Alecos Markides, the lawyer representing the Tanzanian bank FBME which had its licence revoked, on Tuesday accused the Central Bank of Cyprus (CBC) of maliciousness, incompetence and arbitrary use of “absolute power”.
The supervisory authority responded by arguing that Markides, a former attorney general, was defending a doomed bank whose real owners were unknown, linked to money laundering, terror financing and child pornography.
Markides, who was commenting on state radio CyBC on Tuesday, said the Central Bank of Cyprus decided to “crush” FBME instead of asking U.S. authorities for evidence after the latter issued a report in July 2014 describing the lender as of primary money laundering concern with ties to the Lebanon’s Hezbollah, which the U.S. and the European Union link to terrorism.
“Their [the CBC’s]press release yesterday is indicative of their maliciousness,” said Markides, who served as attorney general until 2003.
The central bank effectively said that “things did not go well as the alleged owners did not cooperate,” Markides said. He was referring to the CBC’s statement that accused FBME of raising obstacles that were delaying the pay out of uninsured deposits to the banks customers.
In December, the CBC revoked the licence of FBME’s Cyprus branch and fined it €1.2m citing violation of legislation on money laundering and terror financing. The central bank placed the lender under resolution in 2014 and subsequently, after its efforts to find a buyer for its operations proved fruitless, decided to have the bank liquidated. A case concerning the bank’s liquidation is still pending.
On March 25, the U.S. Financial Enforcement Network reaffirmed its decision to prohibit banks in the country from opening or maintaining correspondent accounts with FBME, effectively making transactions in U.S. dollar impossible for the bank.
Markides added that following the central bank’s decision to revoke the FBME’s licence, the latter ceased being a bank or credit institution, and thus, the CBC had no authority to appoint a liquidator. “His appointment is illegal and as a result non-existent,” he said. “It’s a classic case of arbitrary use of power”.
The central bank also attempted to have the Tanzanian bank liquidated by requesting a Cypriot court to issue a relevant order, which the bank’s lawyers prevented, Markides went on.
“There is a group of people with absolute power,” he continued. “With respect to the banking system, they have more power than the parliament, the finance ministry and the President of the Republic combined, a handful of people accountable to nobody, operating in the absence of transparency”.
“You see problems emerging which could ravage Cyprus,” he said. “We depend on the abilities of people who proved their inadequacy in the past two or three years”.
Yiangos Demetriou, head of supervision at the CBC, dismissed Markides’s allegations saying that the bank was doomed from the time FinCEN issued its first report, and accused him of mudslinging.
He said that a Cypriot court expressed doubt whether the Lebanese brothers Ayoub Farid Michel Saab and Fadi Michel Saab, widely thought to be the shareholders of the bank, are indeed the true owners.
Demetriou, who was also commenting on CyBC, said that the central bank was unable to verify the U.S. allegations of FBME’s offences, adding that “U.S. authorities have more means and evidence to do that” and added that even after the bank was placed under administration, FinCEN said that “there was evidence that terror financing continued from Tanzania”.
The central bank official said that the central bank initiated a probe carried out by “forensic editors” whose findings were forwarded to the attorney-general’s office and subsequently to the police.
The police spokesman Andreas Angelides was immediately unavailable for a comment.
“Cyprus’s supervisors are responsible to ensure that banks apply the right procedures to prevent money laundering,” Demetriou said. “Let me say that this bank was fined in 2011 if I am not wrong,” for having in place “weak procedures”.
The central bank official said that the nature of allegations against the bank was putting off potential buyers, hence the Central Bank of Cyprus decided to go ahead with the lender’s liquidation.
“With the pending charge and by not knowing what was clean and what wasn’t, who was going to buy it?” he asked and added that the central bank attempted to “to preserve what could have been preserved”.
Demetriou declined to comment on whether the handling of the case by the central bank was correct, citing the pending court procedures. FBME also resorted to international arbitration asking for compensation from the Republic of Cyprus for damages suffered by the shareholders as a result of the central bank’s handing.
He said that the central bank had no other choice than to act in order to protect the bank’s “7,000 depositors,” up to 35 per cent of whom are Cypriots.
“The Central Bank of Cyprus took measures against FBME not because of FinCEN statement that the bank was of primary money laundering concern but because the bank was effectively cut off from the markets and could not carry out banking operations,” Demetriou said. “Correspondent banks immediately froze or closed FBME accounts first in dollar and subsequently other currencies. It was a statement that had direct consequences on the bank’s operations”.
“If all this indicates that the Central Bank of Cyprus acted wrongly to protect the Cypriot banking system and depositors then I am sorry, it is not the Central Bank of Cyprus that is accused of money laundering, financing of terror or of child pornography to which there are references in FinCEN’s reports,” Demetriou said.
Meanwhile employees from FBME Bank continued their strike for a second day on Tuesday outside the central bank.
Within days of FinCEN’s final ruling last month, 136 of the bank’s 165 employees were dismissed by the special administrator. FBME staff began an indefinite strike on Monday demanding revocation of the dismissals and payment of their dues as stipulated under labour laws.