Two and a half years after the resolution decree that eventually resulted in the closure of FBME Bank in Cyprus and Tanzania, the entity ‘Saab Financial (Bermuda) Limited‘ was placed under (provisional) liquidation by the Supreme Court of Bermuda. The Winding-Up order for Saab Financial (Bermuda) Limited was issued on Friday the 21st of April 2017. KRyS Global, an international fraud investigation, and dispute resolution firm, was appointed by the court as liquidator.
Much has happened since April 2017. KRyS Global started their investigation to identify the assets, liabilities and cash flows of the entity. The beneficial owners of Saab Financial (Bermuda) Limited tried to persuade placement holders with an offer to collateralise property in Lebanon and form a trust to eventually disburse all placement holders and investors via the sale of the property. The underlying idea of this offer is to withhold the liquidation procedures that the Supreme Court in Bermuda allowed to start.
Saab Financial was incorporated in Bermuda in 2006 alongside Saab Financial Company Limited that was formed in Jersey in 1980. Regulation in the financial industry was at the time totally different from what it is today. The entity in Jersey was involved in a number of specific financial transactions with PT Bank Mutiara TBK, J Trust Indonesia Ltd, the Federal Bank of Lebanon, among others. The transactions performed by Saab Financial qualify as ‘off balance sheet trading’ and are described in detail in the London Court of International Arbitration (LCIA) case (no. 132447) between FBME Bank Limited, Saab Financial (Bermuda) Limited as claimants and PT Bank Mutiara TBK, the respondent.
The Peter Barrie Brown Expert Report, dated 14th of August 2014, describes in full detail how FBME Bank Limited and Saab Financial (Bermuda) Limited operate in the shadow banking markets. Although Brown is currently inactive, the report provides an outline of activities of Saab Financial, FBME Bank, and its owners.
Saab Financial Limited in Jersey, which was heavily criticized in the Peter Barrie Brown Expert Report, was dissolved on the 17th of February 2011. The companies law from 1991 in Jersey was applicable for the dissolution. This law requires a statement of solvency showing no assets and no liabilities to close down the company. This statement of solvency was provided by the directors of the company and the activities of Saab Financial continued under the Bermuda entity, even though liabilities remained outstanding and were undisclosed.
Under the Bermuda Companies Act of 1981, companies registered in Bermuda are allowed to offer bills of exchange or issue promissory notes. To engage in banking activities, a license from the Bermuda Monetary Authority must be obtained. Saab Financial does not have such a license in Bermuda. Additionally, the registered address in Bermuda for Saab Financial, Thistle House, has no substance and presence for the entity. There is no public telephone number for Saab Financial in Bermuda and in correspondence from Saab Financial (Bermuda) Limited, one is requested to reply to PO Box 25024, 1306 Nicosia, Cyprus.
The ground floor of the building at 4 Burnaby street in Hamilton is for rent via the commercial real estate agent Coldwell Banker. The address is mentioned in the Panama Papers and allegedly, former US presidential candidate Mitt Romney registered an asset protection vehicle at the address. Other occupants of Thistle House include a law firm, an online payment processor, a financial adviser with an empty website, among many, many others.
Saab Financial (Bermuda) Limited holds account number 050001 at FBME Bank in Cyprus. The Assistant Vice President Business Development of the bank worked in Nicosia and was according to the placement agreements responsible for all communication that related to Saab Financial. Those in control of the entity all worked and lived in Cyprus.
Based on the above, it is fair to conclude that effective management of Saab Financial was in Cyprus. The Securities and Exchange Commission in Cyprus, CySEC, nor the Central Bank of Cyprus granted Saab Financial (Bermuda) Limited a license to engage in investment activities.
Private placement investment agreements
During the summer of 2014, FBME customers were approached by telephone, personal visit or email to invest in a ‘new’ product. A five-page Pdf presentation ‘Private Deposit Placement’ was sent out to FBME customers with access funds of USD 500.000 (or currency equivalent in Euro or GBP). Customers could choose for a maturity of one or two years and return on investment (interest) was based on a combination of the placement amount, currency and the length of the contract.
It is striking that nowhere in the marketing material, presentation or placement agreement any reference is made to the underlying investment activities. Invested funds might have been used to fund a real estate project in Lebanon, or have just gone anywhere. The liquidation of FBME Bank in Cyprus can shed some light on the transactions for account 050001, hence the reason to support the liquidation of FBME Bank in Cyprus.
Due to the FinCEN notice and the resolution decree of the Central Bank of Cyprus in July 2014, the number of private deposit placements in the series SFPA../14 was relatively low and allegedly may have stayed below 100 contracts.
As a creative response to the Winding-Up order issued by the Supreme Court of Bermuda, the beneficial owners of Saab Financial (Bermuda) Limited, the same individuals holding the shares in the ‘top-holding’ company FBME Limited in the Cayman Islands, offered holders of placement agreements collateral in the form of a future property development and an alleged settlement trust for investors. The proposal, without any information about the substance of the claim, is basically just an idea and is only available to those who agree not to file or pursue any claims in the liquidation of Saab Financial in Bermuda.
Moreover, if the collateral was available, why wasn’t this opportunity offered earlier? And, what possibly can convince investors that the owners, whose main business was put out of business and sanctioned by the US Treasury Department after serious irregularities, will honor this new agreement? They didn’t honor the repayment of the investment under the original placement agreement either.
Investors must understand that they waive their rights to further prosecute Saab Financial and/or its beneficiaries when they agree to the terms of this offer. This is quite a big deal when ownership of the assumed collateral is not placed in an Escrow account, the true value of the underlying collateral is not officially appraised in the alleged proposal, or the trust is not formed and beneficiaries for this trust are not appointed.
Another uncertainty that relates to the offer is the Notice of Finding and the Final Rule of FinCEN opposed to FBME Bank. The Final Rule states:
Given the interconnectedness of the global financial system, the potential for FBME to access the U.S. financial system indirectly, including through the use of nested correspondent accounts, exposes the U.S. financial system to FBME’s risks. Accordingly, FinCEN concludes that it is necessary to restrict both direct and indirect access to the U.S. financial system by FBME, particularly since FinCEN does not have information suggesting that any other country has prohibited FBME from accessing its financial system in the same manner as this rule, based on the information available to FinCEN.
Moreover, despite measures that the CBC and the BoT have taken to protect the bank’s depositors, FinCEN has reason to believe that those measures do not fully address the money laundering and terrorist financing risks associated with FBME. The continuation of illicit activity at the bank’s Tanzanian headquarters even after the BoT appointed a statutory manager on July 24, 2014, bolsters FinCEN’s concern. Specifically, in early 2015, an alleged Hezbollah associate and the Tanzanian company he managed owned accounts at FBME.
Depending on the location of the Saab Financial (Bermuda) deposits, it is uncertain that FBME Bank, Saab Financial, and perhaps even the Federal Bank of Lebanon or the owners themselves, will have access to the accounts at FBME after the liquidation of the bank and are able to transact in USD at maturity of the new agreement where investors waive their rights to participate in the liquidation and future prosecution. Most importantly, what if the project fails, or is less successful than anticipated? Will they offer investors another contract?
The Arab Weekly argued that the property market in Lebanon is in a bubble, asking prices for real estate in the area dropped, there is creative invisible sub-prime financing available, and the low oil price that influences purchasing power lowers the demand for real estate. Obviously, this pessimistic view does not mean that failure is guaranteed. There just are too many uncertainties.
First steps first: the liquidation procedures
The purpose of a liquidation is to investigate the assets and liabilities of a company in default and pay out a maximum and fair share to all creditors. A liquidator is appointed by the Court and the company is placed under his guardianship. This means that beneficial owners of the company have no control anymore over the company.
One of the duties of the liquidator is to notify and even summon debtors or other third parties that hold funds on behalf of the company. This means that when funds of Saab Financial ended up in Lebanon, in the project ‘offered’ as back-up to return the investment, the liquidator will reach out to the project owner anyway. Also, funds that were transferred elsewhere will be traced and repayment is ordered. In the event criminal activities are exposed, personal liability extends the scope of the recovery possibilities by the liquidator. The success of such an operation depends on the willingness of the liquidator and the instructions given to him by the Court and/or the committee of inspection.
The appointment of a committee of inspection must be approved by the Court. Creditors are allowed to vote for or against the appointment of the committee. Voting takes place in Bermuda on the 7th of August 2017. Creditors are strongly advised to attend the first creditor meeting in person or via a qualified ‘proxy’. Voting rights are based on the ‘proof of debt’ that a client has to submit no later than the 2nd of August 2017. Legal Floris LLC has legal representation as a proxy on behalf of multiple investors in Saab Financial deposit placements for this meeting and is ready, willing and able to take on more investors who want to control the liquidation of Saab Financial in Bermuda.
Fund Recovery Process for Saab Financial Placements
Customers of FBME Bank who invested in the private deposit placement program from Saab Financial are unexpectedly involved in two liquidation procedures. One should realize that, although there is interconnectedness between the two entities, both liquidations are separate and take place under different legal systems.
If the liquidator does not succeed in the recovery of the full investment or account balance, the placement agreement can be challenged under English law. Depending on the outcomes of the cases in Nicosia and Paris, a claim of liability can be issued as well. If you need assistance in the recovery procedure, please send us an email at firstname.lastname@example.org, call us at +357 25 030 666 (Cyprus) or +1 646 513 2855 (USA) or complete the form below: