The verdicts in the Courts in Washington DC for FBME Bank and Bermuda for Saab Financial (Bermuda) Limited presumably triggered the actions taken by the Central Bank of Tanzania (BoT) on Monday the 8th of May 2017. In a statement, the BoT announces the revocation of the license of FBME Bank in Tanzania, and the appointed of the Deposit Insurance Board (DIB) as the liquidator of the bank.
Tanzania recognizes its position in the international banking world and offers depositors protection for all customers with accounts in Tanzania. The upcoming verdict in Cyprus court that determines the geographic location of the accounts of depositors from Cyprus is expected soon.
FBME Bank has always used a different model to accommodate its customers. Since 2003, the bank has a banking license and their main office in Dar es Salaam, Tanzania. Most activities of the bank took place in Cyprus. From a legal perspective, reversed licensing raises an interesting concern. The administrator in Tanzania refused to respond to information requests from the central bank in Cyprus, delaying the liquidation procedures to where we currently are.
End of 2015, the central bank of Cyprus revoked the license of the branch of the bank in Cyprus. An interesting move because technically, almost all accounts from high net worth individuals and offshore companies in Tanzania were managed from Cyprus.
Deposit Insurance is a much-debated protection mechanism since some find that it enforces moral hazard. In the United States, the FDIC fund was raised from 100.000 USD to 250.000 USD, and the FDIC is a preferred creditor in the liquidation of the bank. In Europe, the Deposit Guarantee Scheme was raised from 20.000 Euro to 100.000 Euro after the collapse of Icesave and the following global financial crisis. In the United Kingdom, the maximum coverage under the Financial Services Compensation Scheme is 85.000 GBP. African countries use different currency with a volatile value. That makes a unified coverage model for depositor protection difficult to implement. Tanzania offers a protection of 1.500.000 TZS for account holders of failing banks. Filing a claim with the Deposit Insurance Board results in an incalculable situation. The fund can have challenges to convert its local currency into global currency such as USD, Euro and GBP.
The actions taken by the Bank of Tanzania do not stand alone. Saab Financial in Bermuda, one of the investment vehicles of the owners of the bank, was placed under provisional liquidation by the Supreme Court in Bermuda. In US Court, FBME lost their case against FinCEN and in Cyprus, the bank already lost its license to operate as a branch in December 2015.
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