Pakistan's Habib Bank kicked out of New York over terror funding; fined $225 million

BT Online        Last Updated: September 8, 2017  | 19:50 IST
Pakistan's largest lender Habib Bank kicked out of New York over terror funding; fined $225 million
Photo: Reuters

Pakistan's biggest lender Habib Bank has been slapped with a $225 million fine before shutting down in US by New York state's banking regulator, the New York State Department of Financial Services.

The enforcement action by the Department of Financial Services (DFS) on Habib Bank is the first time in the history of New York state when a bank has been ordered to shut down, besides being ordered to pay a hefty fine on charges of suspicious transactions relating to terror funding.

Headquartered in Karachi, the Pakistani government is the majority owner of Habib Bank. The New York banking operations regulator had earlier penalised Habib Bank for over 53 violations allegedly committed at its New York branch.

The regulator had flagged Habib Bank's dealing with Al Rajhi Bank, the largest private bank in Saudi Arabia, saying that  a report released by the U.S. Senate Permanent Subcommittee on Investigations had linked its owners to organizations associated with financing terrorism after the 9/11 terrorist attack, including that one of the bank's founders was an early financial benefactor of al Qaeda.

Al Rajhi transactions represents approximately 24 percent of the total number of transactions conducted through the New York Branch of Habib Bank, the regulator said.

Habib Bank had failed to correct serious weaknesses first identified more than a decade ago. By 2015, the DFS found, the bank's compliance function was in an even worse state, lacking the most basic of controls on money-laundering and customer screening, Maria T Vullo, Superintendent of Financial Services, said in the statement of charges.

In what could be a serious indictment of Habib Bank's senior management, the DFS said Habib Bank's recent misconduct has produced grave risks to itself, to banking institutions in New York State and the US, and to the financial system as a whole. Although the Bank has been given more than sufficient opportunity to rectify its deficiencies, it  has utterly failed to do so -demonstrating a sheer inability to accomplish remediation, a  stubborn unwillingness to do so, or both.

Department's investigation also revealed that Habib Bank completely excluded screening of more than 4,000 transactions, apparently because the parties involved were listed on what is known as a  so-called "good guy" list - a list of customers who purportedly have been screened and identified as very low risk. The Department's investigation determined that a 7 substantial number of parties were improperly included on the Habib Bank "good-guy" list.

Around 154 terms included in Habib Bank's "good guy" list corresponded to identical entries that were included on the Specially Designated Nationals and Blocked Persons List, which is a  list of parties prohibited from transactions by the U.S. Treasury Department. The "good-guy" list included prohibited persons and entities identified on the SDN List. Some of the suspicious transactions at Habib Bank include a transactions involving the leader of a Pakistani terrorist group and a known international arms dealer, the regulator said the statement of charges.

The Department's investigation has identified nearly 200 additional instances of suspicious activity that were never identified or reported by the Branch. These transactions include a variety of suspicious characteristics, such as payments lacking economic purpose (eg. a payment to a technology company for leather goods), it added.

The DFS said in a legal filing last month that it was seeking to fine the Habib Bank up to $630 million for "grave" compliance failures relating to anti-money laundering and sanctions rules at its only U.S. branch.

"DFS will not stand by and let Habib Bank sneak out of the United States without holding it accountable for putting the integrity of the financial services industry and the safety of our nation at risk," Vullo said in a statement.


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