Following the imposition of fines of more than $55 million by United States authorities on the National Bank of Pakistan (NBP), its president Arif Usmani said the penalty was for "historical compliance programme weaknesses and delays in making compliance-related enhancements", adding that the bank's system has improved under a new management.

In a letter addressed to the general manager of the Pakistan Stock Exchange (PSX), a copy of which is available with Dawn.com, Usmani noted that there were "no findings of improper transactions or wilful misconduct".

The US Federal Reserve Board announced a $20.4m penalty against the bank for anti-money laundering violations. According to a press release issued by the Fed, it would also require the bank to improve its anti-money laundering programme.

The Fed went on to say that NBP's US banking operations "did not maintain an effective risk management programme or controls sufficient to comply with anti-money laundering laws".

It added that the action was in conjunction with an action by the New York State Department of Financial Services (NYDFS), which imposed a penalty of $35m for "repeated compliance failures".

NYDFS Superintendent Adrienne A. Harris announced that NBP and its NY branch had agreed to pay the penalty.

"The NBP allowed serious compliance deficiencies in its NY branch to persist for years despite repeated regulatory warnings," a press release quoted Harris as saying.

In his letter dated February 24, the NBP president said the bank's New York branch has "substantially" improved its compliance programme since the new management took over in May 2020.

"US regulators have recognised the many positive changes resulting from new management. The National Bank of Pakistan and the New York branch are fully committed to satisfying the regulators' expectations," he added.

Shares slide

The bank's shares were down 7.2 per cent by the Friday prayers break in the trading session.

The government owns 75.2pc of NBP, one of the largest commercial banks in the country.

The Financial Action Task Force (FATF), has placed Pakistan on its 'grey list' for deficiencies in its counter-terror financing and anti-money laundering regimes since June 2018.

"We don't foresee significant impact of this penalty on FATF review, however, Pakistan is expected to remain in the grey list of FATF," Tahir Abbas, head of research at Arif Habib Limited told Reuters.

Settlement with NYDFS

According to a press release issued by the New York State Department of Financial Services, under the settlement reached, the NBP would be required to create a written plan detailing enhancements to the policies and procedures of the bank's BSA/AML compliance programme, its Suspicious Activity Monitoring and Reporting programme and its customer due diligence requirements.

"Additionally, at the department's discretion, the bank may be required to engage an independent consultant to conduct a comprehensive evaluation of the bank and the branch's remediation efforts — an evaluation that could lead to the imposition of a full monitorship," the statement said.

At the same time, the NYDFS also acknowledged the bank's cooperation with the investigation and ongoing remedial efforts.

The State Bank of Pakistan (SBP) had also imposed a fine of Rs280.5m on the NBP last year for violation of regulatory instructions pertaining to AML, Asset Quality, Foreign Exchange and General Banking Operations (GBO).

In 2015, the NBP's New York branch was compelled to pay a penalty of $28,800 to the US treasury for apparent violations of US sanctions regime.

Additional input from Reuters.