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PoliticsWorldPakistani bank aided al Qaeda; similar report surfaced in 2017

Pakistani bank aided al Qaeda; similar report surfaced in 2017

The largest Pakistani bank, Habib Bank Limited (HBL), faced secondary liabilities in a terror funding case in the United States in which the complainants alleged that it helped and encouraged terrorism by al Qaeda and participated in a conspiracy to carry out attacks that killed or injured around 370 people.

Judge Lorna G Schofield said that the bank needed to face liability under the Justice Against Sponsors of Terrorism Act as a party that ‘aids and abets, by knowingly providing substantial assistance, or conspires with the person who committed such an act of international terrorism’.

The judge stated that the complainants in three unified cases had adequately alleged that the attacks were scheduled or approved by a Foreign Terrorist Organization such as al Qaeda or syndicates Lashkar-e-Taiba, Jaish-e-Mohammad, Afghan Taliban, including the Haqqani Network and Tehreek-i-Taliban Pakistan.

“The complaints also show that the bank knowingly and substantially helped al-Qaeda and its proxies evade sanctions and engage in terrorist acts, which satisfies the knowing assistance requirement”, the judge stated adding that the Pakistani bank placed terrorists or those linked to terrorists on a ‘good guy list’ of people ostensibly pre-cleared for reduced scrutiny of their transactions.

Judge Schofield further ruled that the claims were adequate to establish that HBL participated in a conspiracy to perpetrate the assaults. She denied the plaintiffs’ allegations of the principal involvement, however, because none of the claimed financial services supplied by HBL was acts of international terrorism. 

The Pakistani bank, issuing the statement in the matter, however, said the charges against it were baseless, adding that the bank was fiercely disputing them. “The public record is clear that HBL is unwavering in its commitment to combating the financing of terrorism, and as has been well documented its extensive global implementation of anti-money laundering compliance controls has been highly successful and lauded by regulators around the world”, the statement read.

The Pakistani bank said through its statement that its motion was successful in two ways — the court rejected the major responsibility claim and significantly restricted the case. “The court also stated secondary liabilities will be evaluated following due legal proceedings and no was passed by the court on this matter”, HBL added.

The news coincides with the Financial Action Task Force (FATF) increasing pressure on Islamabad to take action against terror funding flowing from its territory. The Paris-based watchdog has also suggested that Pakistan might be removed from the grey list if it works effectively against terror organizations.

However, this is not the first time that the bank has come under the lens of transactions relating to terror funding. Earlier in 2017, the bank had been fined $ 225 million for various violations of New York’s regulatory provisions. In addition, the bank agreed to surrender its license to operate a branch in New York and wind down its activities there. The branch had been operational since 1978.

In 2017, the New York State Department of Financial Services had said Pakistan’s Habib Bank had agreed to pay $ 225 million to settle an enforcement action brought against it for infringing laws designed to combat illicit money transfers.

The DFS said in a legal filing earlier that year that 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 US branch.

The regulator said the bank, known as HBL, had 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. These included submitting to a DFS investigation of transactions processed by the branch from October 2013 to the end of September 2014, and from April 2015 through the end of July 2017.

In a statement HBL said it “remains committed to strengthening its compliance processes, operations and controls” across its 1,700 branches.

Shares of HBL surged 5% to 160.58 rupees per share amid investor relief that the fine was not larger than $ 225 million.

Thursday’s announced settlement does not preclude further future enforcement action if the DFS investigation reveals further problems.

The enforcement action followed a 2016 review in which the regulator said it found “weaknesses in the bank’s risk management and compliance” that management had failed to tackle.

The review showed HBL had failed to properly screen thousands of transactions and had processed payments for known criminals and sanctioned entities, among other failings.

“The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so,” Financial Services Superintendent Maria Vullo said in the statement.

“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 disclosed it was in negotiations with the DFS last month and said the potential fine and closure of its New York branch would have no material impact on its business outside the United States.

“HBL is pleased to have this matter behind it and has begun the orderly wind-down of its New York operations,” Matthew Biben, a partner at Debevoise & Plimpton LLP and the bank’s U.S. lawyer, said in a statement.

“HBL believes that the opportunity to resolve this matter consensually at this time is in the best interests of its investors, shareholders and customers. HBL remains committed to strengthening its operations and controls.”

The DFS said a court set for later this month had been canceled as part of the settlement.

Pakistani brokerage firm Intermarket Securities said the hefty fine would hurt profits and could force HBL to issue foreign-currency subordinated debt to pay the regulator.

But the sum was “manageable” and the medium-term outlook for the bank should not be affected, it said in a research note.

“Under the circumstances, we believe it makes sense for the bank to take this one-off hit, rather than approaching courts which would have put the share price under a for longer.”

With inputs from ANI and Reuters

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