Habib Bank Limited shut down its operations in the US after being slapped with a hefty $629.6 million civil penalty by the New York State Department of Financial Services (DFS). The penalty is being imposed in relation to “significant breakdowns” in the bank’s New York Branch’s risk management and compliance with the applicable federal laws, including anti-money laundering regulations in the US.
The DFS said in a legal filing last month it was seeking to fine the bank, Pakistan’s biggest lender, up to $630 million for “grave” compliance failures over anti-money laundering and sanctions rules at its only U.S. branch.
The decision is likely to deliver a significant blow to the bank’s ambition to aggressively grow its operations outside Pakistan. The DFS has asked the HBL to appear in a hearing on the issue in the last week of September.
The regulator said the bank, known as HBL, agreed to pay just over a third of that sum as part of a broader settlement in which it will shutter its New York branch, subject to conditions.
The size of potential penalty is more than double the amount rumoured in the market during the past few weeks and also significantly higher than the amount recently imposed by authorities on non-US banks.
The imposition of colossal fine on Habib Bank will act as a warning to other Pakistani banks, particularly United Bank Limited (UBL), to review their branch operations and reduce presence from low-profit, high risk countries.
