The U.S. Department of Justice’s $8.9 billion settlement with BNP Paribas gave prosecutors a chance to argue that they’re not afraid to get tough on big banks. But it also highlighted the roles of two big law firms that counseled BNP on transactions at the heart of the government’s case, suggesting that the French Bank relied on questionable advice to justify violating U.S. sanctions regimes.
In a statement of facts filed with Monday’s criminal plea deal, the DOJ wrote that two law firms—identified only as Law Firm 1 and Law Firm 2—advised the bank about prohibited transactions with Sudan, Iran and Cuba from at least 2004 to 2006. Based on a June 13 scoop by France’s Le Monde and reports in the U.S. identifying one of the firms as a well-respected U.S. firm, it appears that Law Firm 1 is Cleary, Gottlieb, Steen & Hamilton. The Litigation Daily has confirmed that Law Firm 2 is Skadden, Arps, Slate, Meagher & Flom.
Both Cleary and Skadden declined to comment.
In an attempt to evade U.S. enforcement actions, BNP executives avoided using BNP New York to process prohibited payments and instead used an unaffiliated U.S. bank. According to the government, the French bank relied on incorrect advice in an October 2004 legal memo from Law Firm 1. This memo “suggested that BNPP may have been able to protect itself from being penalized by U.S. authorities if it conducted these prohibited transactions through another U.S. bank.”
It’s impossible, however, to draw conclusions about the nature of the advice in Law Firm 1′s memo based only on a few excerpts selected by the government. The memo did warn of other possible problems with this plan: While BNP might not be penalized, the memo said that U.S. law would require the payments to be frozen or blocked by the U.S. bank.
Still, BNP employees latched onto this legal opinion to justify processing banned transactions through an unaffiliated U.S. bank, which is not identified. From 2004 through 2007, the vast majority of BNP’s transactions involving Sudanese entities were cleared through the U.S. bank using a payment method that concealed from that bank the involvement of the sanctioned entities. It’s not clear from the government’s filing if Law Firm 1 knew about this concealment.
The legal advice changed after December 2005, when U.S. authorities fined ABN AMRO Bank $80 million for violating sanctions laws.
In May 2006 Law Firm 2—presumably Skadden—warned BNP that it could face criminal charges if it omitted identifying details from payments sent to the U.S. In March and June of 2006 Law Firm 1 wrote two more opinions reversing its earlier stance. The firm now stated that BNP could face sanctions even if transactions were routed through the U.S. bank, and that U.S. authorities had become sensitive to the use of “cover payments” that omitted identifying details.
Still, according to the government, BNP continued to process prohibited payments for nearly another year.
The government’s filing also notes the complicity of BNP’s senior in-house legal and compliance staff. “[They] repeatedly recognized BNPP’s role in circumventing U.S. sanctions against Sudan, and yet allowed these transactions to continue in part because of their importance to BNPP’s business relationships and ‘goodwill’ in Sudan,” prosecutors asserted. Lawyers who expressed concern about the bank’s actions were rebuffed, according to the DOJ.