Bank says it will 'vigorously' contest penalty: NY regulator seeks to fine HBL up to $630 million

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) 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. 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.-Reuters
BR staff reporter adds: According to information sent by HBL management to the Pakistan Stock Exchange, HBL has received a notice from DFS in term of which it seeks to impose an outrageous civil monetary plenty of up to $ 629.625 million.
After receiving the notice, HBL has also decided to close its operations in New York in an orderly manner and DFS has allowed HBL to submit an application for orderly winding down of its New York branch and steps to formalize this commence shortly.
HBL management said that there will no material impact on HBL's business outside of the United States and HBL will continue to service the requirements of it's domestic and international customers including US dollar business. HBL has been operating a small branch in New York since 1978 with over 20 staff members, which mainly offers US Dollar clearing services.
It has been learnt that as of December 19, 2006, the branch entered into a written agreement with and the Federal Reserve Bank of New York and the New York State Banking Department to correct the certain deficiencies in the Branch's compliance relate to BSA and AML.
In 2015, the New York branch was subject to a Consent Order and a Cease and Desist Order by the New York State Department of Financial Services and the Federal Reserve Bank of New York respectively. Accordingly, several restrictions were imposed on the HBL's New York Branch and asked for a written plan for of AML and BSA. The branch also asked that not to increase its aggregate US dollar clearing activities from existing levels and not accept any new accounts for dollar clearing.
Finally after conducting another inspection, now the DFS is seeking imposition of fine on the HBL's New York branch for non-compliance AML and BSA. Sources in banking sector said the US department has warned of a fine despite the fact that HBL has taken several steps to improve its system of compliance with federal law, rules and regulations.
They said that HBL's New York Branch was making all-out efforts to fulfill the requirements of DSF and in this regard it taken several steps for compliance with AML and BSA to improve the risk management. In the notice, no such suspicious transaction or issue has been raised by the DFS for which the department is seeking plenty of up to $629 million, they added. Sources said the in order to compliance with the federal law and regulations, the HBL's New York Branch also restricted its business as per directives of the regulator. It may be mentioned here that HBL's New York branch contributes around 1.5 percent to HBL's total assets and 1 percent to HBL's total profitability.
HBL was established in Pakistan in 1947 as the first commercial bank. Over the period, the bank has grown staggeringly to become the one of the largest bank with network of 1,687 branches and more than 2,000 ATMs. HBL also has the largest Corporate Banking portfolio in the country.
The government of Pakistan privatized HBL in 2004 through which Aga Khan Fund for Economic Development (AKFED) acquired 51 percent of the Bank's shareholding and the management control. The remaining 41.5 percent shareholding by the government of Pakistan was divested in April 2015. With a global presence in over 25 countries spanning across four continents, HBL is also the largest domestic multinational. The bank has its presence in principal international markets including the UK, UAE, South and Central Asia, Africa and the Far East.
HBL declared a consolidated profit after tax of Rs 15.7 billion for the first half of 2017 with Pre-tax profit of Rs 27.7 billion and earnings per share of Rs 10.56. Along with the results, the Bank declared a dividend of Rs 3.50 per share (35%), bringing the total dividend for the year 2017 to Rs 7.0 (70 percent). HBL's deposits have crossed the Rs 2 trillion mark, driving a 7.4 percent growth in the balance sheet to reach Rs 2.7 trillion end of June 2017.