NY watchdog says the bank ‘opened the door’ to terror financing and fines it $225m
New York’s state banking regulator has slapped a $225m fine on Habib Bank, the biggest bank in Pakistan, and ordered it out of the US after finding a catalog of flaws in compliance that “opened the door” to the financing of terror, report the Financial Times.
The Department of Financial Services on Thursday said it was taking drastic action — the first time it has ordered a bank to shut down in the US — because Habib 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.
The DFS’ most recent investigation found that Habib facilitated billions of dollars in transactions with a Middle Eastern private bank which has had reported links to al-Qaeda. The bank also used a “good guy” list — a group of customers who supposedly presented a very low risk of illicit transactions — to wave through at least $250m in transactions with no screening at all. Characters on the list included a leader of a Pakistani terrorist group, a notorious international arms dealer, and the former Deputy Prime Minister of Iraq under Saddam Hussein.
Habib has agreed to surrender its licence to operate the New York branch, once it has wound down the business in an orderly way as part of the out-of-court settlement.
“DFS will not tolerate inadequate risk and compliance functions that open the door to the financing of terrorist activities that pose a grave threat to the people of this state and the financial system as a whole,” said Maria Vullo, superintendent.
“The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so. 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.”
The fine, which is the largest ever imposed upon a Pakistani bank by regulatory authorities, has to be paid within 14 days. The amount is large, but still far smaller than the $630 million that the regulator had earlier assessed.
“All charges have been dropped following this consent order,” said a senior bank officer who did not wish to speak for attribution, according to Dawn.
Habib, which is headquartered in Karachi, is the largest bank in Pakistan, with about $24bn in assets. The New York branch had been licensed by DFS since 1978; for the year ending December 2015, it processed correspondent banking transactions worth a total of $287bn.
According to the DFS, Habib improperly cleared some transactions flagged by the bank’s monitoring system after withholding the names of beneficiaries or other pertinent information — a phenomenon known as “wire-stripping”.
In one instance, Habib handled a payment involving a Chinese weapons manufacturer that was subject to US sanctions. The DFS determined that trade-finance documents had been doctored to conceal that the goods shipped were explosives.
Habib’s lawyers stated: “HBL is pleased to have this matter behind it and has begun the orderly wind down of its New York operations,” said Matthew Biben, a partner at Debevoise & Plimpton. “HBL believes that the opportunity to resolve this matter consensually at this time is in the best interests of its investors, shareholders and customers.
HBL had become the target of an enforcement action by DFS for 53 separate violations allegedly committed between 2007 and 2017. A hearing was scheduled for Sept 27, but that has now been cancelled since the matter has been resolved.