HBL to close down New York branch after hefty fine by US govt

The New York branch of a private bank of Pakistan has been sent a fine notice of over $620 million by the New York State Department of Financial Services (NYDFS), it emerged on Monday.

The fine is going to be imposed for violation of the compliance programme, according to the NYDFS.

The bank management has informed the Pakistan Stock Exchange of the incident and pledged to immediately seek recourse from the concerned authorities. After the decision of imposing the fine, the bank has decided to voluntarily close down its operations in New York.

“HBL has voluntarily decided to close its operations in New York in an orderly manner and DFS has allowed HBL to submit a voluntary application for the orderly winding down operations in New York,” said the letter from the bank management to the PSX.

The letter termed the civil monetary penalty of up to $629,625,000 “outrageous”.

“HBL shall vigorously contest this in the scheduled administrative hearing and the courts of law in the US as being unjustified, capricious, unreasonable not supported by facts or law and as being time barred.

There will be no material impact on HBL’s business outside of the US and HBl will continue to service the requirements of its domestic and international customers, including US dollar business,” the letter states further.

The bank has also lodged an appeal against the decision with the DFS, which has accepted the application for winding down the branch.

However, experts have said it could be a move by the US financial body could be a tactic to pressure Pakistan.

The New York branch was also accused of being involved in corruption two years ago. The bank claimed that it had taken all steps to address the complaint and had spent a significant amount of funds in doing so. 

The bank has released a detailed response to the incident.

It clarified that a penalty has not been imposed but it is, in fact, a ‘notice of hearing’ that seeks to impose a civil monetary penalty. “Payment of penalty is subject to the approval of the State Bank of Pakistan,” it said.

It explained that the timeline of withdrawal of business in New York will be determined in consultation with the regulators.

Replying to a FAQ on why it is withdrawing from New York, it said HBL has undertaken extensive corrective action and remedial measures at a significant cost. “This has not been given due recognition by the regulators in New York, leaving no option other than to withdraw from the New York jurisdiction.”

With regards to the future of the bank’s New York staff, it said the HBL will deal with its employees in a fair and transparent manner in accordance with its HR policy.

In response to any question of any criminal activity, it replies in the negative, saying, “HBL prides itself on operating to the highest ethical standards with an ethos of strong corporate governance at all levels”.

The response states that the decision should not impact the international and domestic business of HBL as HBL has correspondent business relationships in place in most locations which will enable HBL’s customers to continue transacting their business (including their US Dollar business) as they have been doing in the past. “HBL, however, would have to put in place correspondent banking arrangements in certain jurisdictions such as Lebanon Afghanistan, Sri Lanka, Bangladesh, Seychelles, Maldives and Mauritius,” it informs further.

“HBL will stop doing its US Dollar Clearing itself once the branch is closed in New York. However, HBL has correspondent relationships in place which will enable HBL customers to continue transacting their business including US Dollar business as they have been doing in the past.”

With regards to impact on the company’s profits, it said it would be premature and uncertain to comment at this stage.

“HBL has for the past two years worked to strengthen its risk and compliance environment and improve the standards of its IT systems and infrastructure,” it explained.

HBL said it has a right of appeal against the order of the regulator.

No immediate threat to Pakistan's banking industry

The State Bank of Pakistan (SBP) said that HBL has brought the fine imposed upon its New York branch to its notice and the private bank will take legal action against the fine.

SBP added that there was no immediate threat to Pakistan’s banking industry, neither will there be any immediate effect on HBL’s operations by the fine.