss operations may well have different social norms to the US. Maybe staff in this different social context were thinking 'how do I best serve my customer?' And if that customer is saying 'we need to take these steps for our transactions', perhaps that's how these situations arose. The intent might be, let's do what we can for our customers, and at that moment the US regulations seem so far away and perhaps didn't seem either that clear or that important."

BNP Paribas was fined $8.97 billion on June 30 for what the US Attorney's Office for the Southern District of New York called a "hat trick" of sanctions offences by providing access to the US financial markets to Iran, Sudan and Cuba.

In the case of Iran, the French bank was involved in more than $650 million worth of transactions, in spite of already having begun an internal investigation into its sanctions compliance before these transactions took place.

The Sudan dealings make up the majority of the violations, according to the US Attorney's order. It states that BNP Paribas processed $6.4 billion through the US on behalf of Sudanese sanctioned entities from July 2006 to June 2007. The bank's Geneva subsidiary was made aware of potential sanctions violations in 2005 when a senior compliance officer raised the alarm that the satellite bank system was being used to evade US sanctions, according to the US Attorney's order.

With regard to Cuba, the order states that BNP Paribas "knowingly and willfully" processed $1.7 billion on behalf of Cuban sanctioned entities.

Alongside the fine, the bank also agreed to plead guilty to conspiring to violate the International Emergency Economic Powers Act and the Trading with the Enemy Act, the first time a financial institution has agreed to do so.