Dar es Salaam. The Bank of Tanzania (BoT) could have avoided the potential FBME licencing embarrassment had it heeded advice of banking supervision inspectors, The Citizen on Sunday investigations have established.
On Friday BoT took over the management of FBME which the US had accused of large-scale money laundering and financing of criminal activities such as funding terrorism.
The decision came a week after the Central Bank of Cyprus took over the management and operations of FBME branches there.
Tanzania is the headquarters of FBME.
Impeccable sources told The Citizen on Sunday that BoT had always ignored alerts on the dubious activities of the bank and rebuffed calls for FBME to abide by the ownership rules for commercial banks doing business in the country.
The experts say because of such negligence, BoT will not escape blame for tarnishing Tanzania’s image.
“What is really shocking in this case is the failure of the Bank of Tanzania to supervise it. This is a legal obligation…an obligation that starts with licensing of a bank to operate in Tanzania, to an obligation that is to ensure that the bank complies with the laws and regulations of the country,” said consultant Richard Mushi of Economic and Business Foundation (T) Limited.
The FBME fiasco has also raised eyebrows on the reliability of BoT’s monetary policy positions and directives and their implications on the national economy. BoT has vehemently denied any wrongdoing and dismissed as uncalled for the views expressed on FBME that has operated under its watch for 11 years.
Dr Donald Mmari of Policy Research for Development (Repoa) said that if any bank disaster happens and people lose their deposits, it may lead into panic and distrust of the banking system and its regulatory agencies.
He said it was upon regulatory agencies to tighten the scrutiny of applications for licences as well as to undertake constant monitoring of their operating behaviours and business conduct.
“If banks are not properly scrutinised before they are licensed and during operations, some of them can be used to launder money or to bring into the economy money flows that can potentially distort the economy,” he told The Citizen on Sunday yesterday.
At the centre of all these fears, finger pointing and denials, is the licence with which FBME operates in the country. While BoT says it is proper and legitimate, its critics say it was wrongly given and does not meet the ownership condition for a banking operation.
“The issue here is the ownership and the head office registration of the bank. FBME Bank Tanzania is owned 100 per cent by two brothers, both of them citizens of Cyprus although they were Lebanese,” explained a former inspector of BoT’s directorate of banking supervision.
According to him, the banking law in the country forbids this kind of shareholding in a commercial bank having its head office registered in Tanzania.
On Thursday, BoT Governor Benno Ndulu said that was true but noted that the law allows him to offer a waiver on the provision if a bank has genuine reasons to be given one.
However, the governor did not say how many, and which banks have enjoyed such privilege that was accorded to FBME for 11 years now. He only said the latest waiver provided to the bank, whose management BoT took over on Thursday, would have expired in August 2015.
Prof Ndulu noted FBME had initiated applications in two other markets with the intention to move its headquarters there. The countries were not named at this point.
“FBME got its licence to operate here in 2003. It was done legally since the governor is empowered by law to issue a waiver to the ownership limit. This was done with a proviso that over time ownership concentration would be diluted through sale of shares.
By the way not all countries have these ownership limits and it is not part of the globally agreed standard.”
Sources told The Citizen on Sunday that when the issue was raised during BoT’s board meetings for many years, FBME owners were ordered to choose between reducing their shareholding in the bank or moving its office to another country and maintain only a branch operation here so as to be compliant with the law.
At one meeting, The Citizen on Sunday has been told, board members asked to be educated why BoT was not acting on these violations for such a long time and called for immediate redress.
But Prof Ndulu has maintained that the law limiting shareholding concentration amongst family members in the banking sector was a tad too archaic and not necessarily helpful for the growth of the sector.
Our sources privy to the matter said the governor was clearly told that his argument was a personal opinion that was against the law that protected the country’s banking industry. He was advised to propose to Parliament to amend the relevant law if necessary to avoid situations that could backfire and embarrass the BoT.
Surprisingly, the advice was not heeded and any calls to take action against FBME’s precarious situation have been overruled by the central bank leaders.
Matters remained the same even when an inspection later unearthed more serious violations, including hundreds of millions of dollars in loans taken from FBME by the two brothers for which they were in default. They were taking depositors’ money and putting it into questionable projects.
Financial experts said the FBME ownership and management setups meant the bank had no oversight at all. Such a loophole meant Tanzania’s corporate governance image stood to suffer irreparable loss should the two brothers be implicated in financial crimes.
A banker, who spoke on condition of anonymity, said 11 years of waivers for a bank with a unique background leaves a lot to be desired.
“I don’t think the governor has powers to waive everything under any or all the circumstances. If he does, then the usefulness of such a law is questionable.
One needs to ask if the powers so conferred were abused in the face of current revelations,” he said. He was referring to the brother-owners of the bank, one its chairman and the other the chief executive director.
This is a bank that has had four jurisdictions as its home, including the safe haven Cayman Islands. FBME headquarters were moved to Tanzania after Cayman Islands.
Source: The Citizen
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