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U.S. regulators find deficiencies at Arab Bank’s New York branch; bank agrees to order

By MARCY GORDON

AP Business Writer

WASHINGTON (AP) – U.S. regulators said Friday that Arab Bank PLC, one of the largest financial institutions in the Middle East, has inadequate controls against money laundering at its New York branch and ordered it to stop transferring funds or opening new accounts there.

In an unusual move, the Office of the U.S. Comptroller of the Currency, a Treasury Department agency, said the branch is being converted into an entity that will not conduct traditional banking activities but will continue to engage in corporate and trade financing.

The Arab Bank, with operations in 30 countries, faces several lawsuits in the United States by relatives of terrorism victims in Israel who allege it supported terrorism by funneling donations to Palestinian suicide bombers and their families.

The bank, which had said recently that it would close the New York branch, agreed to the conditions in a consent order with the comptroller’s office.

The bank also agreed not to destroy or alter any records at the branch.

“The inadequacy of the branch’s controls over its funds transfer business is especially serious in light of the high-risk characteristics of many of the transfers,” the comptroller’s office said in the consent order, which was dated Thursday and announced on Friday.

The regulators reportedly had investigated the branch’s operations for alleged violations of anti-money-laundering laws in connection with transactions by Palestinian charities.

In a statement, Shukry Bishara, Arab Bank’s chief banking officer, said the agreement “will help strengthen our internal controls, and will give our customers and regulators even more confidence in the safety and security of Arab Bank.”

The decision to close the New York branch was announced earlier this month by the Central Bank of Jordan, which oversees the operations of Arab Bank – the kingdom’s largest financial institution with some $32 billion in assets. The bank is partly owned by the prominent Palestinian Shoman family and its shareholders include the Saudi Oger Co., which was owned by former Lebanese Prime Minister Rafik Hariri, who was killed on Feb. 14 in a bombing in Beirut.

“The climate of operating in the United States at present is not expedient with the bank’s strategy and vision,” the central bank’s announcement said.

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On the Net:

Office of the Comptroller of the Currency: http://www.occ.treas.gov

Arab Bank PLC: http://www.arabbank.com

AP-ES-02-25-05 1534EST

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