TANZANIA, CYPRUS IN TALKS OVER FBME CUSTOMERS’ PAYMENTS

By Daniel Mbega

Dar es Salaam

TANZANIA and Cyprus are in talks over challenges facing customers of the Federal Bank of the Middle East (FBME) after its business licence was revoked by the Bank of Tanzania (BoT) in 2017, the National Assembly was told yesterday.

Deputy Minister for Finance and Planning, Dr Ashatu Kijaji made the revelation in Dodoma today, Monday May 13, 2019, when responding to a principal question posed by Special Seats MP, Asha Abdullah Juma who wanted to know the fate of FBME bank customers.

Dr Kijaji said, the process of allocating assets and money of the defunct FBME Bank from various financial institutions outside the country has faced legal challenges between Tanzania and Cyprus where the bank had its major operations, thus derailing collection, allocation of funds and liquidation.

“There is no fixed date as to when the money will be paid to customers because of the pending cases that deter collection of assets and debts of FBME Bank,” Dr Kijaji was quoted as saying.

She said the payments will be made in accordance with Section 39(2) and (3) of the laws governing the banking sector and financial institutions—‘The Banking and Financial Institutions Act, 2006’.

She said the customers will be paid in accordance with compensation regulations outlined by the Deposit Insurance Board (DIB) as the liquidator.

She said all customers with deposits at FBME bank are entitled to a 1.5m/- compensation from DIB.

“Customers who were having deposits amounting to more than 1.5m/- will get all their monies back including compensation from DIB”, said Dr Kijaji.

She said the liquidator will also auction assets of the bank in accordance with the Act of Bankruptcy. She said the funds generated will be used to pay customers with deposits of over 1.5m/-.

As of June 2017, the government had paid 727. 988m/- to 625 FBME customers after its business licence was revoked. The money were sourced from DIB as every bank and every financial institution which is licensed to carry on banking business in Tanzania is required by law to be a member of the DIB.

On May 2017, BoT revoked the business licence of FBME and placed it under liquidation after it was accused by the United States government for involvement on money laundering.

The central bank put FBME under its surveillance in July 2014 following a report from the US Treasury's Financial Crimes Enforcement Network (FinCEN) describing the bank as a ‘primary money laundering concern’.

The bank was licensed when Mr Daudi Ballali was at the helm of BoT and continued to hold such a licence when Prof Benno Ndulu became the central bank governor in 2008.

Since the beginning, BoT board members doubted the authenticity of the licence.

FBME Bank is registered in the Tanzania but has been conducting most of its business operations elsewhere, notably in Cyprus.

The bank was accused of laundering money through its Cyprus branch for a failed Indonesian bank, the Russian Mafia, the Lebanon based Shi’a Islamist group Hezbollah, al Qaeda and a long list of others.

In 1982, FBME Bank established its Nicosia, Cyprus, operations as a subsidiary of the Federal Bank of Lebanon SAL.

In 1986, FBME Bank changed its country of incorporation to the Cayman Islands and its banking presence in Cyprus was transformed to that of a branch of the Cayman.

In 2014, the US government accused the Dar es Salaam-headquartered FBME of large-scale money laundering, sparking a protracted legal battle between the two parties.

On March 25, 2016, the US Treasury's Financial Crimes Enforcement Network (FinCEN) issued its final ruling, confirming FBME as an institution of "primary money laundering concern."

On April 14, 2017, a US court in Washington ruled in favour of FinCEN. The ruling put FBME out of business.

FBME said it would appeal the decision of the US court to uphold a ban on its operations in the country.

FBME is said to have been conducting most of its business in Cyprus. It also maintains a representative office in Moscow and is reportedly owned by two Lebanese brothers - Ayoub-Farid M Saab and Fady M Saab.

As of September 2013, FBME was the largest commercial bank in Tanzania, with a total asset base valued at approximately US$2.716 billion (TZS:4.4 trillion), with shareholders’ equity of approximately US$179.63 million (TZS:291 billion).

The bank was founded in 1952 in Lebanon, as the Federal Bank of Lebanon SAL. In 1982 Federal Bank of the Middle East was established in Cyprus as a subsidiary of the Federal Bank of Lebanon SAL. In 1986 Federal Bank of the Middle East changed its country of incorporation to the Cayman Islands and its banking presence in Cyprus was transformed to that of a branch of the Cayman Islands entity. Since 1993 it has maintained a Representative Office in Moscow.

In 2003, as part of its strategic planning, Federal Bank of the Middle East terminated its banking presence in the Cayman Islands and established its parent company and operational headquarters in Tanzania. At the same time, its Cyprus operations became a branch of Federal Bank of the Middle East, Tanzania.

In 2005 the Federal Bank of the Middle East Changed its name to FBME Bank. FBME Card Services Limited (FBMECS) was incorporated in 2002 and in 2004/5 took over the Card Services operations of FBME Bank.

In 2014 the Financial Crimes Enforcement Network (FinCEN), a bureau of the United States Department of the Treasury, which collects financial transactional data and information in order to combat domestic and international money laundering, terrorist financing, and other financial crimes, accused FBME which operates primarily in Cyprus, of facilitating financial transactions for multinational organised crime organizations and Hezbollah.

The Central Bank of Cyprus took over management of the bank and appointed Mr. Dinos Christofides as administrator, who was later replaced by Andrew Andronicou and thereafter the latter replaced by Chris Iacovides.

In May 2015, the International Chamber of Commerce‘s Arbitral Tribunal called on Cypriot banking authorities to abstain from taking any measures that would destroy irrevocably the business of FBME Cyprus pending completion of arbitration.

The request for Interim Measures had been filed by Ayoub-Farid Michel Saab and Fadi Michel Saab, owners of the band and claimants in the dispute against the Republic of Cyprus.

FBME Bank said this confirms Procedural Order No. 1 by inviting the Republic of Cyprus to refrain from proceeding to the sale or the resolution of FBME Bank before the end of this arbitration. and puts Cypriot financial authorities under obligation to notify any further measure regarding FBME Cyprus 30 days in advance, and that Cyprus can no longer act in isolation and put all interested parties before a fait accompli. Further, FBME, the Arbitral Tribunal and that Messrs. Saab, owners, will be in a position to react before a decision is final, and have an opportunity to take all measures and legal actions that they deem appropriate.