FBME Bank denies money laundering allegations

FBME Bank, whose correspondent accounts were ordered closed by a Treasury Department action under Section 311 of the USA PATRIOT Act last week, has responded to Treasury’s allegations of money laundering:

FBME said it was “shocked” by the content of the US Department of the Treasury notice “that sets out unexplained allegations of weak AML controls,” which, the bank said, it had not been given any opportunity to comment on or refute.

The bank denied the allegations, saying it had commissioned the German division of an international accountancy firm to carry out a detailed assessment into its operations and practices over the past two years.

FBME, it said, was found in compliance with applicable rules on AML regulations of both Cyprus and the European Union.

“FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations,” the bank said in an announcement posted on its website. [Cyprus Mail]

That welcome may be a bit superfluous, because according to the Cyprus Mail and the Lebanese news site Ya Libnan, the Central Bank of Cyprus has taken over FBME’s operations for “as long as the central bank deems it necessary.” The move is similar to the Macanese government’s takeover of Banco Delta Asia in 2005, after Treasury published a similar set of notices against it for laundering money for North Korea. With Cyprus trying to stave off a broader banking crisis now, the last thing it needs is for a bank operating on the island to collapse, even if that bank is chartered in Tanzania and serving a largely non-Cypriot clientele.

I’ll offer a few points in response to FBME’s statement, which largely misapprehends how Section 311 (codified at 31 U.S.C. sec. 5318A) operates.

First, it is both technically true and legally irrelevant that FBME had no notice of this specific action. A Notice of Finding and a Notice of Proposed Rulemaking under Section 311 are intended to be no-notice actions to block correspondents accounts that may contain illegally derived funds. FBME’s opportunity to respond began with the publication of the notice and will end 60 days after that. After considering any comments on the proposed action, Treasury will make its final findings and conclusions and publish its Final Rule. Presumably, this process will give FBME an opportunity to hire lawyers to argue Treasury hasn’t met the criteria of 31 U.S.C. sec. 5318A(b).

Second, until that point, it would be fair to say the allegations are “unproven,” but it would not be fair to call them unexplained. Treasury’s notices explain them in great detail.

Third, Treasury has no obligation to warn the target of a law enforcement investigation that it is investigating the target for suspected illicit activity; rather, it is the duty of the financial institution to know its customers and make reasonable inquiries about suspicious transactions — that is, to perform due diligence. If true, FBME’s alleged provision of financial services to an unnamed front for a Syrian entity involved in WMD co-development with North Korea suggests that it fell short of these “know your customer” obligations. Presumably, FBME’s response and Treasury’s evidence will be given due consideration before Treasury publishes its Final Rule. If FBME can make the case that it didn’t fall short of these obligations, or that the shortfalls were inadvertent, Treasury should mitigate or rescind the special measure.

Finally, if half the allegations in Treasury’s Notice of Finding are true, FBME can’t honestly claim that it wasn’t on notice of deficiencies in its “know your customer” and anti-money laundering obligations. Of course, FBME has another 55 days to make its case to the contrary. After that, FBME can appeal Treasury’s decision to the federal courts, in which case Treasury’s decision would get a high degree of judicial deference, but its evidence would still be subject to judicial scrutiny. Even classified evidence Treasury relies on would be subject to the court’s in camera review.

You can read the full statement at FBME’s web site, which is loading rather slowly. For some reason.