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Akel: Taxpayer to pay millions for wrong closure of FBME bank

The FBME offices in Nicosia

Main opposition Akel have hammered the government over its decision to shutter Tanzania-based FBME bank some seven years ago, following a court ruling here last week that said the decision to place the lender under resolution was flawed.

In a statement on Monday, Akel said the court judgement could entail several millions in compensation for the bank – to be borne by the Cypriot taxpayer.

The party said the government’s “deafening silence” over the recent development shows one of things:

“Either they lack the courage to undertake their unbearable responsibilities for the sloppiness and amateurism with which they handled the affair; or they don’t comprehend the magnitude of their criminal handling and errors.

“Whatever the case, the problem is that once again society will have to deal with the fallout.”

Akel laid the blame at the feet of then- Central Bank governor Chrystalla Georghadji and then-Finance Minister Harris Georgiades, for rubberstamping the bank’s closure.

“When Akel warned of the dangers, no one was listening. The government must account for past events but also for the financial consequences that will come about in the future. It is not enough for them to pretend they are seeking solutions while with each passing day they increase the problems that they leave in their wake.”

Last Thursday the administrative court ruled that the Central Bank of Cyprus’ (CBC) decision to take over FBME and place it under resolution did not meet the requirements under the relevant legislation.

The court found in favour of an appeal lodged on behalf of FBME, and voided the prior decision to place the bank under resolution. It also awarded legal costs in favour of the applicants.

The CBC took over FBME’s Cyprus branch in July 2014, after the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) named the lender as a financial institution of primary money laundering concern with ties to Hezbollah, the Lebanese militia considered a terrorist organisation in the US and the European Union.

FBME is based in Tanzania but according to FinCEN, it transacted 90 per cent of its global banking business through branches in Cyprus.

The report, which effectively barred US banks from opening and maintaining correspondent accounts with FBME, prompted the CBC to place the bank under administration and subsequently resolution.

The CBC revoked the branch’s licence on December 21, 2015.

But in its judgement last week, the administrative court said it found that none of the documents submitted to it, convinced it that the CBC followed the correct procedures when placing FBME under resolution. Without explicitly stating it, the court hinted at an arbitrary decision.

The court stated that at the time in question, not all the conditions obtained for the CBC to deem FBME a non-viable concern.

The three basic conditions that needed to be met were: the Resolution Authority and the supervisory authority deem that a lender is not viable and therefore unable to meet its obligations; that without any resolution measures, a lender cannot meet its capital and liquidity requirements; and placing a lender under resolution is necessary for the public benefit and interest.

The court cited extensively a report prepared for the CBC dated July 21, 2014 and titled “Report on the current liquidity position and the viability of FBME Bank Ltd – Cyprus Branch.” The report was sent to CBC boss Georghadji.

It stated that, given FBME’s viability was in jeopardy because the majority of the deposits of the branch was denominated in US dollars, and because major correspondent banks had already suspended transactions in US dollars, “we consider that the Branch will not, in our opinion, be able to meet its obligations as they fall due and, therefore, not be viable in the very near future and thus, in order to protect depositors and avoid financial instability, we recommend that the taking of appropriate resolution measures, under the provisions of the ‘Resolution of Credit and Other Institution Law’  of 2014, is considered.”

Georghadji accepted the recommendation simply writing by hand on the report the word “Agreed.”

On the same day, she wrote to then-Finance Minister Georgiades, asking for his urgent reply. Likewise, Georgiades wrote the word “Agreed” by hand on Georghadji’s letter.

That sealed the bank’s fate.

The owners of the bank have consistently denied the money laundering accusations. They have also maintained that their bank was solvent when the decision was taken to resolve it.

In April 2016, the CBC triggered the deposits guarantee scheme to compensate FBME depositors with up to €100,000.

Depositors were paid the €100,000, but they insist that the bank was not insolvent at the time and are demanding the sum of their deposits.

Any funds left after this payment have been blocked by the CBC.


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