The Nicosia District Court which rejected the Central Bank of Cyprus’s application to appoint a liquidator to FBME Bank has embarrassed the supervisory authority, the Cyprus News Agency reported on Friday, citing the Tanzanian lender.
The ruling, issued on Wednesday, criticises the Central Bank of Cyprus’s handling of the case of FBME and its decision to file for its liquidation in Cyprus in December 2015 on the grounds that it was required by the law, the CNA reported citing a statement issued by FBME.
The Central Bank of Cyprus placed FBME under administration and later resolution July 2014 after the Financial Crime Enforcement Network (FinCEN) of the US treasury described it as a financial institution of primary money laundering concern with ties to Lebanon’s Shiite group Hezbollah, deemed both in the US and EU as a terrorist organisation, and barred from the US banking system. The central bank in December 2015 revoked the licence for the bank’s Cyprus branch which accounted for roughly 90 per cent of its total business and fined it €1.2m for not adhering to the anti-money laundering regulations.
A US court affirmed last month FinCEN’s decision to bar US banks from opening and maintaining correspondent accounts with FBME. The bank’s owners, the Lebanese brothers Ayoub Farid Saab and Fadi Michel Saab, deny any wrongdoing have resorted to international arbitration asking €500m in damages from the Republic of Cyprus.
The court considered the application to liquidate the bank groundless as it did not fulfil any precondition stipulated in legislation, adding that the measure would have been very drastic, the CNA continued citing FBME.
The court said that FinCEN is not a court and it merely expressed concerns that have not been proven based on facts that it did not share with Cypriot authorities, the CNA reported citing FBME.
The central bank’s interpretation of the legislation was wrong as the revocation of the licence of a bank’s branch does not give the central bank the right to request the liquidation of a foreign bank which continued to be licenced by a competent supervisor abroad and carried out bank operations, the CNA reported citing FBME.
The news agency added that public interest was not served as it wrongly believed that following the revocation of the branch’s licence it was compelled by law to apply for the liquidation.
The court noted with respect to the central bank’s alleged argument that FBME’s resolution would serve public interest by preserving Cyprus’s credibility, that it was not necessary to liquidate a bank for the sake of strengthening confidence in the Cypriot banking system as the 2013 bail-in of depositors is still fresh in memory, the CNA reported citing the bank.
The court does not consider that it is possible to safeguard Cyprus’s credibility with the liquidation of the bank as the liquidation per court ruling could result in wiping out millions of euros in deposits with depositors potentially receiving only €100,000, the guaranteed amount which they will receive whether the bank is liquidated or not, the CNA continued.
In its ruling, the court makes reference to the bank’s alleged mismanagement of depositor funds by the Central Bank of Cyprus which informed the special administrator it appointed at the bank that it decided to charge the FBME branch €3.3m for legal services and the salary of the special administrator and other consultants related to its liquidation, the CNA reported citing FBME.
A central bank spokesperson said on Friday that the bank supervisor did not have any comment at present.