A Litigation Daily piece by Susan Beck in the New York Law Journal takes a look at the role of lawyers in the events leading to BNP Paribas’s $8.9 billion settlement with the US Justice Department. The DOJ’s statement of facts filed with the plea deals discusses law firm opinions: one set from Law Firm 1 (Beck indicates this is probably Cleary, Gottlieb, Steen & Hamilton) and one opinion from Law Firm 2 (identified by Beck as Skadden, Arps, Slate, Meagher & Flom by the NYLJ but Clifford Chance by Bloomberg); neither firm has commented). The case is redolent of Standard Chartered Bank (where it is probably the role of General Counsel not outside counsel which gives rise to most concern).
Beck puts it like this:
In an attempt to evade U.S. enforcement actions, BNP executives avoided using BNP New York to process prohibited payments and used an unaffiliated U.S. bank instead. 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.”
The nature of the advice in Law Firm 1’s memo cannot be concluded based on a few excerpts selected by the government. The memo warned 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.
This they did for three years or so, clearing large sums from sanctioned entities in Sudan. Beck carefully states, “It’s unclear from the government’s filing if Law Firm 1 knew about that concealment.”
Part way through those three years the picture changed. ABN AMRO Bank was fined $80 million (those were the days, sigh the banks) for violating sanctions laws. Law Firm 2 advised BNP that:
it could face criminal charges if it omitted identifying details from payments sent to the U.S…. 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.
BNP continued to process prohibited payments. Beck also says this:
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 Justice Department.
As well as the fine:
The bank is expected to plead guilty in federal court on July 9 for conspiring to violate the International Emergency Economic Powers Act and the Trading With the Enemy Act.
It has also agreed to fire multiple senior executives and will lose for one year its ability to process certain transactions in U.S. dollars. No individual BNP executives were charged.
It is not indicated whether any of those executives were lawyers or almost as interestingly what happened to the lawyers who had previously expressed concern about the transactions (were they managed out at the time, left alone, were their careers affected?).
I have spent a lot of time recently researching how in-house and private practice lawyers think about ethics and their red-lines. The case is an interesting example of several phenomena.
Many lawyers will say they are merely technicians who advise their clients on their options. Clients take responsibility for any moral concerns. This principle of non-accountability has some merit in it, in certain circumstances, but also a great deal of danger. The lawyer’s advice is, “You could try this scheme. It is risky, I would not recommend it.” The client hears (or can say they hear), “You can try this scheme.” Each blames the other in the accountability game. It is particularly dangerous where lawyers give advice that something is probably, or more likely than not, defensible. To quote from Confidence Games on tax lawyers, this can be a ‘Get out of jail free card’ and lawyers have been willing to so advise where they do not believe their own advice. The claim to non-accountability is particularly weak where it is the lawyer who dreams up the scheme in the first place.
Lawyers will also say they have red-lines, where being asked to advise on something uncomfortable shifts into territory that they will not stray. Those red-lines are described in different ways but typically centre on something that is “criminal” or (worryingly) “clearly criminal”. Territory short of criminality often gives them some discomfort but is tolerated. What the advice from Firm One shows is the permeability of that boundary between criminal and civil breaches of the law. Lawyers who are too comfortable with advising on how to breach the law without it being enforceable or being likely to be enforced risk breaching their obligations to the rule of law, to say nothing of actions in fraud or dishonest assistance which might also result if the circumstances are right or they put a foot wrong.
The banking cases suggest that some lawyers need to wake up to the notion of accountability, have a proper discussion about their public interest obligations and formulate some useful guidance to keep their brethren out of trouble. The profession’s reputation depends upon it, but there are also more prosaic concerns. There are already arguments being made that corporations should not have advice privilege (see link for Andrew Higgins’ work) and limitations on privilege for in-house lawyers at the EU/competition law level. Legal professional privilege is granted on the assumption that lawyers counsel their clients towards legality. The more examples of lawyers doing the opposite, the harder it will be to justify that privilege.
Update: this Bloomberg story has a bit more detail on Firm 1’s second legal advice and how the French in-house attorney reacted to the advice. The story indicates about a year and a half later Cuban payments, which had not been stripped of their identifiers (part of the process of avoiding detection) were stopped by the Bank. These were unlawful under US sanctions laws and were blocked by the Bank because they had identified as Cuban transactions on the transfers. They were reportedly then stripped of those Cuban identifiers, re-submitted and accepted. The story then goes on to say:
a senior BNP Paribas attorney in Paris, wondering whether a U.S. investigation could be triggered, asked Cleary Gottlieb for advice. Cleary Gottlieb answered in a March 6, 2006 memo, saying the transactions violated U.S. sanctions — regardless of whether they were processed by JPMorgan or BNP Paribas’s New York facility. Cleary Gottlieb advised BNP Paribas to “consider discontinuing participation in any such U.S. dollar facility,” the statements of facts said.
A subordinate of the senior BNP Paribas attorney forwarded the Cleary Gottlieb memo to a bank compliance officer, drawing a reprimand from his boss who said “we now no longer have control,” according to the document.
The senior attorney then wrote to Cleary Gottlieb: “please suspend any further work on this file.”
So here’s the first question. Has the client been informed, at the appropriate level of seniority and responsibility, of the relevant wrongdoing?