International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, March 29, 2016

FinCEN Re-Issues Order Against FBME Bank Ltd. Setting the Stage for the Court to Sort it Out

FinCEN re-issued its order March 25, 2016 [Download FBME_Final Rule March 25 2016] that sets the state for the court showdown between the agency and the bank FBME.   On the FINCEN one side, FinCEN finds that FBME is a great scourge to the US Financial System ("primary money laundering concern") and the only remedy for such egregious behavior is to shut the bank down (i.e. cancel its correspondent accounting relationships with the US, and thus US dollars).  FinCEN states that it gave FBME every opportunity to reform itself and that FBME simply refuses to do so.  FinCEN points to lack of employee education and training, lack of client diligence and monitoring, as well as transactions.  FinCEN also restates all of its former charges.  

"The information available to FinCEN provides reason to conclude that FBME’s AML compliance efforts remain inadequate to address the risks posed by FBME, and that FBME continues to facilitate illicit financial activity. Because of the ongoing money laundering and terrorist financing concerns that FinCEN has regarding FBME, FinCEN finds that FBME continues to be a financial institution of primary money laundering concern."

FBME has tenaciously, and expensively, fought back against the full weight and prosecution of FinCEN and the Central Bank of Cyprus, keeping itself alive, albeit barely, for three years, while this process works itself out.  FBME contends that it has reformed and cites Big 4 audited reports of its AML procedures, it's filings of STRs, among several other actions that it has taken. FBME suggested several other remedial actions that FinCEN could take, based on FinCEN actions against "banks too big to fail" and against little banks that, like FMBE, no one had really heard of until FinCEN declared war.  

A major contention by FinCEN is the actions taken by the Central Bank of Cyprus ("CBC") against FBME -  proof of FinCEN's correct 'read' of FBME's lack of trying to reform its AML systems.  But for context of my next statements - I am born and bred in the state of Louisiana, infamous for its state and municipal corruption.  It is quite normal for actions by the state of Louisiana or New Orleans municipal government to be taken to at least coincide with underlying personal / business interest benefiting, and sometimes solely because of such interests.  So my eyebrows raised when I read the comment submitted to FinCEN by the recent former Governor of the Central Bank of Cyprus [Excerpts of letter of Former Governor of Central Bank of Cyprus and former member of the Governing Council of the European Central Bank, Professor of Financial Economics at the University  of Leicester:   Download Cyprus Central Bank Governor's Letter of Jan 16, 2016]

I am writing as the former Governor of the  Central Bank of Cyprus (CBC), a former member of the Governing Council of the European Central Bank and in my current capacity as Professor of Financial Economics at the University  of Leicester in the UK.  Whilst my tenure as  Governor ended just  prior to the published action by FinCEN …

In May 2012, I, on behalf of CBC, received an informal expression of interest by FBME to convert its Cyprus branch into a Cyprus parent company/Headquarters. This eventually resulted in a formal application, which the CBC was prepared to consider under certain conditions, in the interests of increased competition in the banking sector.  One month after I stepped down (10 May 2014), The Economist newspaper described my resignation as a “blow to central Bank independence”.

Many activities in Cyprus are an extension of party politics, which are often driven by special interest groups. Sadly, banking is no exception, with the largest domestic banks exuding considerable influence through the media and their political connections, including their largest shareholders (which in the past had also included the Greek Orthodox Church that retains close links to the state).

During my tenure, there was considerable evidence in  the public domain that certain politicians were uncomfortable with FBME’s presence in Cyprus. Not surprisingly, perhaps, the same politicians were over--‐protective of the biggest domestic banks.

Smaller banks such as FBME, as well as being a source of healthy competition, are, inadvertently a threat to the supremacy of larger banks. As such, they tend to attract interest from politicians, often for the wrong reasons.

Prior to my appointment, FBME Bank Ltd, chose to invest substantial funds into Cyprus Treasury Bills, an investment which helped the Republic of Cyprus avoid a disorderly default during the negotiations with Eurogroup and the IMF in the second half of 2012 and early part of 2013. It is not inconceivable, indeed it is likely, that politicians who were in opposition at the time interpreted this action as a lifeline to the previous government.

Just because CBC may have acted politically at the bequest of one political party or to benefit local banks does not necessarily also mean that FBME is not acting nefariously.  But it should give FinCEN pause for reliance upon the CBC information, much as the same as the DOJ might pause at relying on information about a police shooting of an unarmed suspect. Reminds me of the quote, "something is rotten in the state of Denmark". 

FinCEN once again points to a Hezbollah financier connection with an FBME account, which FBME denies.  We, John Q Public are left to rely on FinCEN's word that FinCEN has substantial, perhaps even  clear, evidence to prove the Hezbollah it is so.  The relevant evidentiary information is, contends FinCEN, protected by either national security or by protection of STR privacy interests.  Problematically, FBME's primary founder is Ayoub-Farid Michel Saab. He's a respected international banker.   He's neither, based on a simple Internet search, a nefarious terrorist nor a money launderer.  So - I stand by my Comment letter of January 2016 Download FBME_FinCEN_Concern_William_Byrnes.  There's more going on here than meets this academic's eye! 

FBME published a response 27 March to FinCEN on its website - 

 “The purported “Final Rule” that FinCEN released on Friday, 3/25/2016, is not in fact “final” at all.  It is subject to a preliminary injunction by a federal court in Washington D.C. that bars the rule from taking effect pending further inquiry by that court into the fairness, accuracy and legality of FinCEN's process.  The “Final Rule” is also subject, by its own terms, to a four-month waiting period between official publication and effective date.  FBME has every right and intention now to challenge the legality of the “Final Rule” so that the U.S. court can decide whether it should ever take effect.

“Nor do FinCEN’s claims in the Final Rule change anything as compared to the prior claims that led to the preliminary injunction.   FinCEN has effectively repeated the same mistakes and returned to the same flawed evidence in its latest incarnation of its Final Rule.  These missteps have sadly but predictably led FinCEN to the same erroneous proposal of the fifth special measure. We think it is all too obvious at this point that FinCEN has stubbornly committed itself to a foreordained conclusion and won’t let evidence, facts, law, public comments, or fundamental fairness stand in the way of that.  

"Thanks to the judicial orders, schedule, and preliminary injunction that remain in place, however, FBME Bank’s day in court lies shortly ahead.  We emphasize that we have every intention of challenging FinCEN’s latest ruling as procedurally and substantively defective and look forward to our day in court.”
 
Neither side, FinCEN in its final rule or FBME in its response, mentions the issue of the use of attorney-client priviliged information which was last month's big FBME story: FinCEN lawyers under Inquiry by Office of Inspector General for Potential Use of Attorney-Client Documents from FBMEs Former Cyprus Counsel? As an attorney and as a law professor, this lack of acknowledgment troubles me as well.  At least let us - John Q Public - know that the issue remains in dispute or that the dispute has been settled between the parties privately. Sweeping it under the rug undermines attorney-client privilege for future litigants, which harms the Rule of Law. 
 
I encourage my readers who know anything about this curious case to send me an email.  I'll keep your comments confidential and anonymous (I am a registered journalist #19868 with the National Press Club in Washington, D.C. ).

 “One of America’s leading experts on the global battle against money laundering, Professor William Byrnes is the lead author of Money Laundering, Asset Forfeiture & Recovery, and Compliance – A Global Guide.  Ray Camiscioli, Esq., Director, Product Strategy & Development for Tax, Accounting and Estates/Elder Law, LexisNexis, Inc.

book cover Money Laundering, Asset Forfeiture and Recovery, and Compliance- A Global Guide (LexisNexis Matthew Bender updated quarterly) is an eBook designed to provide the compliance officer, BSA counsel, and government agent with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources.  Special topic chapters will assist the compliance officer design and maintain effective risk management programs.  Over 100 country and topic experts from financial institutions, government agencies, law, audit and risk management firms have contributed analysis to develop this practical compliance guide. 

http://lawprofessors.typepad.com/intfinlaw/2016/03/fincen-re-issues-order-against-fbme-bank-ltd-setting-the-stage-for-the-court-battle.html

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