WASHINGTON: The US Federal Reserve Board on Thursday announced a $20.4 million penalty against the National Bank of Pakistan (NBP), which operates in the United States as a foreign bank headquartered in Pakistan, for anti-money laundering violations.

But in a separate statement, Superintendent Adrienne A. Harris of the New York State Department of Financial Services (DFS) said they had imposed a $35 million penalty on the bank for repeated compliance failure. The probe was conducted in 2014 and 2015.

The Board said that its action was “in conjunction with a similar action by the New York State Department of Financial Services”, indicating that these could be two separate penalties.

NBP’s country manager James Stubbs was contacted for comments, but he did not return the call. The bank’s Washington office said it had stopped most public dealings in September 2011 and suggested contacting Mr Stubbs for details.

The Washington branch usually deals with official transactions, particularly those of the embassy, and any action against the branch could impact the embassy.

Superintendent Harris accused the bank of continuing to “conduct business in an unsafe and unsound manner, disregarded numerous financial regulatory warnings, and failed to maintain an effective and compliant anti-money laundering programme”.

The Federal Board of Reserve said it requires the bank to “improve its anti-money laundering programme”. As detailed in the consent cease and desist order against the NBP, the firm’s “US banking operations did not maintain an effective risk management programme or controls sufficient to comply with (America’s) anti-money laundering laws,” the board said.

Superintendent Harris announced that the NBP and its New York branch had agreed to pay $35m in penalties pursuant to a consent order entered into with the DFS. The consent order resolves the department’s investigation into compliance deficiencies at the branch with respect to Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements.

“The National Bank of Pakistan allowed serious compliance deficiencies in its New York branch to persist for years despite repeated regulatory warnings,” said Superintendent Harris. “Foreign banks that enjoy the privilege of operating in New York have an obligation to maintain effective controls, and the Department will continue to promote financial transparency and take action to protect the global financial system when those obligations are not met.”

The DFS said that examinations conducted by the department and the Federal Reserve Bank of New York in 2014 and 2015 found that the New York branch had inadequate BSA/AML compliance programmes, serious issues with its transaction monitoring system, and significant shortcomings in managerial oversight.

As a result, in 2016, the DFS and the board took enforcement action against the NBP in the form of a written agreement in which the bank acknowledged its oversight and compliance deficiencies and agreed to remediate them.

Under the settlement reached on Thursday, in addition to payment of a $35m penalty, the NBP will be required to “create a written plan, acceptable to DFS, 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”.

Published in Dawn, February 25th, 2022