FBME EXEC SAYS BANK, ACCUSED OF MONEY LAUNDERING, WAS UNFAIRLY TREATED

LONDON—FBME Bank Ltd., a Tanzania-based lender accused of money laundering, says it is the victim of a witch hunt.

This summer the bank was putting the finishing touches on a gleaming 5,000-square-meter office in Cyprus, where it does most of its business, when it received two pieces of bad news. In July, the U.S. Treasury Department alleged that FBME was a money-laundering conduit for terrorist financiers and organized-crime figures among others. Then Cyprus's central bank, which is trying to overcome the island's reputation for turning a blind eye to allegations of money laundering, seized FBME's local operations.

FBME isn't happy.

The Cyprus Central Bank's July 21 move "was passed in a flagrantly illegal manner," said Michael Saab, a vice president at FBME, in an interview. "We were doing our business. Lending to small and medium businesses."

The central bank, which is trying to find a buyer for FBME's Cypriot branches, said it seized the operations in order to protect the bank's depositors, who were at risk after international banks largely ceased doing business with FBME due to money-laundering concerns.

FBME has described itself as "shocked" by the U.S. Treasury's allegations. The bank has until Sept. 22 to reply to the allegations and has hired consultants Ernst & Young to review its accounts. Asked whether FBME was engaged in money laundering, Mr. Saab demurred, pending the results of the internal review. "If I said we did or didn't is neither here nor there," he said.

Mr. Saab concedes that FBME's unusual international setup was "high risk."

In the 1980s its founders, the Saab family, moved an offshoot of a Lebanese bank to Cyprus and registered its headquarters in the Cayman Islands. But in 2003 the Cayman Islands evicted banks with no real presence there. So FBME moved to Dar es Salaam.

"My experience with the Tanzanians has been a very good one," said Mr. Saab, the grandson of the bank's founder. "They regulate responsibly."

FBME's Tanzanian business is made up of five branches and six ATMs, according to the Bank of Tanzania. The vast majority of FBME's $41 million operating income comes from FBME's branch in Cyprus and office in Moscow. The Cyprus beachhead is important because it gives FBME rights to operate elsewhere in the European Union.

Mr. Saab said FBME has about 10,000 "banking relationships." Clients "are buying ships, they are sending wood from Russia to Europe or selling gas from Russia to Europe," he said.

In its July report, the U.S. Treasury alleged that some FBME clients had links to Lebanese Hezbollah and Syrian weapons proliferators. Within 24 hours, a number of banks that carried out dollar-denominated transactions on behalf of FBME contacted Cyprus's central bank to say that they were no longer willing to work with FBME out of fear of being entangled in criminal activity, a person familiar with the matter said.

The central bank seized FBME's Cypriot branches and halted all transactions. Mr. Saab's gripe: the central bank used a rule designed for shutting down failed banks, but FBME held plenty of deposits and capital.

FBME unsuccessfully appealed the central bank's decision, describing it as the equivalent of a hostile takeover. The bank now hopes the International Chamber of Commerce will hear its case.

The Wall Street Journal