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24.07.2015 01:49 Age: 2 days

CYPRUS: FBME 'shocked' at FinCEN ruling, 'unwarranted' allegations

Despite the public allegations, FinCEN has so far failed to determine the source or beneficiaries of these alleged 'dirty funds'.

FBME said that the U.S. Treasury's FinCEN ruling on Thursday to maintain it as a "primary money laundering concern" has failed to consider the evidence of forensic investigations and reports, and makes allegations which the bank says are unwarranted.

The Financial Crimes Enforcement Network (FinCEN) issued a final rule saying that according to "Special measure five", it has severed access to the U.S. financial system for FBME Bank Ltd., formerly known as the Federal Bank of the Middle East. It added that the ruling prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME.

In July, 2014, FinCEN claimed that FBME was used by its customers to facilitate money laundering, terrorist financing, transnational organised crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system. Also, that "FBME has systemic failures in its anti-money laundering controls that attract high-risk shell companies, that is, companies formed for the sole purpose of holding property or funds and that do not engage in any legitimate business activity; and FBME performs a significant volume of transactions and activities that have little or no transparency and often no apparent legitimate business purpose."

However, only this week, the Council of Europe's anti-money laundering watchdog, MONEYVAL, said that Cyprus banks seem to have made significant progress in banking checks and will report on its next assessment in September.

FBME's shareholders, who established the bank in 1982 and relocated its jurisdiction first to the Cayman islands and later to Tanzania, suggest that the "fiasco", as described in a series of media announcements, was the result of the incompetence of the Central Bank of Cyprus to properly investigate the FinCEN allegations. They have also alluded that the CBC-appointed administrators have purposely run the bank's Cyprus operations into the ground with the hope of selling its assets to another investor.

The shareholders, Lebanese-born Ayoub-Farid and Fadi Saab, issued a statement saying that "the CBC surely knows the truth regarding FBME's operations through its long supervision of the bank's branch. Immediately before and since FinCEN's announcement, the CBC has commissioned its own investigations conducted by international specialists from PwC and Kroll, and by Central Bank of Cyprus staff. Given the potential importance of the insights of these investigations it is extraordinary that none of the results have been disclosed to FBME as one would have expected."

FBME says that since 2008 it has invested ?134 mln in the Cyprus economy, while in 2012 FBME rushed to the government's aid when Cyprus needed to sell ?240 mln in sovereign debt, while in 2014 the Ministry of Finance said an agreement had been reached in principle for a further investment of $300 mln.

The debacle has turned out to be an embarrassment to the Cyprus government, as it faced an appeal by the Saab brothers to the arbitration court of the International Chamber of Commerce, while the banking supervisor's reputation has been tarnished by hundreds of FBME customers who have been hampered by the stringent controls imposed by the CBC.

In an announcement on Friday, FBME said that it is confident that the compliance of the bank's systems, personnel and performance is consistent with the highest standards of international anti-money laundering (AML) controls and know-your-customer (KYC) practices and considers the position taken by FinCEN to be disproportionate to the underlying facts, the conduct of FBME Bank and the interests of depositors and counterparties.

FBME added that it was "shocked at FinCEN's Final Rule in both the findings expressed and the terminology employed, especially given the full cooperation FBME Bank has extended to FinCEN over the past 12 months and the constructive dialogue that has taken place, and is studying all options."

In justifying its ruling, FinCEN said it "received information from a variety of sources, including comments from the public, during the [initial] 60-day comment period. After a careful and deliberative review of all available information, FinCEN determined that finalising the proposed rule and imposing special measure five is warranted and necessary to protect the U.S. financial system."

"The finalisation of this rule is significant," said FinCEN Director Jennifer Shasky Calvery, "because it demonstrates that the United States will not allow a compromised foreign bank to send dirty funds through the U.S. financial system."

Despite the public allegations, FinCEN has so far failed to determine the source or beneficiaries of these alleged 'dirty funds'.