Ex-CBC Governor Surprised at FinCEN Actions

11 February 2016

 The former Governor of the Central Bank of Cyprus (CBC), Professor Panicos Demetriades, has written to FinCEN regarding its campaign against FBME in which he says he is “… most surprised by FinCEN’s actions relating to FBME”. This letter appears on the FinCEN website and is available to the public:  http://www.regulations.gov/#!documentDetail;D=FINCEN-2014-0007-0069.

Professor Demetriades was CBC Governor from May 2012 to April 2014, a period immediately prior to the publication by FinCEN of its allegations against FBME (July 2014). In his letter he asks what concrete evidence exists for the actions against FBME and speculates that FBME may have become a “convenient scapegoat” for “toxic politics” in Cyprus.

“During my tenure as Governor of the CBC … the AML capabilities of the CBC were strengthened considerably,” he wrote. “Notwithstanding the improvements in the AML regime, at no time was I ever presented with any evidence to suggest that any bank in Cyprus engaged in money laundering during that period.

“In light of the above, I am most surprised by FinCEN’s actions relating to FBME. I am also surprised to hear that FBME is being described by FinCEN as an entity of ‘primary money laundering concern’. Is there concrete evidence backing such serious allegations? Or are they based on rumours and hearsay, emanating perhaps from the bank’s competitors in Cyprus and/or their political backers?

In his letter Panicos Demetriades explains that many events in Cyprus are an extension of party politics driven by special interest groups. “During my tenure, there was considerable evidence in the public domain that certain politicians were uncomfortable with FBME’s presence in Cyprus.

“Smaller banks such as FBME, as well as being a source of healthy competition, are, inadvertently a threat to the supremacy of larger banks. As such, they tend to attract interest by politicians, often for the wrong reasons. Prior to my appointment, FBME Bank Ltd, chose to invest substantial funds into Cyprus Treasury Bills, an investment which helped the Republic of Cyprus avoid a disorderly default during the negotiations with Eurogroup and the IMF in the second half of 2012 and early part of 2013.

“It is not inconceivable, indeed it is likely, that politicians who were in opposition at the time interpreted this action as a lifeline to the previous government. Therefore, despite FBME continuing to finance the sovereign even after the change in government, certain politicians of the ruling party may have continued to perceive FBME as a hostile bank,” added Professor Demetriades.

“I am also concerned that FinCEN itself may have received misleading or inaccurate information about FBME from Cypriot sources, since a small bank like FBME may be a convenient scapegoat.”

Professor Panicos Demetriades is currently Professor of Financial Economics at the University of Leicester in the UK.