Customers and corporate depositors started to panic after the Central Bank of Cyprus issued an announcement late Monday saying it had issued a decree by which it has placed the Cyprus branch of FBME Bank Ltd. under a state of resolution.
The Financial Mirror received several calls from concerned customers who were not reassured by the central bank’s statements, as some sought to withdraw their deposits, for fear of a repetition of last year’s “bail in” imposed on savers by the Eurogroup to rescue Bank of Cyprus.
“The purpose of the decree is the sale of the operations of the [FBME] branch with the aim of the protection of depositors,” said Monday’s decree, published in the official Gazette of the Republic and signed by the Governor Chrystalla Georghadji, CBC Council member Stelios Koiliaris and Senior Manager Yiorgos Syrichas.
The decision shows the commitment of the Cypriot independent institutions to safeguard financial stability, Government Spokesman Nicos Christodoulides stressed on Tuesday.
Last week, a US Treasury report implicated the bank in money laundering.
“FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totalled at least $875 mln between November 2006 and March 2013,” the report said.
The lender sought to clarify its position with an announcement saying that “as a result of the financial uncertainty in Cyprus in the past two years, FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable anti-money laundering rules of the Central Bank of Cyprus and the European Union”.
The crisis first erupted on Friday when the central bank announced that it had taken over the management of the operations of the branch of the Federal Bank of the Middle East (FBME), following allegations money laundering by a financial crime unit of the U.S. government.
The CBC noted that "under the powers conferred to it by the relevant legislation, has taken over the management of the operations of the branch of FBME Bank Ltd in Cyprus".
The Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury had said earlier on Thursday that FBME had facilitated a "substantial volume" of money laundering through the bank for many years and had systemic failures in its anti-money laundering (AML) controls.
Although the bank is headquartered in Tanzania, most of its activities are carried out through its Cypriot branch, FinCEN said.
The privately-held bank issued a statement saying it would cooperate with the Cypriot regulator, but said that it is “shocked by the content of the US Department of the Treasury notice relating to the bank, dated 15 July, that sets out unexplained allegations of weak AML controls.”
The bank added in the statement that it had no prior notification of this announcement nor did have the opportunity to comment on or refute the various allegations set out in it.
“The announcement is all the more surprising because, as a result of the financial uncertainty in Cyprus in the past two years, FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union,” it said.
FBME Bank added that “it welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.”
The bank concluded that “it continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.”
FinCEN said a large shell company customer base facilitated international terrorist financiers and international narcotics trafficking, including the evasion of sanctions on countries such as Syria.
"FBME solicits and is recognised by its high-risk customers for its ease of use," FinCEN said in its report.
Cypriot authorities found FBME's compliance with Cypriot banking laws and anti-money laundering regulations deficient on at least two occasions, the U.S. agency said.
It also said the bank came under scrutiny by Cypriot authorities in 2013 for allegedly circumventing currency controls, imposed by Cyprus in the wake of the international bailout in March last year.
FBME Bank was established its Nicosia as a subsidiary of the Federal Bank of Lebanon SAL. In 1986 it changed its country of incorporation to the Cayman Islands and its banking presence in Cyprus was transformed to that of a branch of the Cayman Islands entity.
In 2003 FBME Bank terminated its banking presence in the Cayman Islands and established its parent company and operational headquarters in Tanzania. At the same time, its Cyprus banking operations became a branch of FBME Bank, Tanzania.
As of September 2013, FBME was the largest commercial bank in Tanzania, with a total asset base valued at approximately US$2.72 bln, with shareholders' equity of approximately US$179.63 mln.
The bank is family owned owned by A-F M Saab and F M Saab and maintains two branches in Cyprus, four in Tanzania and a representative office in Moscow.
In 2005, FBME also expanded into card services and is the only alternative to JCC Payment Systems, the card payment system wholly owned by the Cypriot banks.
Meanwhile, in statements to the Beirut Daily Star, FBME Chairman Ayoub-Farid Saab said that the bank had requested the Cypriot action in order to clear itself of the “unfounded” allegations.
“We asked the Cypriot authorities to manage our bank to see [with] their own eyes that there is nothing wrong in our branch. All these allegations against us are unfounded,” he said.
The U.S. Treasury Thursday accused FBME, which though chartered in Tanzania operates primarily in Cyprus, of facilitating financial activity for transnational organized crime and Hezbollah, calling it a “primary money laundering concern.”
The Federal Bank of Lebanon, owned by brothers Ayoub-Farid Saab and Fadi Saab, is not named in the Treasury Department report.
Ayoub-Farib Saab insisted that the Federal Bank of Lebanon was not involved in the FBME issue.
“We have two separate boards of directors. There are no problems with the Federal Bank of Lebanon and we are cooperating with the Central Bank,” he said, adding that he had met with Lebanese central bank officials on Friday and would be issuing a statement on the bank’s website at the weekend.
Saab denied that the Federal Bank of Lebanon would be affected or forced to sell over FBME’s problems.