(Adds comment by lawyer in seventh paragraph)
By Stelios Orphanides
As the verdict of the Nicosia district court on whether it will allow the appointment of a liquidator at FBME Bank is expected over the next weeks or months, the fate of depositors’ money continuous to hang in the balance almost a year after the Central Bank of Cyprus triggered the guarantee scheme.
So far, the Central Bank of Cyprus has satisfied claims of up to 700 FBME customers and disbursed up to €100,000 to each, with the overall amount ranging between €60m and €70m, a source with knowledge of the situation said. The total number of applications received is roughly 1,200, less than one fifth of the bank’s total customers.
The examination of applications is time consuming as the Central Bank has to establish both the identity and validity of claims of depositors, the source said.
In Cyprus, there are also complaints about the lack of cooperation of Lawrence Mafuru, a person with political connections, appointed by the Bank of Tanzania as statuary manager of the bank. “Mafuru is uncooperative and does not even answer to letters requesting his cooperation,” a source added. FBME is headquartered in Tanzania.
As a result, banks with which FBME, had opened correspondent accounts, decline to release depositor funds to either to the Cyprus branch of FBME or to the parent bank in Tanzania citing the lack of cooperation between Mafuru, a politically connected person, and the special administrator Chris Iacovides, the source continued.
The Central Bank of Cyprus placed FBME Bank (Cyprus) Ltd in 2014 in administration after the Financial Crime Enforcement Network of the US Treasury described the bank as of primary laundering concern and barred US banks from opening or maintaining correspondent accounts with the lender which it described as of primary money laundering concern. The Central Bank of Cyprus revoked FBME’s licence to operate a branch in Cyprus in 2015 and fined it for violating the provisions of the anti-money laundering and terrorist financing law.
The shareholders of FBME deny any wrongdoing and resorted to an arbitration court in Paris seeking €500m in compensation. The decision of the US authorities to ban US banks from opening correspondent accounts with FBME effectively put the Tanzanian bank out of business as almost nine-tenths of transactions are carried out in dollars.
“A formal liquidation is in the best interest of the customers,” Floris Alexander, a Limassol-based legal advisor who runs Legal Floris, which helps FMBE depositors apply for the deposits guarantee scheme, said in an interview. “In the unlikely event that the court rules in favour of the shareholders, then they can claim their compensation in Paris”.
Alexander added that the Cypriot court may order the liquidation on the grounds that the main activities of the bank, which also has assets in Cyprus, are on the island and not in Tanzania. “Geographic location is determined by the centre of activities,” he said.
The Cyprus Business Mail understands that should Mafuru remain uncooperative, in case the Nicosia district court does rule in favour of allowing FBME’s liquidation, the liquidator will be in position to satisfy claims worth several hundred million euros, only a fraction of the estimated up to €1.4bn in customer deposits, by resorting to Cypriot assets which include inter alia land and buildings as well as Cypriot government bonds.
The Cyprus Business Mail also understands following the losses depositors suffered in the 2013 banking crisis, the Central Bank of Cyprus is trying to handle the matter in such a way to eliminate the possibility of depositors losing money which would tarnish Cyprus’s reputation as a financial centre anew.
Lawyer Alexander said that the number of depositors who opted to benefit from the deposits guarantee scheme remains low for a number of reasons which include health issues preventing depositors from travelling to the island to submit their claims, and a small balance on their account.
In certain cases, “their company is not intact”, or shareholders made “inextensible changes” to the company which in turn makes it difficult to verify a company’s shareholder or director structure, he said. Depositors, he added, may have also believed the allegation of the FBME shareholders who last year discouraged the bank’s customers from filing claims on the grounds that by doing this they would relinquish the rest of their deposits, which the central bank immediately refuted.