Pakistani bank says New York regulator seeks to fine it up to $630 million

[August 28, 2017]  By Syed Raza Hassan

ISLAMABAD (Reuters) - The New York State Department of Financial Services (DFS) is seeking to fine Habib Bank Ltd nearly $630 million for deficiencies relating to compliance with state and federal laws at its only U.S. branch, an official of the Pakistan bank said on Monday.

If imposed, the penalty would be the largest ever faced by a Pakistani financial institution.

The DFS could not immediately be reached for comment.

The compliance issues date to 2015 when the DFS told Karachi-listed Habib Bank (HBL)<HBL.KA> to institute a series of reforms pertaining to the bank's policies for preventing illicit money transfers.

A December 2015 DFS statement said it had "identified significant breakdowns" in the bank's anti-money laundering compliance.

Nausheen Ahmad, the bank's company secretary, said in a statement on Monday that despite HBL's "sincere and extensive remediation measures, DFS is still not appreciating or recognizing the significant progress that HBL has made at its branch in New York".

She said HBL has received a notice from DFS , which "seeks to impose an outrageous civil monetary penalty of up to $629.625 million."

HBL said that it will "vigorously contest" the fine in U.S. courts, adding that there will be no "material impact on HBL's business outside of the United States".

The statement added that HBL has submitted an application to DFS to shut its New York operations.

The Habib Bank Limited (HBL) logo is seen on the head office building in Karachi, Pakistan, April 18, 2016. REUTERS/Akhtar Soomro/File Photo

STRICT RULES ON LAUNDERING

US federal and state laws require financial institutions to have policies and procedures in place to detect and prevent illicit money transfers. The measures include everything from screening customers and reporting suspicious transactions to regulators.

New York State imposed strict anti-money laundering regulations in 2015, which include requiring a bank's chief compliance officer to certify whether it maintains the types of systems outlined in the rule to detect and prevent illicit money transfers.

Examinations of HBL's New York branch at the time "identified significant breakdowns" in the bank's anti-money laundering compliance efforts but the nature of the breakdowns was unclear.

In 2016, DFS "identified significant breakdowns" in risk management protocols at the New York branch of another bank, the National Bank of Pakistan, which was given 60 days to draw up an improved monitoring and oversight proposal. That bank continues to have a New York branch.

On Sunday, Pakistan postponed a visit by a U.S. acting assistant secretary of state, officials said, as small protests broke out against President Donald Trump's accusations that Islamabad was prolonging the war in Afghanistan.

(Writing by Saad Sayeed; Editing by Richard Borsuk)

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