National Bank of Pakistan to pay $55.4M for AML compliance lapses

The bank will pay a $35 million penalty under a consent order with the NYDFS and an additional $20.4 million penalty under its settlement with the Federal Reserve Board.

Also, under the NYDFS consent order, the bank must create a written plan, approved by the agency, detailing enhancements to the policies and procedures of its Bank Secrecy Act (BSA) and AML compliance program; its suspicious activity monitoring and reporting program; and its customer due diligence requirements.

“Additionally, at the Department’s discretion, the bank may be required to engage an independent consultant to conduct a comprehensive evaluation of the bank and the branch’s remediation efforts—an evaluation that could lead to the imposition of a full monitorship,” the NYDFS stated.

The details: Examinations conducted by the NYDFS and the Federal Reserve Board in 2014 and 2015 found the New York branch had “inadequate BSA/AML compliance programs, serious issues with its transaction monitoring system, and significant shortcomings in managerial oversight,” the NYDFS stated. Consequently, under an agreement reached with these agencies in 2016, the bank “acknowledged its oversight and compliance deficiencies and agreed to remediate them.”

In short, the bank failed to deliver on what it had promised. “The National Bank of Pakistan allowed serious compliance deficiencies in its New York branch to persist for years despite repeated regulatory warnings,” said NYDFS Superintendent Adrienne Harris.

As reflected in examinations following the bank’s 2016 agreement, the overall condition of the risk management and compliance program of the National Bank of Pakistan’s New York branch “continued to deteriorate,” the NYDFS stated. “These 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; and the bank failed to adequately supervise the branch by allowing problems to worsen year after year.”

Of note, the NYDFS faulted the National Bank of Pakistan for retaining the New York branch’s manager and senior compliance officer “despite their demonstrated track record in failing to fix comprehensively the issues at the branch.” After six examinations that noted repeat deficiencies, the bank in early 2020 terminated the manager and compliance officer and hired new leadership that increased the number of compliance staff from seven to 24. Though the regulators’ 2020 examination showed improvement, it concluded the bank “continued to operate in an unsatisfactory manner with an inadequate compliance program.”

The NYDFS’s order acknowledged the cooperation of the National Bank of Pakistan and its recent efforts to achieve compliance.

“There were not findings of improper transactions or willful misconduct,” the bank stated in response to the settlements. “The New York branch has been under new management since May 2020 and has substantially enhanced its compliance program.”

“U.S. regulators have recognized the many positive changes resulting from new management,” the bank added. “The National Bank of Pakistan and the New York branch are fully committed to satisfying the regulators’ expectations.”