NY banking regulators said Habib Bank neglected to watch for compliance problems and red flags on transactions that potentially could have promoted terrorism, money laundering or other illicit ends. 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 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.
Habib Bank claimed on Thursday that the fine and the closure of its NY operations would have no impact on its businesses in other countries. Habib has operated in the United States since 1978.
US Banking Regulators have ordered the closure of its office in NY, the largest bank of Pakistan, "Habib Bank", which has been in NY for 40 years.
According to media reports, the Habib Bank facilitated billions of dollars in transactions with a Saudi private bank, the Al Rajhi Bank, which allegedly has had links to terrorist organisation al-Qaeda.
The regulator said it had also imposed a surrender order imposing conditions for the orderly wind down of Habib Bank's NY branch.
"HBL has received a notice in terms of which DFS seeks to impose and outrageous civil monetary penalty of up to $629.62 million", the statement added. In 2006, the USA authorities had ordered the bank to tighten its oversight of potentially illegal transactions but it failed to comply.
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According to the report, Habib Bank had allowed 13,000 transactions that were not sufficiently screened to ensure they did not involve sanctioned countries, the agency said.
"Formal steps for the voluntary closure of HBL New York branch are underway" she mentioned in the letter addressed to General manager Pakistan Stock Exchange.
Pakistan's largest bank is ordered to shut down its only branch in the U.S.
The DFS said a court hearing set for later this month had been canceled as part of the settlement. The bank, DFS said, put through thousands of poorly screened transactions, including for people on a "good guy" list at the bank that included an identified terrorist, an global arms dealer and an Iranian oil shipper.
Until April 2015, Pakistan's government held a 42.5 per cent stake in HBL, the country's oldest bank.
DFS said that this opens the way to financing activities and threatens the financial system as well as the American people.