Habib Bank Limited (HBL) has decided to cease its branch operations in New York, which mainly offers US dollar transaction clearing services.
The branch was operating in the US city since 1978.
The bank has decided to fulfill US dollar clearing services through a correspondent bank, just like a large number of other banks around the globe do.
This decision has been taken after the New York State Department of Financial Services has proposed to fine the bank up to $630 million for “deficiencies relating to compliance with state and federal laws at its US branch.”
The actual penalty has not been imposed and only a maximum amount of potential penalty is proposed now which would now be legally contested by the HBL.
It is pertinent to mention that HBL has voluntarily decided to close its business in New York in an orderly manner and DFS has allowed HBL to submit a voluntary application for orderly winding down of its New York business, steps to formalize this will commence shortly.
Addressing apprehensions of customers, President and Chief Executive Officer HBL Nauman Karamat Dar said this would not have any effect on our local customers and around the world, except for a few countries which do not entertain alternative US dollar clearing service.
“There will be no material impact on HBL’s business outside of the US and HBL will continue to serve requirements of the domestic and international customers including for their US dollar business,” an HBL press release stated.
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 (DFS) and the Federal Reserve Bank of New York respectively.
HBL had notified the Pakistan Stock Exchange of this in December 2015.
Despite HBL’s sincere and extensive remediation measures over the last two years, DFS is still not appreciating or recognizing the significant progress that HBL has made at its New York branch and HBL has received a notice of departmental hearing by DFS, in terms of which DFS seeks to propose a civil monetary penalty of up to an outrageous amount of $629,625,000.
Nauman Dar said they were time barred as they were given a few months’ time to bring immediate reforms in their departments.
“In the end of 2015, an agreement was made to strengthen our system and in June 2016, in a matter of few months, reforms were not possible, which eventually lowered our rating and when the report appeared it was not satisfactory,” he said.
HBL shall vigorously contest this in the administrative hearing scheduled to be held on September 27 and the courts of law in the United States as being unjustified, capricious, unreasonable, not supported by facts of law and as being time barred.
The president of HBL said the bank would be given time to defend the case clause by clause. He said there was no significant wrongdoing committed by the bank. It was only a matter of compliance with laws and regulations mainly, he added.
He says HBL is the largest and strongest bank of Pakistan and its history dates back to early days of Pakistan. Its first fund, Pakistan Fund, was signed by Quaid-e-Azam Muhammad Ali Jinnah.
He said our present income was one of the top in Pakistan in the following year. Profitability of HBL was unmatchable, he added.
“In the recent past, the world has seen some serious penalties by the US against some big name banks of the world, including Barclays, Standard Chartered Bank, BNP Paribas, Deutsche Bank and Bank of Mitsubishi, while the penalties we have been imposed are comparatively of not serious nature,” he said.
The CEO admitted that the bank’s system is based on old technology of human analysis while there is another system they have automatic system to analyse transactions.
“Nevertheless, we made errors, however the penalty is disproportionate,” he said.
He reiterated that only weaknesses and leakages had been identified.
“We only lacked in training, compliance with laws and regulations and we had insufficient policies and procedures in their eyes,” he said.
To a query, he said HBL had gag order not to disclose anything in this regard and it was only lifted on this Friday (August 25) and the earliest possible they could announce it was on Monday.
State Bank of Pakistan in a release said it was cognizant of the developments and closely monitoring the situation and found no imminent risks to HBL operations and banking industry of Pakistan.
The central bank of Pakistan also reiterated its commitment to safeguard the interests of depositors and to ensure safety and soundness of the banking system of the country.