Pakistani bank faces allegations of facilitating terror financing

HBL Pakistani Bank

A commercial bank in the private sector of Pakistan, faces allegations of facilitating terror financing during the 2010-19 period, a charge that the bank said it is contesting “fully and vigorously” in a US court.

Media reports suggested that some 370 individual complainants had demanded compensation from HBL. This subsequently triggered a big fall in the bank’s share price on the Pakistan Stock Exchange (PSX) on Thursday.

The Southern District Court of New York has alleged that the alleged terror financing led to the injuries or killing of 370 individuals, and their family members, in the landlocked country.

Reports suggest that some 370 complainants demanded compensation from the bank, adding that the court had agreed to dismiss primary liability claims but denied dismissal of secondary liability claims against the bank.

The number of claims remained unknown. Responding to the grave legal development, the HBL said in a reply to the Express Tribune on Thursday that the allegations in the complaints were “meritless” and that it was contesting them “fully and vigorously”.

“The court also stated that secondary liabilities will be evaluated following due legal proceedings and no judgement was passed by the court on this matter,” HBL added.

Earlier, almost a similar number of complainants had failed a similar case against Pakistan’s state-owned National Bank of Pakistan (NBP), demanding compensation. However, the NBP won the case in June, 2022.

The cases apparently gained momentum around the time when Paris-based global financial transaction watchdog – Financial Action Task Force (FATF) – considered upgrading Pakistan to its white list.

The country has remained in its grey-list since 2018 for alleged suspected financial transactions in the past.

HBL’s share price fell by the maximum allowed limit of 7.50% in a day or by Rs6.11 to close at Rs75.36 with 1.83 million shares turnover on the PSX on Thursday.

Experts said the HBL saga not only brought its share price down, but played a key role in mounting selling pressure across the market.

Accordingly, the PSX benchmark KSE-100 index fell 1% – or 421 points – to close at 41,114 points.

Read HBL vigorously contesting 'terror financing' charges in US

In a note to clients, Shameer Alam, analyst at Ismail Iqbal Securities, said that “the motion to dismiss claims of secondary liability is denied because the complaints sufficiently allege that the defendant (HBL) aided and abetted Al-Qaeda’s campaign of terrorism.”

“The motion to dismiss for lack of jurisdiction is denied without prejudice, which in our opinion gives HBL the right to re-submit the motion,” he said, adding that the court had ordered both parties to meet on October 19, 2022, to file a proposed civil case management plan and scheduling order, which suggests that the proceedings will continue.

The legal issue has renewed memories of the penalty that HBL faced in 2017 from the US financial services regulator, the New York State Department of Financial Services (NYDFS), which resulted in an out-of-court settlement of $225 million and closure of the banks New York operations.

That event had a bearing on HBL’s stock performance and resulted in an impact of Rs23.7 billion one-off earnings, increased legal costs and resulted in a reduction in dividend payouts.

In its reply, HBL said that the public record is clear that it is unwavering in its commitment to combating the financing of terrorism, and—as has been well documented—it’s extensive global implementation of anti-money laundering compliance controls has been highly successful and lauded by regulators around the world.

“HBL’s motion was successful in two respects: the court dismissed the primary liability claim and narrowed the case substantially. It proactively initiated a business transformation programme, in early 2018, around its control and compliance processes and systems to adhere to international standards,” read the reply.

The bank said it has made investments to strengthen its Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) protocols by partnering with global experts in this field.

“The bank seeks to adhere to the highest standards of compliance with international and country laws and regulations,” it added.