Axact, a bank led to closure of HBL branch in New York, MPs told

ISLAMABAD: Top officials of Habib Bank Limited (HBL) on Wednesday disclosed to a parliamentary panel besides other reasons, the US banking regulator slapped $225 million penalty and ordered closure of its branch in New York for giving dollar clearing facility to the Saudi Al Rajhi Bank and having the account and transaction of Axact Company, which is wanted to the US Federal Bureau of Investigation (FBI).

“There was also an account of Axact Company which was also wanted to the FBI, so it was also one of the reasons to get this penalty from the US financial regulator,” a senior official of the bank told the Senate Standing Committee on Finance and Revenue that met here with Senator Saleem Mandviwalla in the chair.

Having the account of Al Rajhi Bank [Saudi Arabia’s largest private bank] and giving it dollar clearing services was also one of the instrumentals for the fine and closure as, according to the US authorities for many years, Al Rajhi has been linked through negative media to al-Qaeda and terrorism financing.

It is worth mentioning that on August 28, 2017, New York State Department of Financial Services (NY SSD) initiated a process to impose civil monetary penalty of up to $629.625 million on account of Report of Examination (ROE) of 2016. The HBL official said that the bank had now decided to close its operations in New York; however, steps for this winding up in an orderly manner were yet to be worked out. He said that recently, HBL had reached a settlement with the regulator to pay $225 million as civil monetary penalty.

Regarding closing of HBL branch operations in New York, the State Bank official told the committee that HBL had been operating there since 1978, mainly offering US dollar clearing services to a selected set of clients. It was licenced by New York State Department of Financial Services (NY FSD) and had been operating under a written agreement NY FSD and Federal Reserve Bank of New York (FRB NY) since Dec 19, 2006. Under this agreement, the bank was required to strengthen control in the areas of Anti-Money Laundering (AML) compliances, suspicious activity reporting, Customer Due Diligence, training of staff and Transaction Monitoring System (TMS).

In 2009, the HBL’ rating was improved from fair to satisfactory and this status remained till 2012, then in 2013 it was downgraded and then again pushed it down to ‘marginal’ on the basis of weakness on these sectors.

Rizwan Haider, Chief Financial Officer of the HBL told the committee that as earlier, Al Rajhi was the client of JP Morgan which was later suspended due to the risk involved. As since long, HBL was in the dollar clearing business with Al Rajhi in Saudi Arabia, and around 50-60 percent remittances were coming to Pakistan from Saudi Arabia through this bank, so after due diligence HBL gave it the facility in the US. Despite making efforts to improve already set criteria’s under the agreement with the NY regulator, “it said you still have to do enough.”

To a question by a senator why they focused more on the Saudi Bank [Al Rajhi] and whether its closer and $225 million fine was due to this bank. Haider replied, “Yes, to a large extent, it was due to Saudi Bank.” The bank was using HBL as a source for dollar clearing business. HBL was giving dollar clearing service of up to $150 billion a year to Al Rajhi.

Another senior official of the bank told the committee that besides this, some five other transactions were also declared suspicious and the regulator pinpointed them that included an account in the name of Tariq Aziz, but the regulator wrongly understood it as the account of the Deputy Prime Minister of Iraq Tariq Aziz. There was another account in the name of Al-Amin, which was also misunderstood as of Iranian Oil Tanker called the Amin. The regulator thought that as the HBL compliance was weak, it thought there might have taken place some proscribe transactions.

During the committee meeting, the National Accountability Bureau (NAB) also conveyed to the parliamentary panel that recovery of $185 million seemed not possible from the accused who were involved in scam in NBP’s Bangladesh operations. As six Bangladeshi nationals who were the beneficiary of the loans, Pakistan could not prosecute them, as Islamabad did not have any treaty of Mutual Legal Assistance with Dhaka.

In Pakistan, reference has been filed in accountability court against some Pakistani employees of the bank for allegedly misusing their authority and giving loans without securing collaterals causing this huge loss to the exchequer during 2001 to 2013. Official said that five accused persons of the bank in Pakistan had been arrested and sent to judicial custody after their pre-arrest bails were rejected by the Sindh High Court (SHC) on Sept 22, 2017.

Chairman of the Committee Mandviwalla asked the NAB official whether arresting people and getting nothing out of it would solve the issue. The official replied these officials were getting reports from the NBP Branch, but they did not take measures. “We can only punish them and cannot make recovery from them.”

The National Bank of Pakistan (NBP) President Saeed Ahmad said that arresting of the top officials in Pakistan who might have no link to this scam would scare every official to take even a correct decision.

Regarding opening of NBP branch in China, Saeed said that they had applied for it and they had fulfilled all the requirements for it and by next year they would be able to open a branch in China.

Senator Mohsin Aziz asked NBP president why majority of the top tier of NBP was from Punjab province, as out of its 36 top officials, only one each was from Sindh and Khyber Pakhtunkhwa while no one was there from Balochistan. Why regional offices had not been strengthened which were operating like post offices.

Saeed replied, “Yes, it is not fair but I am trying to bring some structural changes [in bank’s management]. Hopefully, by January 2018, we are going to give more autonomy and authority to the regional offices. They could be able to take decision up to Rs100 million independently and there will be Executive Vice Presidents (EVPs), regional heads and area managers.” To a question by the committee what the ratio of lending to the KP province was, he replied, “It is on lower side.” Senator Mohsin Aziz said that it was less than 4 percent, but Saeed contested the figure that it was not as low.

According to the documents submitted to the committee by the NBP, of four senior executive vice presidents (SEVP), two each are from Punjab and Sindh and one each EVP from the both provinces. There are six each SVP’s from Punjab and Sindh while one from KP. There are 11 vice presidents from Sindh, six from Punjab and one from AJK. There are 34 assistant vice presidents from Sindh and eight from Punjab. Twenty-six officers grade-I are from Sindh, eight from Punjab and one from KP. Besides, 88 officer grade-II are from Sindh, 43 from Punjab, 16 from KP, five from Balochistan, nine from Islamabad, eight from AJK and five from Gilgit Baltistan. In cadre of officer grade-III, 24 are from Sindh, 293 from Punjab, 110 from KP, 37 from Balochistan, five from Islamabad, 32 AJK, 1 from Fata and 26 from Gilgit Baltistan.

It was asked that being the public sector bank, no provincial quota was observed as guaranteed by the constitution of Pakistan 1973 while appointing these high-level contractual executives and 95 percent of the appointees were from central Punjab.

The bank replied that the batch and lateral hiring on contract was purely on the required specification and against properly defined eligibility criteria after advertisement, therefore the quota was not applicable.