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Wednesday, January 25, 2023

US slaps $55 million penalty on National Bank of Pakistan

The Federal Reserve Board (FRB) announced a $20. 4 million penalty against NBP's NY branch for anti-money laundering violations. Whereas, the New York State Department of Financial Services announced a $35 million penalty. The timing of the penalties could not have been worse.

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In a major upset, two US authorities together announced a $55 million fine on the National Bank of Pakistan (NBP) and its New York branch over anti-money laundering violations.

The fines have been imposed by the US Federal Reserve, the central bank of the country, and the New York State Department of Financial Services (NYDFS).

In a press release, the Federal Reserve Board (FRB) announced a $20. 4 million penalty against NBP for anti-money laundering violations.

“The firm’s U. S. banking operations did not maintain an effective risk management program or controls sufficient to comply with anti-money laundering laws,” FRB said in the press release.

Read more: The National bank of Pakistan, reaching new heights

Similarly, the NYDFS announced a $35 million penalty on NBP. According to NYDFS, the bank continued to conduct business in an “unsafe and unsound manner“. As a result, superintendent of Financial Services Adrienne A. Harris announced that the bank agreed to pay the penalties.

“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. The Department will continue to promote financial transparency and take action to protect the global financial system when those obligations are not met,” he further added.

Strict action against NBP

To clarify, the US authorities conducted an examination of the Bank’s New York branch in 2014 and 2015. The examination revealed that the bank failed to comply with regulations related to anti-money laundering. Moreover, the bank also failed to abide by the Bank Secrecy Act (BSA).

As a result, in 2016, the US authorities took enforcement action against NBP in the form of a written agreement. The bank also acknowledged its shortcomings and agreed to remediate them. However, the bank’s NY branch’s overall risk management and compliance programs continued to deteriorate.

The NYDFS press release also noted that continued failures revealed that the Branch’s senior management were unwilling or unable to promote a culture of compliance, adequate resources were not provided for compliance programs.

“The Bank failed to adequately supervise the Branch by allowing problems to worsen year after year. The conditions at the Branch demonstrated severe weaknesses, and unsafe, unsound conditions requiring urgent restructuring,” NYDFS noted.

Read more: Government establishes committee to curb money laundering and terror financing

Apart from the penalties, the bank will be required to create a written plan acceptable to the authorities for compliance with the laws. The timing of the penalties could not have been worse, in light of the Russian-Ukraine war and PM Khan’s visit to Russia. Important to note, the latest examination by the US authorities took place on March 4, 2021. However, the penalties came almost a year later, while PM Khan was in Russia.