US mixed up identity of Pakistanis with prohibited persons: HBL

Tells Senate panel bank later decided not to challenge US panel to avoid risks

ISLAMABAD: In a new twist to the case related to imposition of $225 million penalty on Habib Bank Limited (HBL) by the United States, a senior bank official said on Wednesday the US regulators misconstrued identities of two Pakistanis with prohibited persons of Iraq and Iran.

The two transactions that the US regulators said were conducted by Iraq’s former deputy prime minister under Saddam Hussein, Tariq Aziz, and an Iranian oil tanker company, Al-Ameen, were actually carried out by Pakistani individuals, said Nausheen Ahmad, head of the HBL legal department.

She was speaking before members of the Senate Standing Committee on Finance that had called the State Bank of Pakistan (SBP) and the HBL officials to get a briefing on the US’s decision to impose $225 million civil monetary penalty on New York branch of the HBL.

The US had put names of Iraq deputy PM and the Iranian oil tanker company on ‘Specially Designated Nationals and Blocked Persons List’, known as ‘SDN List’ and declared their transactions as suspicious.

“Tariq Aziz is very common name in Pakistan and Al-Ameen is a Pakistani trader based in Gujranawala. In our view these transactions were not ‘prohibited transactions’,” Ahmad told the committee



To a question why the HBL management did not challenge the decision, Ahmad said initially this option was considered but the bank later decided not to take any risk.

In August this year, the New York Department of Financial Services had initiated a process to impose civil monetary penalty of up to $629.63 million. The HBL management had reached an out of court settlement and paid $225 million as civil monetary penalty.

The HBL official’s claim has put a question mark over motives behind of the US authorities’ decision, which led to the decision of closing the branch by the HBL management.

The SBP’s Executive Director Banking Irfan Ali said the US decision was largely a “principled decision rather than a transaction-based decision”.

Ahmad said out of $150 billion worth of transactions, the US regulators highlighted about five transactions which, they said, should also have been reported. She said some transactions were related to an account of the Axact, which the bank subsequently suspended.



The New York Department's investigation report said it determined that some transactions went un-reviewed because of inclusion of transacting parties on the good-guy list. It claimed that good-guy list included Iraq’s former deputy PM and an Iranian oil tanker involved in a transaction.

The US regulator in its order further claimed that the department's investigation had identified nearly 200 additional instances of suspicious activity that were never identified or reported by the branch.

These transactions included a variety of suspicious characteristics, such as payments lacking economic purpose; instances of structuring; shell company activity and politically exposed person activity.

The PTI’s senator Mohsin Aziz asked whether the HBL reported all suspicious transactions. The HBL’s Chief Risk Officer Rizwan Haider replied that the US regulators wanted that some other transactions should have also been reported.

There is also a factual mistake in the US regulators order that has stated that the HBL is majority-owned by the government of Pakistan. In fact, the government had sold its majority stakes in 2004 and the remaining stakes were also offloaded in 2014. The HBL has been operating a wholesale banking branch in New York since 1978 and was mainly offering US dollar clearing services to a select set of clients.



The SBP executive director said the branch was operating under a written agreement since 2006 owing to adverse observations in the areas of risk management and Bank Secrecy Act.

“Under the agreement, the bank was required to strengthen controls in the areas of AML compliance, suspicious activity reporting, customer due diligence, training of staff and transactions monitoring system,” said Irfan Ali.

HBL’s Rizwan Haider said:  “We made all possible efforts to improve the systems but unfortunately the US authorities said the bank management had not done much.”

In December 2015, the US authorities escalated their enforcement action and issued ‘a cease and desist’ order and consent order while downgrading the bank to ‘unsatisfactory’.

“The US authorities’ decision to downgrade the bank was a real surprise for us,” said Haider. “In fact the bank had initiated negotiations with the US authorities to end written agreement due to improvement in its systems.”

He said the HBL decided to engage with the Al Rajhi Bank of Saudi Arabia to ensure smooth flows of foreign remittances. Irfan Ali added that the US regulators had termed the Al Rajhi as high risk client. Out of total $287 billion business of HBL’s New York branch, about $65 billion was with Al Rajhi bank.