The Supreme Court on Friday rejected a request from FBME bank for an interim order suspending procedures to sell the lender that were initiated by the Central Bank (CBC) after a US Treasury report named it a “primary money laundering concern.”
Last week, FBME applied for an interim order suspending the July 21 order that placed it under resolution with the purpose of selling its operations to protect depositors.
In a statement, the CBC, which is acting as the resolution authority, sought to clarify that its actions were not based on the US Treasury Financial Crimes Enforcement Network’s (FinCEN) announcement, but on the “immediate and drastic effects” it had on the branch’s capability to execute client transactions as a result of the measures put in place by other lenders that FBME worked with.
“As a result of FinCEN’s action, correspondent banks have frozen and or closed the branch’s US dollar accounts and have suspended transfers on behalf of the branch,” the CBC said.
There were also serious difficulties in transferring cash in euros and other currencies, the regulator said.
The contents of the FinCEN report were being dealt with separately by the resolution authority, the CBC added.
The resolution authority judged that selling the branch’s operations to another bank was the appropriate measure to protect depositors and prevent the spread of risks that would affect the stability of the entire banking system.
To achieve this, the CBC said, it issued a decree on July 21 to sell the branch’s operations. It does not affect any other subsidiary or FBME–connected company in Cyprus.
But the situation forced FBME Card Services to suspend business activity on Thursday.
“The company will continue to meet its outstanding obligations. It will not close but will remain suspended while it pursues legal matters and takes the necessary measures to remedy the current situation.”
This situation has been forced on the business due to the disruption caused to the Cyprus branch of FBME and in particular the disruption to payments out of this branch since the appointment of the administrator by the CBC.
FBME Card Services added that it has taken this decision with great regret but that it felt the situation will be remedied in the near future.
“It has enjoyed an excellent standing in the market and is confident it will be able to use this to rebuild its business proposition. The company sends its sincere apologies to all its customers and merchants in the Republic of Cyprus.”
FinCEN accused FBME, which though chartered in Tanzania operates primarily in Cyprus, of facilitating financial activity for transnational organised crime and Hezbollah.
The lender denied the allegations, describing the CBC’s move as a “hostile takeover.”
FBME said that “given that the Central Bank of Cyprus action has occurred at a time when the bank maintains exceptionally high solvency ratios, it is natural for FBME to question whether the CBC current action is motivated by concern for its depositors, or by the financial requirements of the CBC itself and the institutions it supervises.”