KARACHI: Habib Bank Ltd (HBL) has settled out of court with the Department of Financial Services (DFS) of New York State by agreeing to pay a fine of $225 million against various violations of the state’s regulatory provisions.

The fine, 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 $630 million that the regulator had earlier assessed.

HBL declared profit after tax of $327 million last year.

The bank had already agreed to surrender its licence to operate a branch in New York and unwind its operations there. The branch has been operational since 1978.

In a strongly worded release, the DFS harshly castigated the bank and added that “DFS will not stand by and 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 our nation at risk.”

HBL’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 who did not wish to speak for attribution.

“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 closure of the branch has no impact on the bank’s business, he added, since it was an “immaterial part of the balance sheet and profitability”.

“Our correspondent banking relationships remain intact and we are already providing these services to our customers.”

The impact of the fine on dividend payouts, staff bonuses and other business is too early to determine, he said. “The bank’s board will decide on these matters at the appropriate time.”

The regulator announced that it will press on with its investigation, with an expanded “lookback”, which refers to a detailed examination of all foreign transactions going through the branch. The expanded lookback will now cover periods from October 1, 2013 through September 30, 2014 and April 1, 2015 through July 31, 2017, according to the DFS release.

In the year ending Dec 31, 2015, the New York branch processed correspondent banking transactions totalling $287 billion.

HBL had become the target of an enforcement action by DFS for 53 separate violations allegedly committed between 2007 and 2017. A hearing was scheduled for Sept 27, but that has now been cancelled since the matter has been resolved.

Published in Dawn, September 8th, 2017

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