Treasury Finalizes Proposed Special Measures Under Section 311 of the USA PATRIOT Act Against FBME Bank Ltd.; U.S. Financial Institutions Prohibited from Providing Correspondent and Payable Through Accounts For or On Behalf of FBMEJuly 30, 2015
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule imposing special measures under Section 311 of the USA PATRIOT Act against FBME Bank Ltd. (“FBME”), formerly known as the Federal Bank of the Middle East Ltd., as a financial institution of primary money laundering concern. This finalizes a rule proposed on July 17, 2014, in which FinCEN found FBME to be of primary money laundering concern under Section 311 and proposed imposition of special measures.
FBME is presently headquartered in Tanzania, but conducts over 90 percent of its global banking business and holds over 90 percent of its assets in its Cyprus branch, where it was originally established in 1982, as a subsidiary of the private Lebanese bank, the Federal Bank of Lebanon. Although FBME has a significant presence in Cyprus, it is not in direct competition with local retail banks in Cyprus – it has no retail counters there, and its Cypriot customers are limited mainly to staff, contractors, and professionals providing services to FBME. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab. In its notice finding that FBME was of primary money laundering concern, FinCEN highlighted FBME’s facilitation of money laundering, terrorist financing, transnational organized crime, fraud schemes, sanctions evasion, weapons proliferation, corruption by politically-exposed persons, and other financial crime by its customers. The notice also highlighted FBME’s weak anti-money laundering (AML) controls, noting that this made the bank especially attractive to high-risk shell companies (i.e., companies formed for the sole purpose of holding property or funds that do not engage in any legitimate business activity). FinCEN also found that FBME performed a significant volume of transactions and activities that had little or no transparency and often no apparent legitimate business purpose.
Section 311 of the USA PATRIOT Act authorizes imposition of “special measures” against a foreign jurisdiction, financial institution, class of international transaction or type of account found to be of primary money laundering concern. In this case, FinCEN imposed the “fifth special measure”, which prohibits banks and other covered financial institutions from establishing, maintaining, administering or managing correspondent accounts in the United States for or on behalf of FBME(including all branches, offices and subsidiaries of FBME operating in any jurisdiction). The final rule also requires “special due diligence” be applied to foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving FBME Group. Special due diligence, at minimum, requires:
- notification to each foreign correspondent account holder that the covered financial institution “knows or has reason to know” provides services to FBME that such account holder may not provide FBME with access to the correspondent account; and
- reasonable steps to identify any use of its foreign correspondent accounts by FBME Group.