The New York Department of Financial Services has taken enforcement action against Habib Bank Ltd after a visit, which it conducted in tandem with the Federal Reserve Bank of New York, uncovered woeful deficiencies in the Pakistani bank’s anti-money-laundering compliance.

As long ago as 2006, Habib Bank signed an agreement with the NYDFS's predecessor, the New York Banking Department, to upgrade their AML efforts. The regulator has decided that this was not honoured. The bank has agreed to an order by the deputy superintendent of financial services, S Abbas Hasan, who is acting superintendent at the moment. Under this, the bank has agreed to undertake a series of reforms to its policies and procedures, including but not limited to the following:

On the subject of US dollar clearing activities, the New York branch of the bank is not allowed, without the prior written approval of the NYDFS and the Fed, to take any action that would result in an increase in the aggregate dollar value of its US dollar clearing activities above the aggregate dollar value balance as of the date of the order. The branch is also not allowed to accept any new foreign correspondent accounts or new customer accounts for US dollar clearing without permission.

On the subject of reviewing its own compliance with the Bank Secrecy Act 1970, the bank and its New York branch are obliged to hire an independent third-party (i.e. consultancy) acceptable to the NYDFS and the Fed to: (i) review the effectiveness of the it programme for compliance with the BSA and the state laws and regulations; and (ii) prepare a written report of findings, conclusions and recommendations.

Lastly, on the subject of transaction reviews and sanctions dictated by the US Office of Foreign Assets Control, the bank and the branch must engage another independent consultant, this time to: (i) review the branch’s US dollar clearing transaction activity and determine whether transactions are inconsistent with (or in contravention of) the OFAC regulations, or suspicious activity involving highly risky customers or transactions, were properly identified and reported in accordance with the OFAC and suspicious activity reporting (SAR) regulations; and (ii) prepare a written report detailing the independent consultant’s findings to be shared with the NYDFS and the Fed.

The NYDFS is giving the bank 60 days to come up with a remedial work plan, the stipulations for which make fascinating reading. The plan must provide for a sustainable system of 'governance' that, at a minimum, contains:
(a) steps that the board of directors will take to maintain effective control over the branch management's compliance with the BSA, the state regulations, OFAC regulations etc.;
(b) measures to improve the management information systems' reporting of the branch's compliance to the senior management of the bank and the branch;
(c) clearly defined roles, responsibilities, and accountability regarding compliance with all the rules that pertain to management, compliance personnel, and internal audit staff;
(d) measures to ensure that BSA-related issues are appropriately noticed, escalated, and reviewed by the branch's senior management;
(e) measures to ensure that the person or groups at the bank and the branch charged with the responsibility of overseeing the branch's compliance possess enough
subject matter expertise and are actively involved in carrying out such responsibilities;
(f) a policy for the granting of adeqate resources to ensure the branch's compliance with this order; and
(g) a direct reporting line between the branch's AML compliance officer and the board of directors or a committee of some of them.

Governor Cuomo of New York State has suggested that Maria Vullo, a lawyer, should become the next permanent head of the NYDFS, Benjamin Lawsky having left in June last year. According to the New York Daily News, she once worked under him and since 2005 has donated $83,716 to his campaigns. She cannot be appointed unless the State Senate approves. Her only rival for the post is Daniel Alter.