The Cypriot Central Bank has taken over the management of operations of the Federal Bank of the Middle East (FBME) in Cyprus as of last Friday.

A day earlier, the US Treasury Department accused the bank of weak anti-money laundering (AML) controls leading to suspicious activities tied to organized crime.  The action accuses the bank of accepting transfers linked to Hezbollah, which the US considers a terrorist network, and effectively shuts the bank off from the U.S. financial system.

“On July 18, senior management from FBME Bank Limited met with the Governor and the Board of Directors of the Central bank of Cyprus (CBoC) where the active involvement of the CBoC was suggested, and whose staff members have since been present at FBME monitoring and approving payment instructions,” said Gabriella Samara Paphitis, Head of Marketing & Public Relations at FBME Ltd. She said the move is a temporary measure aimed at resolving the situation arising from the US Department of the Treasury announcement and mitigate its impact. She said FBME has instructed specialist advisors to engage with the US authorities.

FBME falls under the umbrella of the Lebanese Saab Financial Group. “FBME Ltd in Cyprus has no ties to the Federal Bank of Lebanon. They are two separate entities, with independent boards,” said Jessica Gemayel, Head of PR and Marketing, Federal Bank of Lebanon. Gemayel said that the Saab financial group additionally owns Trade and Finance Bank in Moscow, but that all three banks are independent identities, with no shares owned in common.

She said that the Cypriot Central Bank has not taken control of the bank operations as reported in some media, but rather is overseeing the management of FBME’s operations whose head office is in Tanzania. “Due to conflicts in Lebanon, the Federal Bank of Lebanon opened a Cyprus-based subsidiary called the Federal Bank of the Middle East in 1982, but in 1986 that subsidiary was closed and that same year a new entity was formed and called FBME Limited, which our bank has nothing to do with,” said Gemayel.

The Federal Bank of Lebanon, founded in 1952, was not named in the US investigation.   On its site, FBME said it was “shocked by the… Treasury notice”, and that “it had no prior notification of this announcement.”  The bank claims its services are indeed in compliance with AML rules of the Central Bank of Cyprus and the European Union. 

The Treasury report alleges FBME’s involvement in some 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled over $875 million between November 2006 and March 2013. FBME has a 60-day comment period from the publishing of the Treasury Department report before any final action can be taken.