FBME ‘shocked’ at FinCEN rul­ing, ‘un­war­ranted’ al­le­ga­tions

Financial Mirror (Cyprus) - - FRONT PAGE -

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 Ay­oubFarid 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 EUR 134 mln in the Cyprus econ­omy, while in 2012 FBME rushed to the gov­ern­ment’s aid when Cyprus needed to sell EUR 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-your­cus­tomer (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 that has taken 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 the con­struc­tive di­a­logue place, and is study­ing all 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’.

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