December 17, 2015 / 5:32 PM / 2 years ago

CORRECTED-UPDATE 1-Habib Bank not following US money laundering laws-Fed

(Corrects to delete inaccurate reference to HAB Bank in third paragraph)

NEW YORK, Dec 17 (Reuters) - The New York branch of Pakistan's largest bank, Habib Bank Limited, has not complied with U.S. anti-money laundering laws or reported suspicious activity in its customers' accounts, the Federal Reserve Board of Governors said on Thursday.

In a lengthy order, the Fed barred the bank from conducting any dollar-clearing transactions or accepting any new accounts for U.S. dollar clearing as of Dec. 11.

It was the second time the New York branch of the bank has been reprimanded by the federal regulator. Nearly 10 years ago, the Board of Governors cited many of the same problems and in December 2006 entered into a written agreement "designed to correct certain deficiencies."

But a recent exam found HBL's risk management had broken down, as well as its compliance with laws such as the Bank Secrecy Act and regulations issued by the U.S. Treasury Department, according to the order.

Up until April, Pakistan's government held a 42.5 percent stake in Habib, the country's oldest bank. But it sold off its shares as part of Prime Minister Nawaz Sharif's plan to privatize 68 public institutions, bringing in more than $1 billion.

The bank and its New York branch could not be immediately reached for comment on the Fed's actions.

The Fed said that on Dec. 3 the bank agreed to give its board of directors effective control over preventing money laundering and to enhance its oversight and information systems. The bank and branch also agreed to hire a third party to review compliance with federal laws, the Fed said.

The bank also said it would create a plan ensuring it retains complete and accurate customer information and remediating deficient due diligence for existing accounts.

Overall, the bank must carry out a variety of programs and plans showing that it is adhering to U.S. law, and submit to quarterly reviews of its progress. (Reporting by Lisa Lambert; Editing by Jonathan Oatis)

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