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Friday, 31 October 2014

Fines herbes

U.S. cooks up penalties with anti-foreign flavor

Uncle Sam is cooking up penalties with an anti-foreign flavor. New research suggests that overseas firms like BNP Paribas do in fact pay bigger fines and plead guilty more often than U.S. companies. One reason may be that prosecutors target only the most serious cases abroad. But the differences feed suspicions that America is playing favorites.

The French bank on Monday agreed to cough up almost $9 billion while admitting criminal violations of U.S. sanctions. Credit Suisse and a subsidiary of UBS also pleaded guilty recently to tax avoidance and interest-rate rigging, respectively. JPMorgan, Bank of America and other U.S. banks have paid billions of dollars in penalties but have, so far, avoided criminal liability.

The European institutions can justifiably feel singled out. U.S. criminal fines from 2001 to 2010 were about five times greater on average for foreign firms than for American counterparts, a University of Virginia Law School study has found. The average penalty was 22 times bigger for foreign companies after adjusting for the type of crime and whether the company was listed. And while about 40 percent of listed U.S. firms accused of crimes pleaded guilty between 2001 and 2012, more than 50 percent of foreign firms did.

Enforcement decisions are largely inscrutable. One reason foreign firms seem to be hit harder may be that the cost and difficulty of pursuing wrongdoing abroad make only the most egregious cases worthwhile. Convictions also may have fewer collateral consequences for overseas companies. They don’t answer to as many U.S. regulators, and a guilty plea may not badly tarnish their reputations back home.

Yet prosecutors have treated American companies gingerly since putting accounting icon Arthur Andersen out of business in 2002. Many alleged miscreants get deferred prosecution agreements that suspend criminal charges in exchange for reforms and fines. Even convicted firms are shielded. Pharmaceutical giant Pfizer, for example, settled charges of illegally promoting products in part by having a defunct subsidiary plead guilty.

The government especially shies away from charging U.S. banks. Their many regulators can revoke licenses and certain clients won’t deal with criminal entities. But even those penalties are discretionary, as New York’s financial watchdog showed by agreeing not to pull BNP’s license. The new study adds to the sense that U.S. prosecutors are running out of excuses. Without more homegrown scalps, they risk leaving a bitter taste abroad.

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BNP Paribas on June 30 pleaded guilty to two criminal charges and agreed to pay almost $9 billion to resolve charges that it violated U.S. sanctions against Sudan, Cuba and Iran. Regulators also banned the French bank for a year from conducting certain U.S. dollar transactions, a significant part of its global business.

U.S. authorities said the severe penalties reflected BNP’s violations from at least 2004 to 2012 and its drive to put profit first, even after U.S. officials warned the bank of its obligation to crack down on illegal activity.

A study by Professor Brandon Garrett in the University of Virginia Law Review found that foreign companies plead guilty more often and pay larger fines than U.S. firms do.

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