NY regulator fines Habib Bank $225mn for compliance failures

New York branch of Pak bank allowed transactions by persons on US terror watch lists

Vullo today announced that the Department of Financial Services (DFS) has fined Habib Bank and its NY branch $225 million for failure to comply with NY laws and regulations created to combat money laundering, terrorist financing, and other illicit financial transactions.

The worst case scenario, according to a report from Arif Habib Ltd, is that the bank will pay no dividend in the next 12 months.

The DFS said in a legal filing last month it was seeking to fine the bank, Pakistan's biggest lender, up to $630 million for "grave" compliance failures over anti-money laundering and sanctions rules at its only U.S. branch.

The quantum of the fine, at $225 million, is substantial, coming in at more than two-thirds of last year's total profit after tax, but poses no risk to the stability of the bank or the country's financial system, as was feared.

Habib Bank has been operating in the United States since 1978.

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The fine amount is significantly lower than the penalty amount of $629.6 million that was initially proposed.The fine that HBL has agreed to pay is the largest ever imposed upon a Pakistani bank by regulatory authorities.

Investigations by the DFS found that the bank handled billions of dollars in transactions with, Al Rajhi Bank, a Saudi private bank, which has reportedly been linked to the al-Qaeda terrorist organization. However, the bank failed to comply with the orders, according to reports. After being suspected of some potential illegal transactions in 2006, the bank was instructed to be strict on such transactions, but the bank failed to do so.

"The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so", Vullo added, saying the agency will not allow Habib Bank to easily sneak out of the US.

Habib has approved at least 13 thousand such transactions which encourage terrorist activities. Not only this, the bank improperly used a "good guy" list to rubber stamp transactions worth at least Dollars 250 million in transactions, including those by an identified terrorist and an global arms dealer, AFP reported regulators as saying. DFS said the banks will have to surrender its license. Under State Bank regulations, this is meant to be at 11pc.

"The terms of this Consent Order and the Surrender Order now agreed to by the bank will ensure that Habib's misconduct will no longer occur on USA soil and that DFS will still investigate the bank's prior activities", said the Superintendent of DFS.

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