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In BNP Case and Beyond, Regulators Search for Penalties to Fit the Crimes

"United States bank regulators are descending deep into the plumbing of the financial system as they seek the most fitting punishment for the giant French bank now in the cross hairs of the law enforcement authorities.

"BNP Paribas is expected to plead guilty in the coming weeks to charges that it processed payments for companies and countries that were subject to United States sanctions. A criminal conviction would leave a stain on the bank’s reputation. BNP Paribas is also expected to pay financial penalties of about $8 billion, which would leave a sizable, though manageable, dent on its balance sheet. And a settlement is likely to require that the bank fire some senior executives.

"Despite those potential punishments, some regulators want to do more — and that is why they have turned their attention to the depths of the banking system. They are considering restrictions on the BNP Paribas operations that funnel billions of dollars through the vast network of pipes that connect the world’s largest banks.

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"The fact that regulators are considering restrictions on such an important banking activity has added a significant twist to the debate over how to punish large banks.

"Some legal specialists said that crimping dollar clearing could lead to unpredictable consequences. 'It is a new form of punishment,' Oliver I. Ireland, a partner at Morrison & Foerster, said. 'It seems to me to be a very uncertain tool to achieve an end.'

"But consumer advocates said that banks and their representatives often overstated the potential effect of punishments. As a result, they said, law enforcement authorities should treat dark predictions about a dollar-clearing ban on BNP Paribas with skepticism. 'This strikes me as less than a modest sanction,' said Dennis Kelleher, president of Better Markets, a group that has lobbied for tougher regulation of big banks."

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