With the drama over the French bank BNP Paribas heading towards its closing acts, and with U.S. Department of Justice officials now talking about fines in the neighborhood of $8 to $10 billion for the bank’s work with Sudan and Iran in direct contravention of American sanctions, Francois Hollande felt compelled to bring up the issue with President Obama:
French President Francois Hollande has stepped up his defense of the lender, describing the possible penalty as “disproportionate,” while his government has invoked wider economic concerns and linked the dispute to trade talks.Obama, who dined with Hollande at a Paris restaurant on Thursday evening, said that decisions on any prosecution in such cases lay solely with the U.S. Justice Department.“The tradition of the United States is that the president does not meddle in prosecutions,” he told reporters in Brussels.
It’s hard for Americans to understand just what a big deal this case is to the French. The French state is much closer to and much more dependent on the country’s top financial, energy, and industrial firms than is the case in the United States. Here, there are so many big companies with such diverse interests that no single corporation can dominate U.S. policymaking the way large firms do in smaller economies.
In France this effect is magnified by the ties created among large firms, and between them and the government, through centuries of a powerful and centralized state system. The French government is a large shareholder in many of the big firms, and the banking system is tightly integrated into national policymaking. On top of that, the French system of elite education creates a small and tightly-knit group of national leaders who move between government and large industrial and financial companies. At its best, this system works extremely well and contributes to France’s high standard of living and its consistent ability to make products that are famous worldwide. Americans sometimes underestimate how effective a centralized system can be in a medium-sized country like France—while others overlook the reality that America’s sprawling size and cultural and economic diversity ensure that even if we tried we could never set up a centralized state system that was as effective as what the French have built.
The thing to understand now is that the problems of BNP really, really matter, and not just to Hollande, but to the French state and the great firms clustered around it. Expect France to pull all the levers it can find to avoid crushing fines and the imposition of legal penalties and disabilities that would seriously impinge on the bank’s business.
But the situation is even more serious. In helping big French companies evade U.S. sanctions, BNP wasn’t a rogue actor off on its own. Its resistance to U.S. sanctions policy was part of a larger campaign by France (and others) who deeply resent the attempts of U.S. authorities to use the international financial system’s dependence on the U.S. as an instrument of national power.
They have a point: We Americans are sometimes irresponsible in our use of the sanctions tool. Nevertheless, the U.S. has a special responsibility for defending the integrity of the international economic system and the geopolitical foundations that sustain it, and the French penchant for undercutting U.S. sanctions and diplomacy for special advantage is not something the U.S. is obliged, morally or legally, to indulge. The French are now threatening to hold the Transatlantic trade talks hostage as part of their campaign to protect BNP; the American position ought to be that the EU’s stance on trade issues is something that EU countries need to work out on their own. It’s unlikely that the other European countries, some of whom are desperately eager for a trade deal that could open new markets at a time the euro disaster has crushed their growth prospects at home, will be happy with France’s stance.
Furthermore, President Obama is absolutely right to tell President Hollande that it would be deeply improper for a U.S. President to interfere in this investigation. BNP knew what the laws were and must now face the consequences of its actions.
Looking ahead, however, it makes sense for both the U.S. and the EU to look at how they can better harmonize their laws and regulations. Increasingly, big businesses on both sides of the Atlantic are whipsawed by the very different regulatory cultures that have grown up in Europe and North America. As part of those talks, American negotiators might be willing to put some of our laws that Europeans find particularly objectionable on the bargaining table—if there is real reciprocity on the other side.
At the same time, however, the Europeans (including the British, who are often the worst offenders in this regard), need to understand that the international financial system needs to be more transparently regulated and more effectively governed. Too many narcotraffickers, terrorists, kleptocratic dictators, and thieving oligarchs are too comfortable in the financial system as it currently works. If Europeans are willing to meet the U.S. halfway on measures to enhance financial transparency, the U.S. can think more creatively about how the financial system can accommodate the special histories and needs of European banks like BNP.