The U.S. Department of Justice’s $8.9 billion settlement with BNP Paribas in late June for criminal violations of U.S. sanctions gave prosecutors a chance to argue that they’re not afraid to get tough on big banks. But it also highlighted the advice—some of it questionable—from two big law firms that counseled BNP.
A statement of facts filed with the criminal plea deal describes how “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, it appears that Law Firm 1 is Cleary Gottlieb Steen & Hamilton. Our affiliate publication The Litigation Daily has confirmed that Law Firm 2 is Skadden, Arps, Slate, Meagher & Flom. Both firms declined to comment. BNP stipulated to the statement of facts, so it’s not contesting the DOJ’s version of events.
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 BNP may have been able to avoid penalties by U.S. authorities if it conducted these prohibited transactions through another U.S. bank,” according to the DOJ.
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 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.
Still, according to the government, BNP continued to process prohibited payments for nearly another year.