The vexed FBME Bank is unable to carry out any business for a little over three years now. Most of the staff of the Cyprus branch was made redundant in April 2016, after almost two slurred years. Staff members who kept their job, are relieved from their regular duties, are employed under the supervision of the central bank of Cyprus and facilitate bank customers with their DGS application that provides those who qualify a maximum compensation of 100.000 Euro.
For Tanzania accounts, there still is some uncertainty about the location of these accounts. The bank tried to find a loophole that made accounts appear in Tanzania while these were effectively managed from Cyprus, and it is now up to the courts to decide whether the position of FBME is strong enough.
Since July 2014, (international) regulators and the bank tried to find a solution for the ongoing situation. The vision of the bank and its opponents are too different to find a mutually beneficial agreement. Therefore, the courts must intervene. In US Court, FinCEN ‘won’ the case against FBME Bank and since the 14th of April 2017, followed by a two-week emergency stay, the bank is not allowed anymore to engage in US Dollar transactions.
The 10th of May 2017, the Cyprus court rejected the application of the Central Bank of Cyprus for the winding up of FBME Bank in Cyprus. A remarkable decision, specifically because court records provide the following information:
- In an e-mail dated the fifth of August 2014, the statutory manager at FBME Bank in Tanzania specifically states that ‘Cyprus is outside my jurisdiction’;
- In internal communication between the governor of the Bank of Tanzania and the central bank of Cyprus, on the 20th of October 2015, Professor Ndulu writes on behalf of the Bank of Tanzania: ‘I was aware and remain clear that the branch is operating under your jurisdiction, not ours and that we as a central bank do not have any mandate to grant such approval’; and
- Most interesting is a letter from one of the shareholders of the bank to the Governor of the central bank of Cyprus, dated May 18, 2012, where the effective management of the bank is reviewed: ‘whilst the registration of the Group’s Parent/Headquarters has been continually outside Cyprus, its banking mind and management has always been inside Cyprus’. The author continues: ‘the central bank of Cyprus new home regulatory and supervisory role will effectively cement what, in practice, has been in place between 1982 and now.’
The verdict from Cyprus court was appealed by the Central Bank of Cyprus and it is still unclear where accounts are irrevocably located and where liquidation should take place.
The location of the liquidation is important for customers with accounts in Tanzania, those with balances that exceed 100.000 Euro and those who don’t qualify for the European deposit guarantee scheme. It is evident that a liquidation in Cyprus, under the auspices of the European legal framework, provides maximum security.
There are currently two court proceedings of relevance to the question of the liquidation of FBME Bank:
- Appeal proceedings against the judgment of 10 May 2017 by which the application of the Central Bank of Cyprus for the winding-up of FBME Bank was rejected (“Appeal Proceedings”);
- Proceedings relating to the application of the Tanzanian liquidator appointed by the Bank of Tanzania for his recognition in Cyprus (and thus in the European Union) – (“Recognition Proceedings”).
Formally the proceedings are independent of each other, on the merits they are interlinked. The next hearings for directions will be on 11 September in relation to the Recognition Proceedings and on 19 September in relation to the Appeal Proceedings.
All customers of the FBME Bank Cyprus Branch can participate in the Recognition Proceedings and oppose the recognition of the Tanzanian liquidator but they cannot become part of the Appeal Proceedings.
How can you protect your account balance?
Now that liquidation of the bank comes close, with binding verdicts in the USA, the provisional liquidation of Saab Financial (Bermuda) Limited and the appeal in the Cyprus Supreme Court, individual customers must act now because they only have one chance. When the verdict is ordered, there is no way back.
At Legal Floris LLC, we have helped hundreds of FBME customers to recover their account balance. Sometimes we need the liquidation in order to recover the full account balance. For this group of customers, a liquidation in Cyprus is recommended because we expect a fair distribution of customer funds in Europe, where Tanzania has a different approach to claims.
Contact your lawyer or attorney, or when you don’t have legal representation yet, give us a call or complete the contact form on this website today, and discuss the following points:
- The Central Bank of Cyprus is the competent regulator for all matters and funds relating to the FBME Cyprus branch. FBME Bank has submitted to the authority of the Central Bank of Cyprus when it registered a branch in Cyprus and applied for a banking license. In fact, submitting to and acknowledging the authority of the Central Bank of Cyprus over the branch and its business has been the key condition for receiving the banking licence. The license was issued on the basis of the Cypriot Business of Credit Institution Law which transposes several EU-Directives, in particular, Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms.
- FBME Bank has collected depositors’ moneys in Cyprus on the basis of its Cypriot banking license and under the supervision of the Central Bank of Cyprus in the name and on behalf of the Branch. The subordination to the Central Bank of Cyprus forms part of the contracts with the Branch’s customers (see “Banking General Conditions“ of FBME Bank Cyprus; point 31.1. states “The competent supervisory authority of the Bank is the Central Bank of Cyprus.”). FBME Bank has committed to repay funds in the customers’ accounts with the FBME Cyprus branch (see standard certificates of deposits and standard application forms.
- Banking business is a strictly regulated business, licensing regulations determine the scope of lawful business. In relation to the customers of the Cyprus FBME Branch the lawful business was conducted by the Branch, the Head Office did not and could not enter into lawful contracts with the customers of the Cyprus Branch.
- A shareholder and director of both FBME Bank Ltd and FBME Branch, one of the two key people of FBME Bank, in October 2015 conducted a “Head Office Survey” aimed at the transfer of customer deposits from the Cyprus FBME Branch to the Head Office. Customers, among them all our Client’s companies, received a survey letter in which they were asked them on behalf of the Head Office to indicate their willingness to “migrate” the relationship from the Cyprus Branch to FBME’s Head Office in Tanzania “subject to formal contractual documentation”. In the “Head Office Survey” the author made a clear distinction between the Head Office and the Branch. Becoming a customer of the Head Office requires a contract with the Head Office and the involvement of the Bank of Tanzania. This is in line with general principles of licensing of banking business.
- In the context of the attempt to transfer the customers from the Branch to the Head Office the Governor of the Bank of Tanzania stated in his letter of 20 October 2015 to the Governor of the Central Bank of Cyprus: “I was aware and remain clear that the Branch is operating under your jurisdiction not ours …”
It follows from the above that it is in the interest of all customers of the FBME Cyprus Branch that the FBME Bank liquidation proceedings take place in Cyprus and not in Tanzania. It is to be feared that the claims of the customers of the FBME Cyprus Branch will not be recognized by the liquidator appointed by the Bank of Tanzania. Therefore, all customers of the branch are strongly advised to object against the recognition of the Tanzanian liquidator in the Recognition Proceedings.