FBME BANK, Cyprus.
The Federal Bank of Middle East was established as an international commercial bank. Its main roots are elicited back to 1982 where it was introduced as a subsidiary of the Federal bank of Lebanon SAL at Cyprus. Four years later in 1986, Federal Bank of Middle East changed its country of incorporation to the Cayman Islands and hence its banking presence in Cayman transformed to Cayman’s Island entity as a branch. In 1993, it established a representative office in Moscow. The bank upheld a good run in the finance sector hence improving its services to its clients and offering different services. In 2002, FBME incorporated its wholly-owned subsidiary card services dubbed FBMECS. This introduction of the FBME card services was largely embraced which led it in taking over the Cyprus Card services operations of FBME bank in 2004/2005.
The bank offered commercial banking services and products to corporate and individual clients. Its customary banking lines included international payment services, multi-currency account, credit facilities, trade finance, forex trading facilities, internet banking and international card services.
As part of its strategic planning, FBME bank in 2004 terminated its banking presence in the Cayman Islands and established its parent company and operational headquarters in Tanzania. At the same time, its Cyprus banking operations became a branch of FBME bank, Tanzania.
FBME Bank in Trouble
In 2014, FBME was accused by the Financial Crimes Enforcement Network (FinCEN) for related crime activities. FinCEN a bureau of the United States Department of the Treasury, which collects financial transactions as a strategy to counter domestic and international money laundering and terrorist financing, accused the Bank for facilitating financial transactions for multinational organized crime organizations and Hezbollah. This led to suspension of all commercial activities related to the bank including closure of several business units. This led to the central bank of Cyprus taking over management of the bank. This also meant that all transactions or payments had to be authorized by the appointed administrators.
According to a statement given by Jennifer Shasky Calvery on 17th July 2014, FBME has a weak anti-money laundering policy which leads to untraceable money streams. This report led to other financial institutions especially international banks terminating their cooperation with FBME. Therefore it is no longer possible for FBME Bank customers to transfer money from FBME accounts to any bank accounts with other banks. It was found out that the bank was being used to defraud American companies and individuals. It was discovered that the bank was used for a non-existing fraudulent High Yield Investment program whose purveyor was convicted for fraud and money laundering by an Ohio court.
Within a span of a single year, more than 387 million USD worth of unusual transactions were found involving a transfer from FBME to a US bank. These transfers should have been flagged as having a high risk by the originating bank.
These events led to the banks income drastically decreasing and withdrawals extremely increasing. Since the operational costs were the same, liquidity issue became a problem due to the more money going out than coming in. Every operation of the bank was paralyzed, the debit and credit cards were blocked, online banking has been closed and customer service is understaffed.
The closing of the bank
The central bank decided to freeze all money transfers to and from FBME pending their own investigation. This step was taken to prevent account holders, including fraudulent clients from vastly withdrawing all their money. This was done after the central bank taking charge of the administration. The central bank put up severely limited options of withdrawal of money from the accounts and very long procedures. Due to the banks registration with the Deposit Guarantee Scheme (an insurance guarantee that protects customers deposits in European banks in case of a bank closure), the account holders are able to withdraw their money under the set conditions by the central bank. For example, the Cyprus central bank has specified certain conditions under which clients with a ‘Euro account’ can withdraw small amounts of money from their accounts. The daily maximum amount which can be transferred had steadily been decreased. As of 2015, the daily limit was set at 200 euros and possibilities are it will continue decreasing.
The FBME bank latest news
The bank as per now is left at a verge point of either being closed or total termination. But according to the banks reports generally, the bank has six options for the future. The least likely scenario is that the bank opens her doors again as if nothing ever happened without any form of further damage. This option will have consequences for the liquidity and solvability of the bank and hence may lead to a bank run. More-so, the current situation of the bank, where it cannot be able to fulfill her contractual obligations may lead to it being declared bankrupt.
Additionally, an earlier attempt of it being sold might be repeated and this time the ICC might not stop the step. If a suitable buyer is found, this might also be a possible outcome although still complex. The other option and the most dangerous scenario is a bank run. Here, the bank account holders might decide to massively withdraw their money creating liquidity problems for the bank. At some point this will lead to the bank declaring bankruptcy. The final option and the most possible option is the bank closure. More and more observers within the central bank are arguing for retraction of the bank license. This idea will advantage the account holders because they will be reimbursed their funds within twenty days after official bank closure.