US shuts down, fines Pak's Habib Bank for terror financing and other charges

The action against the Karachi-based Habib Bank comes days after US President Donald Trump said Pakistan provided safe havens to terrorists attacking US and Afghan troops. US Secretary of State Rex Tillerson had also warned Pakistan that it could lose its status as a 'major US ally' and military aid suspended if it continued to back terror groups.

The US Department of Financial Services (DFS), a regulator of foreign banks in the country, said the decision follows a 2016 examination that found weaknesses in the bank's risk management and compliance and the bank's failure to undertake extensive remedial actions required by a 2015 consent order.

"The 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 Financial Services Superintendent Maria T Vullo.

"The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so," Vullo said.

She said the DFS will not 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 the country at risk.

According to a statement issued by the DFS, the New York branch of Habib Bank has continued to fail to comply with a 2006 agreement that arose out of "significant deficiencies"

identified within the bank's compliance with economic sanctions laws and with its anti-money laundering compliance, including the Bank Secrecy Act.

"Violations of the 2006 agreement and New York Banking law have occurred almost every year since 2006. DFS's actions today ensure that this misconduct will not continue anymore," the release said.

Habib Bank is Pakistan's largest bank, with USD one billion in total revenues in 2016, and USD 24 billion in total assets. The New York branch of Habib Bank has been licensed by DFS since 1978, the DFS release said.

The Habib Bank had already agreed to surrender its licence to operate a branch in New York and unwind its operations there, Dawn newspaper reported.

The fine of USD 225 million, 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 USD 630 million that the regulator had earlier assessed, it said.

Meanwhile, the Habib Bank's senior management remained confident that the episode will soon be a passing affair.

"All charges have been dropped following this consent order," said a senior bank officer told the paper who did not wish to be identified.

"Obviously we will have to take this on our books this year. Our capital is strong enough. The underlying business remains strong. HBL agreed to the settlement as protracted litigation was not in the interest of the bank or the country.

The charges were not proven, and they have been dismissed," the official said.