The decision of the U.S. Financial Enforcement Network to ban transactions between U.S. banks and FBME Bank raises again questions about the favourable treatment of the Tanzanian-based lender by the Central Bank of Cyprus during the term of former governor Panicos Demetriades.
On Friday, FinCEN, a division of the U.S. department of treasury, said it affirmed a July 29 ban on U.S. lenders to open or maintain correspondent accounts for or on behalf of FBME, which it described as a “financial institution of primary money laundering concern”.
FBME was stripped by the Central Bank of Cyprus of its license of its Cyprus branch after it was fined €1.2m more than three months earlier for violating anti-money laundering rules. In July 2014, the central bank appointed an administrator at FBME’s Cyprus branch and subsequently decided to liquidate it. The bank denied the allegations and resorted to international arbitration demanding €500m in damages.
According to the U.S. authorities, the bank’s illegal activities include acceptance of deposits by a financier of Hezbollah, the Lebanese organisation which is considered a terrorist organisation in the European Union and in the U.S. The bank also provided “financial services to a financial advisor for a major transnational organized crime figure” and facilitated sanctions evasion by the “Scientific Studies and Research Center,” a Syrian entity which used the bank to process transactions through the U.S. financial system.
In addition, FBME facilitated the transfer of funds “to an FBME account involved in fraud against a U.S. person, with the FBME customer operating the alleged fraud scheme later being indicted in the United States District Court for the Northern District of Ohio,” FinCEN said.
Panicos Demetriades, who served at the helm of the Central Bank of Cyprus from May 2012 to April 2014, sent in January a letter to FinCEN in which he said that he was surprised to hear of the allegations against the bank and suggested that the money laundering allegations could be based on “rumours and hearsay” of its Cypriot competitors and their “political backers”.
In 2012, Demetriades, appointed by the disgraced communist president Demetris Christofias, considered allowing the bank to transfer its headquarters to Cyprus from Tanzania, turning its branch to a parent company, effectively allowing the lender to operate freely across the European Union.
“Demetriades exposed the country to a huge risk,” a source with knowledge of the situation said.
Soon after reports emerged in the Cypriot and international press about the former governor’s intention with respect to upgrading FBME’s branch licence to a complete licence, Cyprus, which was by then involved in talks over the terms of its bailout, was accused by foreign politicians of being a money laundering centre.
Cyprus’s reputation regarding money laundering “was irreparably damaged” by Demetriades, the source continued. “What matters now is to reverse this perception by demonstrating zero tolerance to money laundering and the financing of terrorism”.
In addition to zero tolerance, authorities have also demonstrated the ability to “instantly react” to issues putting the banking system at risk, the source continued.
A second source, who also commented on condition of anonymity, expressed concern over the likelihood that FBME may have obtained access to “sensitive information” concerning the European Central Bank through a family member of a close associate of Demetriades.
Demetriades, who was member of the ECB’s governing council and now teaches at the University of Leicester, did not respond to a Cyprus Business Mail email requesting a comment.