HOUSTON (CN) – BNP Paribas cannot duck claims that it exploited a guarantee program for commodity exporters, but the U.S. government needs to specify which subsidiaries of the France-based banking group it wants to hold liable, a federal judge ruled.
U.S. commodity exporters can get financing from banks against payments due from foreign importers through a guarantee program the U.S. Department of Agriculture.
Exporters assign to a bank their right to payment and the importer’s payment obligation, and the USDA guarantees payment to the bank under the program.
Exporters cannot participate in the program if they are directly, or indirectly, owned by the foreign importer.
But Mexican businessman Fernando Villarreal Cantu devised a scheme to get the payment guarantees for his export companies’ sales, even though his ownership of both the exporters and importers made them ineligible.
Villarreal accomplished this by bribing BNP Paribas Houston’s trade finance manager Jovenal Miranda Cruz, who had BNP provide financing for Villarreal’s exporters in exchange for payment obligations from his Mexican importers.
Villarreal’s export companies applied for and received U.S. government guarantees using false documents, and then assigned those guarantees to BNP, which in turn gave the exporters a line of credit up to the guarantee amount, minus fees.
After the Mexican importers failed to make the more than $78 million in payments owed to BNP in April 2005, the bank promptly filed claims on the guarantees to cover its losses.
After the USDA referred the defaults to the U.S. Attorney’s Office, prosecutors filed charges against Cruz and several co-conspirators, alleging that they knowingly made a false statement to influence BNPP’s credit advances.
Cruz pleaded guilty to conspiracy to commit bank fraud, and the United States then sued BNP Paribas SA, BNP Paribas North America, BNP Paribas Houston Office and Cruz in October 2011.
The complaint alleged violations of the False Claims Act, unjust enrichment and payment by mistake, claiming bankers knew the exporters were not eligible for the guarantees, but concealed that from the USDA.
The United States also claimed Cruz acted for BNP’s benefit in executing the deals.
In a motion to dismiss, BNP said that the United States is judicially estopped from bringing its claims, which it further characterizes as time-barred and legally flawed.
Judicial estoppel prevents a party from filing a claim in a legal proceeding that is inconsistent with a claim the party made in a previous proceeding.
BNP claims that the government repeatedly characterized the bank as a victim of the fraud in the criminal proceedings, and now wants to assert the opposite, that BNP is liable as a perpetrator, in the civil lawsuit.
U.S. District Judge Sim Lake sided mainly with the United States on Monday.
“The BNPP defendants have not cited a single document in which the United States refers to BNPP as a ‘victim,'” he wrote, using abbreviating the full name BNP Paribas. “Instead, the BNPP defendants have cited documents showing that Cruz and his co-conspirators knowingly provided false information to BNPP.
“But the fact that false information was provided to BNPP as part of the conspiracy to defraud the United States is not necessarily inconsistent with the United States’ allegations that BNPP is liable for the knowing submission of false and fraudulent claims to the United States.”
Lake also ruled that the False Claims Act allegations against BNP and Cruz are not time-barred, citing the Wartime Suspension of Limitations Act, which suspends the statute of limitations for United States’ False Claims Act charges during wartime.
Lake did, however, find that the United States failed to present facts capable of holding BNP Paribas SA and BNP Paribas North America are liable for Cruz’s actions when Cruz was employed by the bank’s Houston office.
BNP also failed to toss the claims of unjust enrichment and payment by mistake by alleging that the guarantees assigned to it are contracts, which exclude the government from making claims under any other theory.
Lake said that “the defendants’ arguments fail because the United Sates has pleaded facts capable of establishing that the payment guarantee contracts, which the BNPP defendants argue foreclose the United States’ common law claims, are void because they were tainted by fraud, bribes, and/or kickbacks.”
Cruz, who joined BNP’s motion, was also unable to show that the claims against him are time-barred.
The 54-page ruling directs the United States to file an amended complaint within 30 days, stating why each of the three BNP entities is liable.