Future of FBME remains unclear

By Elias Hazou
The future of FBME Bank remained blurry on Tuesday after the lender was placed under the Central Bank’s administration in the wake of accusations of being a conduit for money laundering.
On July 18 the Central Bank of Cyprus (CBC) said it had taken control of FBME’s operations in Cyprus, following a report from the Financial Crimes Enforcement Network (FinCEN ) of the US Treasury describing the bank as a “primary money laundering concern”.
FBME, headquartered in Tanzania, had denied the allegations, saying the US Treasury had compiled the report without its input.
The US Treasury accused FBME, which though chartered in Tanzania operates primarily in Cyprus, of facilitating financial activity for transnational organised crime and Hezbollah.
Late on Monday the Central Bank – effectively the Resolution Authority for financial institutions – placed FBME under administration, stating that its purpose was to sell branch assets for the protection of depositors. FBME has two branches in Cyprus.
The government said on Tuesday its decision to place FBME Bank under administration showed the authorities’ commitment to protect financial stability.
The Cyprus Mail was unable to reach Dinos Christofides, the administrator for FBME appointed by the Resolution Authority. Members of the authority likewise could not be reached for comment.
But banking sources, speaking on condition of anonymity, said the purpose of placing FBME under administration was to swiftly seize control of the bank to ensure that its meets its obligations and to protect its depositors.
The move was necessary, said the sources, after the Americans cut the bank’s access to markets – by closing FBME’s correspondent accounts – dealing a serious blow to its operations.
By stepping in, the CBC also preempts a possible disorderly default by the bank that might have caused insured depositors to lose their money, which under EU law would then have to be backstopped by Cyprus, the host country.
Placing the bank under administration may – though not necessarily – entail winding it down by liquidating its assets and liabilities to cover depositors. But that would be an extreme course of action, required only should the administrator fail to return FBME to normalcy, the sources explained.
The same sources insisted that the money laundering allegations and consequent investigations, and the bank put under administration, are two linked yet separate issues.
Questions are meanwhile being asked of the CBC’s monitoring given that, as the Mail understands, FBME has been in the Americans’ crosshairs for some time now. It’s also understood that the US Treasury and/or the Federal Reserve had in the past made several requests for information to the CBC about FBME’s activities.
And according to the US Treasury, the CBC was aware of money laundering suspicions against FBME. As the Treasury’s report states: “The Central Bank of Cyprus, which supervises and regulates all Cypriot banks, including branches of foreign financial institutions such as FBME, has found FBME’s compliance with Cypriot banking laws and AML regulations deficient on at least two occasions. As evidenced by its failure to comply with the Cypriot AML law, FBME’s weak AML controls and customer due diligence resulted in a fine by the CBC in 2008.”
The report said also that whereas FBME is chartered in Tanzania, it transacts over 90 per cent of its global banking business and holds over 90 per cent of its assets in its Cyprus branches.
Another banking source here, who also asked not to be named, said that whereas the CBC may have had some relevant information it did not have the full picture enabling it to take action against FBME.
“The Americans know everything,” the source said. “They can track every single dollar. Crucially, they must have identified the final recipients of alleged laundered money, data which the Central Bank could not have access to.”
FBME contacts declined comment, but the bank was preparing a statement for the media.

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.