By Elias Hazou
THE CENTRAL Bank of Cyprus (CBC) announced late on Monday that it was placing FBME Bank – rocked by money laundering allegations – under resolution.
In a short statement, the regulator said the move was intended to protect depositors. The announcement came out after the Resolution Authority – including the finance minister and the Central Bank governor – issued a decree on the sale of FBME Bank’s operations in Cyprus.
The decree, which has immediate effect, notes that additional resolution measures may be taken if deemed necessary.
Although the bank is solvent, it’s understood that its operations have been dealt a serious blow after US and German financial institutions stopped transacting with it, in the wake of the money laundering allegations. Had the bank’s branch here declared bankruptcy, the Cypriot state – itself broke – might then have found itself having to backstop the bank’s insured deposits (up to €100,000).
Placing the bank under resolution would pre-empt that, sources explained.
FBME was placed under the administration of the CBC last week, hot on the heels of a US Treasury report implicating the lender in money laundering.
In a statement earlier on Monday, FBME said CBC staff “have been present at FBME Cyprus since the afternoon of 18 July 2014, monitoring and approving payment instructions. It is intended that this will be a temporary measure to resolve the situation arising from the US Department of the Treasury announcement and will serve to mitigate the impact on the Bank of the allegations that have been made.”
It added: “FBME is working with the CBC to address the current situation and to reassure the market that FBME continues to act in accordance with current regulations.”
The Tanzania-chartered lender went on to say that the allegations of the US Treasury Department “were made without prior notification to FBME or presenting us with the opportunity to comment on them, and in an effort to address the matter the Bank has instructed specialist advisors to engage with the US authorities with a view to resolving the issues and to temper the adverse impact of the announcement.”
The CBC took over the operations of the Lebanese-owned FBME Bank in Cyprus on Friday, a day after the US Treasury Department announced it was blacklisting FBME for alleged links to Hezbollah.
Asked by the Mail, Central Bank sources said earlier on Monday that the regulator has the power to revoke FBME’s licence at any time should this action be warranted. The same sources, who requested anonymity, said a team of about eight CBC staff were now stationed at FBME, monitoring all payment transactions.
They declined to comment on whether the US Treasury’s allegations have been substantiated to any degree.
“Obviously, the current arrangement [FBME administration by the Central Bank] cannot go on forever,” they said, adding rather cryptically that it was “a matter of days” before the situation clears up.
Last Thursday the US Treasury accused FBME, which though chartered in Tanzania operates primarily in Cyprus, of facilitating financial activity for transnational organised crime and Hezbollah, calling it a “primary money laundering concern”.
The Mail moreover understands that US authorities first became ‘interested’ in FBME at least two years ago; during this time the Americans had been at work gathering hard data on the lender.
FBME was originally established in Cyprus in 1982 as a subsidiary of the Federal Bank of Lebanon SAL.
The US Treasury report, dated July 15, listed a number of suspicious transactions and legal violations from FBME over the last decade, including allegations that a bank customer “received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah”.
“FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totalled at least US$875 million between November 2006 and March 2013,” the report said.
The findings open the process to institute special measures against the bank and all of its subsidiaries. The Treasury Department has proposed applying the “Fifth Special Measure” under the US Patriot Act, which blocks US financial institutions from carrying out any transactions with the sanctioned bank. There is a 60-day comment period from the publishing of the Treasury Department report before any final action can be taken.