KARACHI: Habib Bank Ltd (HBL), which is facing a possible penalty of up to $630 million by the US regulators, said on Tuesday it will fight all 53 points included in the charge sheet it has received over suspicious transactions from its New York branch.

The HBL New York branch came under scrutiny after the bank received last Friday a notice of hearing and statement of charges from the New York Department of State Financial Services (DFS), the regulator and supervisor of its New York operations, seeking to impose $630 million over 53 violations allegedly committed at the branch.

In a press conference, HBL CEO Nauman Dar said the penalty has no logic. But he emphasised that the bank will pay the penalty if it is in a “reasonable amount”. He did not elaborate what he meant by “reasonable amount”.

CEO says the bank will not collapse even if it has to pay $630m fine

He said the US regulators want to penalise the HBL branch on all 53 points, with each point carrying its own separate monetary penalty calculated on a per-day basis. This penalisation is applicable from 2006. He said all the points deal with the safety and soundness of the bank. He said the penalty has been calculated on a per-day-per-violation basis a certain amount has been fixed for each violation. This amounts to a maximum of $630m.

He said negotiations were held with the US regulators regarding the issue, which failed as the bank doesn’t find any logic in penalising the branch 2006 onwards.

He said the consent order was given in Dec 2015 and data was processed in March 2016. The report appeared in Feb 2017, which curtailed HBL’s rating.

The US regulators told HBL in 2015 that annual transactions should not exceed $206 billion or $22.8bn per month. We reduced transactions to $150bn per year, he said, adding that they are now $0.8bn per month.

The DFS said in its notice to HBL: “For the year ending Dec 31, 2015, the branch processed correspondent banking transactions for a total of approximately $287bn.”

He said there are no criminal charges against HBL. No specific wrongdoing was identified as was noted in the fraud of the London Interbank Offered Rate (Libor), he said. There are no accusations, like Libor-fixing, against HBL, he added.

One relationship that the bank maintained with a private bank in Saudi Arabia has come under special scrutiny in the whole affair. The bank was Al Rajhi, and its correspondent account presented HBL with a significant risk of being used for terrorism-financing and money-laundering, the statement of charges alleged, because the bank’s founders had close relations with Al Qaeda.

Since 2014, Al Rajhi transactions represent approximately 24 per cent of the total number of transactions concluded through the New York branch, said the notice.

Mr Dar said the bank conducted transactions of Al Rajhi in 2014 and only remittances of Pakistanis working in Saudi Arabia were handled. He said HBL ended relations with Al Rajhi on July 10.

The DFS went on to state that more than 13,000 transactions with SWIFT payment messages were carried out that omitted essential information, such as the identities of the ultimate originator and beneficiary of each transaction.

Replying to a question, he said his bank was barred from discussing the issue of the US regulators’ proceedings with anyone, including the Federal Reserve or the State Bank of Pakistan. “Only on last Friday we were told that the bar has been lifted,” he said.

He said HBL will not collapse even if it has to pay $630m. The bank is big enough to absorb this shock, he said.

The DFS notice said that multiple issuances where multiple SWIFT payment messages were improperly aggregated into a single message for processing through the branch, thereby preventing the branch from effectively screening these messages for suspicious or prohibited activity.

Investigations by the DFS allege that HBL maintained what the charge sheet called a “good-guy list”, which was a list of all its customers whose transactions were exempt from special screening.

“154 terms included in HBL’s good-guy list correspondent to identical entries that were included on the Specially Designated Nationals and Blocked Persons List (the SDN List), which is a list of parties prohibited from transactions by the US Treasury Department.

“At least $250m in transactions flowed through the New York branch without any screening due to the apparent improper inclusion on the so-called good-guy list,” said the DFS.

HBL was accused of withholding transactions’ beneficiary, a practice known as wire-stripping. Identified instances of wire-stripping included a payment involving a Chinese weapons manufacturer that was subject to non-proliferation sanctions by the US government. The department’s investigation determined that originals of certain trade finance documents had been altered to conceal that the goods shipped were explosives, the charges alleged.

The hearing with the DFS is scheduled for Sept 27.

Published in Dawn, August 30th, 2017