KARACHI: Habib Bank Limited (HBL), Pakistan’s largest bank, conceded on Sunday that some irregularities identified in its Middle East operations in 2017, should “never have happened,” but that a business transformation program at the bank was almost complete, according to a spokesman.

The irregularities in the bank’s UAE operations were unearthed by Pakistan’s central bank in an inspection that took place more than a year after the lender was shut out of the US financial system in 2017. The findings of that inspection, released in the first half of 2019, had not previously been reported and were partially made public on Sunday in a Bloomberg report.

“In 2017 a few weaknesses were identified at HBL UAE which contravened our processes and standards. This should never have happened,” Ali Habib, Chief Corporate Communications Officer at HBL, told Arab News.

The State Bank inspection came after global anti-money laundering watchdog, Financial Action Task Force (FATF), put Pakistan on its ‘grey list’ of countries for weak controls regarding illicit financing.

Bloomberg reported that findings of the central bank inspection revealed HBL UAE’s operations displayed “significant irregularities” in dealings with politically exposed clients and screening transactions.

“Employees in some of Habib Bank’s UAE branches helped certain customers disguise transactions by issuing pay orders in their own names, while gaps in risk profiling and monitoring reflected an ‘ineffective compliance function and compliance culture,’” Bloomberg said, quoting the central bank report. The report also found, among other things, that HBL UAE’s staff had skirted rules when opening an account for Duduzane Zuma, son of former South African President, Jacob Zuma.

Though the central bank’s inspection report notes some remedial measures were taken by the bank, the critical nature of its findings offers up evidence of Pakistan’s inadequate banking controls-- for which the FATF has put the country under a microscope.

The Paris-based watchdog kicked off a week of meetings on Sunday, which will include decisive discussions on Pakistan’s status.

“Over the last two years, we initiated a business transformation program which is now largely complete. A new senior leadership team is in place. We have transformed our control and compliance processes to ensure that they are in line with international standards,” Ali Habib added.

In 2017, HBL announced it was winding up its only US branch following the imposition of up to $630 million in fines for compliance failures over anti-money laundering and sanction rules.

Later, the bank settled the matter out of court with the New York Department of Financial Services and agreed to pay a fine of $225 million.

In a much-awaited notice sent to the Pakistan Stock Exchange on Monday, the HBL said it would complete the voluntary closure of its New York branch by March 31, 2020, by coordinating with the state’s banking regulators. It added that the bank will no longer operate any branch in the US, upon such closure.

“We believe this is material positive for the bank as this finally settles the dust over the threat of further punitive action from US regulators. The long over-hanging stress the bank has faced on its performance, from a spike in operation expenses due to the remediation, legal and regulatory costs related to the closure of the branch will finally taper off completely, after having come down significantly this year,” Samiullah Tariq, director research at Arif Habib Limited said.

HBL has 15 branch networks in the UAE that span across the emirates of Al Ain, Abu Dhabi, Dubai and Sharjah.