[Federal Register Volume 79, Number 140 (Tuesday, July 22, 2014)]
[Notices]
[Pages 42639-42641]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17171]


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DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network


Notice of Finding That FBME Bank Ltd., Formerly Known as Federal 
Bank of the Middle East, Ltd., Is a Financial Institution of Primary 
Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (``FinCEN''), Treasury.

ACTION: Notice of finding.

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SUMMARY: This document provides notice that, pursuant to the authority 
contained in 31 U.S.C. 5318A, the Director of FinCEN found on July 15, 
2014, that reasonable grounds exist for concluding that FBME Bank Ltd. 
(``FBME'' or the ``Bank''), formerly known as Federal Bank of the 
Middle East, Ltd., defined to include all of its branches, 
subsidiaries, and offices, is a financial institution operating outside 
of the United States of primary money laundering concern.

DATES: The finding referred to in this notice was effective as of July 
15, 2014.

FOR FURTHER INFORMATION CONTACT: FinCEN, (800) 767-2825.

SUPPLEMENTARY INFORMATION:

I. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the ``USA PATRIOT Act''), 
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering (``AML'') provisions of the Bank Secrecy Act 
(``BSA''), codified at 12 U.S.C. 1829b, 12 U.S.C 1951-1959, and 31 
U.S.C. 5311-5314, 5316-5332, to promote the prevention, detection, and 
prosecution of international money laundering and the financing of 
terrorism. Regulations implementing the BSA appear at 31 CFR Chapter X. 
The authority of the Secretary of the Treasury (the ``Secretary'') to 
administer the BSA and its implementing regulations has been delegated 
to the Director of FinCEN.
    Section 311 of the USA PATRIOT Act (``Section 311''), codified at 
31 U.S.C. 5318A, grants the Director of FinCEN the authority, upon 
finding that reasonable grounds exist for concluding that a foreign 
jurisdiction, financial institution, class of transaction, or type of 
account is of ``primary money laundering concern,'' to require domestic 
financial institutions and financial agencies to take certain ``special 
measures'' to address the primary money laundering concern.

II. History of FBME and Jurisdictions of Operation

    FBME was established in 1982 in Cyprus as the Federal Bank of the 
Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal 
Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by 
Ayoub-Farid M. Saab and Fadi M. Saab. In 1986, FBME changed its country 
of incorporation to the Cayman Islands, and its banking presence in 
Cyprus was re-registered as a branch of the Cayman Islands entity. In 
2003, FBME left the Cayman Islands due to problems with capital 
adequacy regulations and re-established itself in Tanzania by acquiring 
Delphis Bank, a small Tanzanian financial institution with three bank 
branches. At the same time, FBME's Cypriot operations became a branch 
of FBME Tanzania Ltd. In 2005, FBME formally changed its name from 
Federal Bank of the Middle East, Ltd. to FBME Bank Ltd.
    Since 2003, FBME has been headquartered in Tanzania. FBME 
headquarters is widely regarded as the largest bank in Tanzania based 
on its $2 billion asset size, but it has only four branches. While FBME 
is presently headquartered in Tanzania, FBME transacts over 90% of its 
global banking business and holds over 90% of its assets in its Cyprus 
branch. FBME has always maintained a significant presence in Cyprus. 
FBME has stated, however, that it is not in direct competition with 
local retail banks in Cyprus for several reasons, including that it 
does not issue checks, has no retail counters, and its Cypriot 
customers are limited to mainly staff, contractors, and professionals 
providing services to FBME.
    The Central Bank of Cyprus (``CBC''), which supervises and 
regulates all Cypriot banks, including branches of foreign financial 
institutions such as FBME, has found FBME's compliance with Cypriot 
banking laws and AML regulations deficient on at least two occasions. 
As evidenced by its failure to comply with the Cypriot AML law, FBME's 
weak AML controls and customer due diligence resulted in a fine by the 
CBC in 2008. In addition, in 2013, FBME took active steps to evade 
oversight by the Cypriot regulatory authorities. In November 2013, the 
CBC stated that FBME may be subject to sanctions and a fine of up to 
240 million euro for alleged violations of capital controls.

III. The Extent To Which FBME Has Been Used To Facilitate or Promote 
Money Laundering In or Through Cyprus and Tanzania

1. FBME Facilitates Money Laundering, Terrorist Financing, 
Transnational Organized Crime, Fraud Schemes, Sanctions Evasion, 
Weapons Proliferation, Corruption by Politically-Exposed Persons, and 
Other Financial Crimes

    FBME facilitated a substantial volume of money laundering through 
the Bank for many years. FBME is used by its customers to facilitate 
money laundering, terrorist financing, transnational organized crime, 
fraud, sanctions evasion, and other illicit activity internationally 
and through the U.S. financial system. FBME has systemic failures in 
its AML controls that attract high-risk shell companies, that is, 
companies formed for the sole purpose of holding property or funds and 
that do not engage in any legitimate business activity. FBME performs a 
significant volume of transactions and activities that have little or 
no transparency and often no apparent legitimate business purpose.
    Through relationships developed by FBME's management since at least 
2006, as well its large shell company customer base, FBME facilitates 
the activities of international terrorist financiers, organized crime 
figures, and money launderers. For example, since at least early 2011, 
the head of an international narcotics trafficking and money laundering 
network has used shell companies' accounts at FBME to engage in 
financial activity. In late 2012, the head of the same international 
narcotics trafficking and money laundering network continued to express 
interest in conducting financial transactions through accounts with 
FBME in Cyprus. Separately, in 2008, an FBME customer received a 
deposit of hundreds of thousands of dollars from a financier for 
Lebanese Hezbollah. FBME also facilitates financial activity for 
transnational organized crime. As of 2008, a financial advisor for a 
major transnational organized crime figure who banked entirely at FBME 
in Cyprus maintained a relationship with the owners of FBME.
    FBME facilitated transactions for entities that perpetrate fraud 
and cybercrime against victims from around the world, including in the 
United States. For example, in 2009, FBME facilitated the transfer of 
over $100,000

[[Page 42640]]

to an FBME account involved in a High Yield Investment Program 
(``HYIP'') fraud against a U.S. person. In July 2012, the FBME customer 
operating the alleged HYIP was indicted in the United States District 
Court for the Northern District of Ohio for wire fraud and money 
laundering related to the HYIP fraud. FBME has processed payments for 
cybercrime networks. In September 2010, FBME facilitated the 
unauthorized transfer of over $100,000 to an FBME account from a 
Michigan-based company that was the victim of a phishing attack. 
Several FBME accounts have been the recipients of the proceeds of 
cybercriminal activity against U.S. victims. For example, in October 
2012, an FBME account holder operating as a shell company was the 
intended beneficiary of over $600,000 in wire transfers generated from 
a fraud scheme, the majority of which came from a victim in California.
    FBME's offshore banking business allows sanctioned entities to 
circumvent sanctions imposed by the International Emergency Economic 
Powers Act (``IEEPA''). IEEPA authorizes the President to declare the 
existence of an unusual and extraordinary threat to the national 
security, foreign policy, or economy of the United States originating 
outside the United States. It further authorizes the President, after 
such a declaration, to impose sanctions, block transactions, and freeze 
assets to respond to the threat. FBME facilitates U.S. sanctions 
evasion through its extensive customer base of shell companies. For 
example, at least one FBME customer is a front company for a U.S.-
sanctioned Syrian entity, the Scientific Studies and Research Center 
(``SSRC''), which has been designated as a proliferator of weapons of 
mass destruction. The SSRC front company used its FBME account to 
process transactions through the U.S. financial system. This SSRC front 
company also shared a Tortola, British Virgin Islands (``BVI'') address 
with at least 111 other shell companies, including at least one other 
additional FBME customer that is subject to international sanctions.
    FBME solicits and is recognized by its high-risk customers for its 
ease of use. FBME advertises the Bank to its potential customer base as 
willing to facilitate the evasion of AML regulations. Separately, FBME 
is recognized for the ease of its account creation. In September 2013, 
FBME's offshore bank account services were featured prominently on a 
Web site that facilitates the formation of offshore entities. FBME is 
also popular with online gamblers, particularly U.S. gamblers that seek 
to engage in unlawful internet gambling. One Web site that encourages 
the opening of offshore bank accounts to gamble online notes that FBME 
in Cyprus is ``[a]nother Europe-based bank [we've] found particularly 
easy to deal with.''
    In October 2011, the Department of Justice (``DOJ'') filed civil 
forfeiture complaints against approximately $70.8 million in real and 
personal property alleged to be the proceeds of foreign corruption 
offenses perpetrated by the President of Equatorial Guinea, Teodoro 
Obiang's son and his associates and laundered through the United 
States. Subsequently, between December 2011 and July 2012, the Treasury 
of Equatorial Guinea wired over $47 million to several Cypriot banks 
and entities in a pattern of transactions that was identified as being 
consistent with the allegations in the DOJ complaint. This included 
$7.2 million wired to a British shell company using an FBME account.

2. FBME's Weak AML Controls Encourage Use of the Bank by Shell 
Companies and Allow Its Customers To Perform a Significant Volume of 
Obscured Transactions and Activities Through the U.S. Financial System

    FBME accesses the U.S. financial system through both direct and 
indirect correspondent accounts. In 2009, one U.S. financial 
institution terminated its banking relationship with FMBE based on 
money laundering concerns. The volume of suspicious wire activity 
conducted by FBME customers through the U.S. financial system, however, 
remains significant. In just the year from April 2013 through April 
2014, FBME conducted at least $387 million in wire transfers through 
the U.S. financial system that exhibited indicators of high-risk money 
laundering typologies, including widespread shell company activity, 
short-term ``surge'' wire activity, structuring, and high-risk business 
customers.
    FBME has a significant number of shell company customers nominally 
based in Cyprus and in other high-risk jurisdictions. Wire transfers 
related to suspected shell company activities accounted for hundreds of 
millions of dollars of FBME's financial activity between 2006 and 2014. 
For example, FBME was involved in at least 4,500 suspicious wire 
transfers through U.S. correspondent accounts that totaled at least 
$875 million between November 2006 and March 2013. The FBME customers 
involved in these wire transfers exhibited shell company attributes, 
and other financial institutions involved in the transfers reported 
that they were unable to verify the identities of FBME's customers. A 
lack of transparency for such significant wire activity involving 
FBME's customers makes it extremely difficult for U.S. and other 
financial institutions involved in these transactions to verify the 
bona fides of all of the parties to these transfers.
    FBME customers, including its many shell company customers, have 
frequently used FBME's Cyprus address to conduct collectively tens of 
millions of dollars of transactions. From July 2007 to February 2013, 
at least 71 entities used FBME's Cyprus address to conduct transactions 
through the U.S. financial system. Although there may be rare occasions 
when use of the bank's address as a bank customer's address of record 
is legitimate, such a practice is highly unusual and indicative of the 
bank's potential complicity in its customers' illicit activities. This 
is particularly true if a party to such a transaction is located in a 
high-risk or sanctioned jurisdiction. Obscuring the true address of the 
customer inhibits compliance checks by counterparty or intermediary 
financial institutions.

IV. The Extent To Which FBME Is Used for Legitimate Business Purposes 
in Cyprus and Tanzania

    Legitimate activity at FBME's Cyprus branch is difficult to assess 
because of the limited amount of information that is available 
regarding Cypriot branches of foreign banks, such as FBME. FBME claims 
to have a relatively limited number of customers in Cyprus, yet it also 
states that it transacts over 90% of its global banking business, and 
holds over 90% of its assets, in its Cyprus branch. As discussed in 
this Notice of Finding, FBME functions largely as an offshore bank 
catering to a significant number of shell entities that are nominally 
located in Cyprus and other high-risk jurisdictions.

V. The Extent To Which This Action Is Sufficient to Guard Against 
International Money Laundering and Other Financial Crimes.

    FinCEN's July 22, 2014 proposed imposition of the fifth special 
measure would guard against the international money laundering and 
other financial crime risks described above directly by restricting the 
ability of FBME to access the U.S. financial system to process 
transactions, and indirectly by public notification to the 
international financial community of the risks posed by dealing with 
FBME.


[[Page 42641]]


    Dated: July 15, 2014.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2014-17171 Filed 7-21-14; 8:45 am]
BILLING CODE 4810-02-P