KARACHI: Habib Bank Ltd (HBL) President Nauman K. Dar has admitted the bank’s failure to fully comply with US regulations on anti-money laundering, but he denied any deliberate wrongdoings.
The New York State Department of Financial Services (DFS) said on Monday that it is seeking to fine HBL up to $630 million for “grave” compliance failures relating to anti-money laundering rules and sanctions at its only U.S. branch.
HBL, Pakistan’s biggest lender, has decided to ‘voluntarily’ close its branch in New York following the DFS notice.
At a news conference here, Nauman K.Dar, the President and CEO of HBL, spoke on the regulatory issues calling the penalty disproportionate.
He admitted the bank, which only deals in dollar-clearing in US, has committed some mistakes and violated US 2015 regulations on general safety and soundness.
He blamed ‘human error’ for the violations, saying that the bank had been working hard to improve its system and overcome flaws.
“There is a weakness in our system due to outdated technologies, that is human interference, unlike US and other countries where artificial intelligence monitors the entire [banking] system before analysts do it,” he pointed out.
But at the same time, he insisted that the bank has done nothing wrong. “We have done nothing wrong, no system risk and harm was caused to the financial system,” he said.
As per SDF’s report, transactions of several thousand dollars went unchecked, we admit that it’s a violation because individuals are not flagged, he said.
“Yes this is negligence, but the fine is disproportionate,” the HBL chief said, adding that “we are trying to curtail wrongdoings with departmental strictness and disciplinary actions.”
To avoid the penalty, Dar said, the bank will defend itself before the New York regulators in the legal battle. He said if the $630 million fine was imposed, the bank will approach New York’s Supreme Court.
He said HBL’s legal team was preparing for hearing of the notice for Sept 27.
“We will clarify the situation before the regulators and hope the issue will be resolved and ultimately the fine will not be imposed,” he said.
Replying to a query, Dar dismissed the impression that the penalty is result of any diplomatic tension between US and Pakistan.
“This is purely a commercial and regulatory matter. It should not been seen in the backdrop of US-Pakistan relations or Donald Trump’s recent statements.”
He claimed that imposition of the penalty will neither affect its customers in New York nor in Pakistan, where the bank adds 14% to country’s market, but may ‘slightly affect’ customers in Afghanistan and other countries.
Replying to a question, he said the bank would not disappoint its customers in Pakistan, and that the fine will not affect shareholders and account holders in Pakistan.
“HBL is the strongest and largest bank established by the Founder of the nation through ‘Pakistan Fund’. So peoples’ trust in us is very strong. Our profitability and control is good in Pakistan and will not cause a negative or long-term impact… We have much liquidity and strength,” he asserted.
After the closure of New York branch, he said, the HBL is facilitating customers through correspondent banks.
While elaborating on the bank’s business in New York, he said the US city’s branch doesn’t deal in any customer loan and customer deposit, only provides dollar-clearing facility, which he said is the only source of the bank’s revenue – around two million dollar annual profit.
He said volume of HBL’s annual business in US has been set by the US authorities at $267 billion under 2015 agreement. The limit has been slashed to $800 million in 2017.
HBL is facing the issue of implementing US banking regulations since 2006.
“In 2006, HBL agreed with DSF to address problems regarding safety and soundness of transactions under the compliance program. We also tried our best to improve system capabilities to guard against money laundering and sanctions violations… In 2015, we reached another agreement but only a few months later, DFS inspection identified some deficiencies in our controls. So they prepared this report.”
“They should move ahead, there is no logic in looking behind 2015,” he said.
Since 2006, Dar said, the bank has reported several suspicious transactions by screening customers; however, the system could not fully block the illicit money transactions.
“There is question that if we have been working since 2007, why the fine is going to be imposed in 2017? What they were doing for last 10 years?” he questioned.
“Domain of the business is very small whereas the fine is huge,” he said.
“Like the violation of traffic rule, the offender should simply be fined, not hanged… We are correcting our mistakes and it’s an ongoing process,” he said.
Dar dispelled the impression that the US fine would make the HBL bankrupt. “We can pay the USD 630 million fine and it won’t weaken us,” Dar said.
“We have resources unmatched by any bank and we have the highest confidence, we annually open one million accounts in Pakistan, this bank is not of rich people but of a common man, it’s a blessed bank,” he affirmed.
About HBL’s US-dollar clearing contract with Saudi Arabia’s Al Rajhi bank – for which regulators feared risk of terrorist financing – Dar said his bank has closed Al Rajhi bank’s account on the directives of American regulators.
“We had struck a deal with Al Rajhi bank in 2014 keeping in view that it constituted 50 per cent of our Saudi remittances in Pakistan. At that time, the regulators had no objection,” Dar noted.
New York State imposed strict anti-money laundering regulations in 2015, and the DFS has since pursued several aggressive enforcement actions against foreign banks for anti-money laundering control lapses over the past two years.
These include Agricultural Bank of China (601288.SS), Mega International Commercial Bank of Taiwan and National Bank of Pakistan (NBPK.KA).
In 2013, the DFS imposed a $2.4 billion fine on BNP Paribas for sanctions breaches.