Five months after the Central Bank of Cyprus triggered the deposit guarantee scheme for depositors of FBME Bank, most customers seem reluctant to claim even their insured deposits, a source said.
Until Friday, the total number that applied to get back their deposits was 691 out of a total of 6,500 depositors, the source familiar with the situation said on condition of anonymity citing the lack of authorisation to discuss the matter in the press. The total compensation paid to FBME customers so far was €29m out of an estimated €1.4bn in overall deposits.
“A total of 373 applications were filed directly to the Central Bank of Cyprus (CBC),” the source said. “A further 318 customers filed applications at the premises of the bank, out of which 194 were forwarded to the central bank. A total of 57 are pending”.
Central Bank of CyprusFBME had the licence of its Cyprus branch revoked by the CBC in December, days after the latter fined it €1.2m citing the lender’s non-compliance to legislation on anti-money laundering and terrorism financing.
The CBC placed FBME under administration in July 2014 when the Financial Enforcement Network (FinCEN) of the US Treasury described the bank as a “primary money laundering concern” and said it had links to Hezbollah, the Lebanese militia considered a terrorist group by the EU and the US.
In March, FinCEN issued a final ruling imposing “special measure five” under the US Patriot Act against the bank, effectively severing the bank’s ties with the US financial system. In July, a US court ordered the postponement of the implantation of the measure until further notice after the bank contested FinCEN’s decision.
The bank’s owners, Ayoub-Farid Michel Saab and Fadi Michel Saab, who deny any wrongdoing and took legal action against the CBC in Cyprus and abroad, including an appeal to the arbitration court of the International Chamber of Commerce in Paris. They are demanding €500m in damages on the grounds that Cyprus failed to protect their investment.
An advice given to the FBME customers by the Saabs may explain their reluctance in claiming their funds. The shareholders’ website fbmeltd.com warned depositors in May that by filling and submitting a “statement of particulars” with which beneficiaries declare their personal and bank account data and give their consent for the purposes of the deposit guarantee scheme, they are waiving their claims exceeding the amount of insured deposits.
“If completed and returned this communication will wipe out all rights to holdings above the maximum level of the CBC’s guarantee scheme of 100,00 (sic) -despite the fact that FBME has ample funds to meet depositors demands,” the Saabs said on their website.
The shareholders’ claims prompted an immediate reaction by the CBC which flatly rejected their claims. It said the procedure was the one envisaged by European legislation, and added that depositors maintained their legal right to claim any amount in excess of €100,000 as provided by national law.
Nigel Perry, who acts as media advisor to the holding company of the bank, said that in addition to concerns over the alleged waiving of uninsured deposits, depositors at the bank were also put off claiming their deposits by “the lack of progress the CBC is making in the courts to wind up FBME” and “an overall lack of trust” in Cyprus’s bank supervisor and its actions after it placed FBME under administration.
A decision over the appointment of a special administrator who would act as a liquidator of FMBE is still pending at the courts following an application of the CBC.
The reasons for the reluctance of customers in claiming their deposits may be different according to a Limassol-based lawyer, who said that it may be related to the very anti-money laundering practices of the bank. FBME’s “administration seemed to have been a chaos,” Floris Alexander, a Dutch national who helps FBME customers reclaim their deposits, said.
money launderingFBME did not have “the most recent passport of the customer” or “recent up-to-date files of the customer,” which are standard practices under the know-your-client regulations, he said. “Customers received pay outs while their offshore companies were not in good standing,” he added. “All these factors indicate that something was wrong”.
Alexander did not rule out the possibility “a certain portion of the bank’s clientele may be reluctant to reclaim their deposits on fears of getting trouble with the law as international experience shows, which is not necessarily the case with Cyprus”.
“If you cannot come in person there is currently no way to resolve the situation,” he said in an interview on Monday.
In addition, “the Central Bank of Cyprus which is the administrator of the deposit guarantee scheme needs to verify your identity and second that the company in fact is the company that has the account at FBME”.
The bank supervisor, Alexander said, needed to ensure it was paying out funds to entitled beneficiaries.