Even without the US sanctions, the compliance failures at the Swiss unit would result in departures at BNPP. The cost imposed by the sanction is a strong nuisance factor and a spoiler in the bank's long term strategies to ensure its position as one of the soundest banks in terms of solvency and capitalisation by 2020. The 10 billion dollar question is not therefore if the sanction is right or wrong, or if it is too severe or not severe enough, it is about wether or not the leadership of BNPP are capable of understanding the cultural causes of their failure - or if they will merely perpetuate their mistakes of the past. So far their actions have been to effect an "honourable discharge" of their Chief Operating Officer, Georges Chodron de Courcel, as well as their Executive Member responsible for Compliance and Control, Jean Clamon - the latter replaced by the Head of Internal Audit and previous MD for BNPP Luxembourg, Eric Martin. Other key measures include the "delegation" of responsibility for regulatory compliance with US laws to its entity in the US itself - a significant departure from the centrist control orientation of BNPP in general - and the establishment of an Ethics Committee to be chaired by Bonnafé himself. The latter is a welcome move in any organisation, but unless staffed by a diversified and free-speaking group of executives from all corners of the BNPP universe (and perhaps even beyond), then it risks falling into the trap of group think in support of an undoubtedly highly intelligent, effective and logical CEO married to his own sense of ethics - I sincerely hope that he will surround himself with voices that will challenge his own judgement on topics that will go beyond the logical musings of any one individual.
Bonnafé says BNPP have "learnt lessons" from these events. However, what lessons are they listening to? Moving the multi-cultural, and behavioural science compliance role under the domain of a Head of Audit and increasing control measures will not satisfy the NY Fed who recently announced they are about to start inspections of corporate culture in like manner with some other national regulators. BNPP's actions and future behaviour will be a case study in the making and well worth following.
On LinkedIn, I recently responded to a posting that led to a discussion of the effectiveness and need for large sanctions: It inspired this blog, and includes some further thoughts that I reproduce below.
Costantino Grasso commented "BNP Paribas is facing economic troubles as a result of the severe sanctions imposed by the U.S. authorities Regulatory & Compliance - This interesting article (Après une amende record, BNP Paribas accuse de lourdes pertes) published by Le Monde and written in French offers a general overview of the recent sanctions imposed on BNP Paribas by the U.S. authorities and illustrates how this severe punishment is almost leading the bank to collapse.
My Response: To indicate that the bank is on the verge of collapse, seems a little extreme, no? Certainly the bank has registered a quarterly loss, and my hope is that finally we have registered a level of fine that will be taken note of by shareholders and the board f directors alike. It seems that at least an eradication of a year's profit is necessary to result in real change at the top ... or is it? So far, to my knowledge (and please correct me), only the Co-COO and the Head of Compliance and Control have publicly "taken early retirement" - perhaps there have been people on the commercial side who have been made to go also, but if so, then more discreetly than the control function departures. Why? Is this the way to better the culture. BNPP have assigned the Head of Audit to take over compliance. Central controls are being tightened and another Ethics Committee is being established - at the top. It all points to more procedures, not a greater understanding and engagement of employees to do the right thing? I hope I am wrong.
Constantino: It is surely extreme but I wanted to be provocative. I think that the BNP case raises the thorny issue related to the identification of the rationales of such sanctions.
Is the desirable outcome obtaining a positive change in corporate behaviours or punishing the illicit conduct of the company? The latter, which could appear morally justified from a retributivist perspective, would give good reason for the imposition of a potentially destructive sanction, whereas the former, distinctly inspired by a consequentialist aim, would justify a lenient punishment but require more control.
I believe that as lawyers we should strive to obtain a clear order of priority of sentencing aims in order to avoid possible abuses and/or favouritism both at domestic and international level.
My Response: We can agree that the desired outcome is changed behaviour - punishing shareholders for the (in)actions of the Board of Directors is, in and of itself, a very inefficient path to new values and good conduct of company executives and employees.
If we wish for altered behaviour, we have to achieve a realisation by the executive and board that previous behaviour was wrong at the levels of its stakeholder responsibilities and unacceptable. Then there needs to be an education process and a serious commitment to change corporate values to ensure that everyone in the organisation understands the value principles that form the framework for operational decisions. In the absence of such acceptance and enlightenment, the only alternative is to oust the existing leadership and to select a new one that is already committed to "doing the right thing", and not just "doing things right". Alas, what we have witnessed with too few exceptions this last decade is a willingness to have shareholders "pay the price" of breaches, and to strengthen controls to ensure legal compliance rather than invest in the culture of the firm to correct behaviour in principle. An example was a glorious, self-justifying statement by the CFO of Total when found to have breached US FCPA regulations emphasising that "no French laws had been broken". Faced with this type of reaction, we need a change of leadership.
However, who will change the leadership? Normally, this is the role of the Board, but if they themselves are weak or are at the core of the problem, then shareholders must act - but so few do that the EU is introducing as many measures as they can think of to increase shareholder engagement. Sanctions that impose losses on shareholders have to be so significant that they want to point a finger of blame, forcing change within the executive. One quarterly loss has been proved to be insignificant, will a year of overall break-even, or a slight loss do it? The example of BNPP will perhaps prove an interesting experiment. Currently, BNPP have changed those at the head of Conformité (Compliance and Control), and Operations - but are they really trying to change the compliance culture of the firm? Or are they merely seeking to strengthen legal compliance, with all the possibility and temptation to find and accept loopholes for actions not seen as contrary to French laws. The latter would not be a recipe for success for a major global operator facing a complex myriad of extra-territorial laws and multi-cultural values. I hope I am wrong about BNPP, but the size of the fine indicates that the US does not believe that they "get it".