FBME Bank Ltd., a now-defunct Tanzanian bank with a large Cyprus operation, was a hive of high-risk and suspicious transactions, intense shell company activity and offshore trading with what regulators term "politically exposed persons." There is also evidence that, among other things, it knowingly accepted deposits and wire transfers from a dealer in child pornography.
Apart from facilitating the transfer of money associated with the so-called Magnitsky tax fraud case in Russia toward companies linked to Syria's sarin gas weapons program, FBME has been tied to suspicious arrangements in other parts of the world. The revelations, previously reported by CNN and BuzzFeed, are contained in a series of confidential reports and witness statements, publicly available court documents and auditors' assessments that S&P Global Market Intelligence has obtained, as well as interviews with sources close to the matter.
For a fee, the bank allowed customers to use its office in Cyprus as a business address, even if they were based in countries that were the target of international sanctions such as Iran and Syria. The Central Bank of Cyprus criticized the practice, known as "hold mail," in an internal report compiled in 2014 and obtained by S&P Global Market Intelligence, noting that FBME had "hindered, prima facie, the transmission of information on the payer throughout the payment chain length, and probably prevented the compliance checks of other banking institutions."
After the U.S. Treasury Department's Financial Crimes Enforcement Network, or FinCEN, first proposed to ban FBME from using the dollar in 2014, Jennifer Shasky Calvery, the head of FinCEN at the time, said: "FBME was used by 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."
Politically exposed persons
Between 2007 and 2011, FBME opened 23 accounts for shell companies controlled by Mikhail Prokhorov, a Russian billionaire and politician, but did not register his ultimate beneficial ownership in its accounts, a move that helped hide his involvement from regulatory scrutiny. Although there is no suggestion that Prokhorov used his accounts at FBME for wrongdoing, the bank's concealment of the fact that he controlled the accounts was a violation of EU rules. The hiding of customer information from regulators carries a two-year prison sentence for the banker responsible and a fine of €100,000.
Isabel dos Santos, who is the daughter of former Angolan President José Eduardo dos Santos and who was chair of state oil company Sonangol until November 2017; her mother, Tatiana Regan; her husband, Sindika Dokolo; and Juan Muhsin Al-Barazi, an Angolan businessman who is close to the family, made €43.3 million of transactions across multiple joint accounts in 2013 alone. Separately, members of the dos Santos family transacted tens of millions of dollars and euros through 18 shell companies with accounts at FBME between 2006 and 2014 without being subjected to checks that a fully compliant bank would apply on corporate accounts, such as frequent updates on the state of an account holder's business.
The arrangement chosen by this group of account holders is not illegal, but FBME did not follow bank regulations requiring strict supervision of accounts controlled by such politically connected clients. FBME's owners, brothers Ayoub Farid Saab and Fadi Michel Saab, have told S&P Global Market Intelligence that all the claims of wrongdoing are false and that the Central Bank of Cyprus has acted maliciously against them because it wanted to seize their business for its own gain. They deny that FBME ever broke anti-money laundering regulations.
"[Ultimate beneficial owner] information was obtained for every corporate customer," said Tim Maltin, a London-based spokesman for the brothers. "Any insinuation of lackluster compliance at FBME Bank is false and wholly denied."
The spokesman for the Saabs said the media coverage of FBME is aimed at influencing a Paris tribunal to rule against the brothers in an arbitration claim they have brought against the Cypriot state over its handling of the bank.
An entrepreneur from Equatorial Guinea used $7.2 million received in his company's FBME account from the treasury of his country as financing for the construction of a highway to buy MAve Hotel on New York's Madison Avenue in March 2012, without the bank blocking the payment or raising red flags, despite knowing the funding was not being used for the purposes stated in the original contract, a December 2014 report from consultancy EY obtained by S&P Global Market Intelligence shows.
This is a breach of regulatory guidelines, which demand that banks at least report suspicious transactions to the authorities. Also in March 2012, the same entrepreneur transferred $5 million to the Saabs' personal investment company registered in Bermuda, according to the report. The entrepreneur could not be located for comment and the Saabs denied any impropriety.
'Red flags' in repo transactions
Between November 2006 and November 2008, the Saab brothers acted as intermediaries between their bank and Bank Century, an Indonesian lender since bailed out by its government and renamed Mutiara, in setting up an unusual series of securities transactions resembling a repo agreement that brought no obvious benefit to FBME.
On paper, FBME agreed to pay Bank Century $40 million for borrowing packages of U.S. Treasuries and securities issued by European banks. Although FBME never received the securities, it paid the money to Bank Century, which then sent it to two companies associated with its own director Rafat Ali Rizvi. These companies then sent $32 million to a Jersey company owned by the Saab brothers. Rizvi, who agreed the deal with FBME, was eventually convicted in Indonesia of embezzling and laundering $361 million from the cash-strapped bank.
The repo deal was not subjected to the usual regulatory checks and the contracts it was based on were incomplete, with some parts backdated. Furthermore, the contracts did not match the actual money and securities transferred between the parties, which should have aroused money-laundering suspicion, according to a financial crime expert who investigated the arrangement on behalf of Mutiara's post-bailout state owners.
"The lack of such oversight in respect of the transaction arrangements supports my opinion that the transactions entered into did not reflect real commercial risk for the parties involved and that the contracts were entered into to disguise the true — and probably illegal — purpose of the arrangement," wrote Peter Barrie Brown, an accountant specializing in money laundering, in a witness statement submitted during a subsequent legal dispute between FBME and Mutiara. The Saab brothers have denied all wrongdoing, and have called the allegations "slanderous."
Brown concluded that the ultimate purpose of the transaction was likely money laundering. "These transactions raise more red flags than any other arrangement I have previously encountered in my entire career," he wrote. "I conclude that the fundamental arrangements and the ongoing operating arrangements create real suspicions that their true objective was money laundering."
Mutiara was taken over in 2014 by Japan's J Trust Co. Ltd., which remains operational. "The repo deal conducted with Bank Mutiara was legal and was fully reported to the CBC on every annual audit," the Saabs said through Maltin.
False card transactions
FinCEN's report links FBME to allegations of international fraud. Michael Saab, the son of Fadi Saab and head of FBME's card business, labored to conceal abnormally high levels of fraudulent card payments generated by a client's several connected shell companies through their accounts at the bank, according to a report by forensic accountants Kroll, obtained by S&P Global Market Intelligence.
Between June 2011 and May 2012, FBME's cards unit, under the direction of Michael Saab, created 1.2 million fictitious transactions on prepaid cards between accounts held by shell entities with nominee directors on behalf of an FBME Bank client in order to drive down the fraud ratios measured by the card companies, the report says.
Kroll was commissioned to produce the report, which it entitled Project Ritchie, by the London office of global law firm DLA Piper representing the Central Bank of Cyprus, the document says. Kroll declined to comment.
Interspersed with the artificial payments were numerous fraudulent transactions, Kroll found, which usually incur chargebacks, or refunds to victims of fraud at the expense of the banks.
Visa Europe and Mastercard, which processed the payments, have a policy of closing merchant accounts that display a chargeback or fraud ratio above a certain threshold. FBME's fraud ratio was on occasion 30 to 50 times higher than that of the average European bank, and to dilute this ratio, the bank knowingly initiated bogus payments, on behalf of at least one client, for items such as pens and sunglasses that in reality were never delivered, the Kroll report says.
The artificial transactions recirculated money between accounts ultimately controlled by the bank itself. "There is evidence that the fake transactions were processed with the assistance of a third party, with the awareness and assistance of FBME (Card Services) senior management and with the knowledge of Michael Saab," wrote Kroll.
A criminal investigation into FBME's cards business is ongoing in the U.S., according to Bloomberg News.
The Saabs say they were not aware of criminal behavior inside the card business: "We were not aware of any criminality in our card services division and this would not have been tolerated. All card projects were only commenced after specific approvals from either Visa or Mastercard and with full disclosure to the Central Bank of Cyprus. The alleged collusion scheme to defraud Mastercard did not exist," their representative told S&P Global Market Intelligence.
The report says Kroll was given access to the bank's client files, money transfer records as well as other documentary sources from the Central Bank of Cyprus. S&P Global Market Intelligence has been able to independently corroborate significant parts, but not all, of the Kroll report.
On another occasion, Michael Saab revealed he was aware that an online merchant of child pornography used FBME accounts, according to an email cited in the Kroll report and other supporting documents. In the email, Saab told a contact that he was willing to accept a 35% settlement from a child porn "aggregator," saying that "to tell you the truth I am in extremely guilty conscience [sic] about even settling with DS given that I know he knowingly facilitate [sic] child pornography — a crime that should be deal[t] with through a court system, and result in indefinite incarceration. On the other hand I also have an immediate responsibility to over 100 employees working at FBME Card Services and I need to focus on business development."
The Saabs concede that the email is genuine but insist that they did not take any funds: "Our email relating to this demonstrates the hard line we took at FBME to any suspected wrongdoing by any client. We did not tolerate any illegal activity by any of our clients and our response demonstrated our concern."