NICOSIA: Cyprus was looking for buyers to take over branches of Tanzania-based bank FBME – which faces a U.S. money-laundering probe – after placing the operation under administration.
The move by the Central Bank of Cyprus late Monday came after allegations by key European Union partners that the island’s once-bloated banking sector had been engaged in laundering money on behalf of Russian interests.
International creditors imposed a massive shrinking of the island’s banking system in March last year, in what Cypriots widely regarded as a punitive move in return for an emergency 10 billion euro ($13.5 billion) bailout of state finances.
Government spokesman Nicos Christodoulides said: “The Central Bank of Cyprus, as supervisory authority, recommended resolution measures ... relating to the sale of operations of FBME Bank Ltd., to protect depositors. The above actions demonstrate the commitment of the independent institutions of the Republic of Cyprus to safeguard financial stability.”
FBME, whose twin branches on the island are estimated to hold 1.7 billion euros in deposits, denies all charges of wrongdoing and has challenged Washington’s allegations.
In a statement issued late Monday, the CBC said: “The resolution authority has issued a decree, under the powers conferred to it ... which places the branch of FBME Bank in Cyprus under resolution.”
It said the aim was to sell the assets of the two local branches of FBME, after it froze them Friday, following U.S. Treasury allegations that the bank was a “primary money-laundering concern.”
Before the decision of the central bank to sell the assets, FBME had issued a statement saying it hoped the CBC’s taking control would be a temporary blip in its operations.
In the statement, issued Monday, FBME said: “CBC staff members have been present at FBME Cyprus since July 18, monitoring and approving payment instructions.
It is intended that this will be a temporary measure to resolve the situation arising from the U.S. Treasury Department announcement and will serve to mitigate the impact on the bank of the allegations that have been made.
“In an effort to address the matter, the bank has instructed specialist advisers to engage with the U.S. authorities with a view to resolving the issues and to temper the adverse impact of the announcement.”
Two days later, after the decision of the central bank had taken place, a spokesperson for FBME told The Daily Star that the bank could not comment on the subject
The spokesperson added that the bank might issue a statement Thursday to clarify its position.
FBME transacts over 90 percent of its global banking business through branches in Cyprus, according to Washington.
Jennifer Shasky Calvery, the head of the U.S. Treasury Department’s financial crimes enforcement network, charged last week that the bank promoted itself “on the basis of its weak anti-money-laundering controls in order to attract illicit finance business from the darkest corners of the criminal underworld.”
She said the Treasury move, which effectively cuts the bank off from the U.S. financial system, was a “necessary step to disrupt the bank’s efforts.”
“FBME changed its country of incorporation numerous times, partly due to its inability to adhere to regulatory requirements. It has established itself with a nominal headquarters in Tanzania,” Calvery said.
She added that FBME had taken steps to evade oversight by the Cypriot regulatory authorities in the recent past. The bank said it was making strenuous efforts to allay U.S. concerns.
The management of the Cypriot economy remains under regular review by international lenders following the 2013 bailout, which imposed a swingeing austerity program, as well as the closure of the island’s second-largest lender and an unprecedented levy on deposits.
German allegations that the Cyprus banking system was a “casino” for Russians trying to convert “black rubles” into “white euros” were widely seen by Cypriots as a key motive for the most punitive bailout so far of any eurozone economy.