Supreme Court upholds ruling that Central Bank of Cyprus was wrong to liquidate FBME Bank Ltd.

24 August 2018

The Supreme Court of Cyprus has unanimously dismissed an appeal by the Central Bank of Cyprus (“CBC”) and the Resolution Authority against an earlier court decision which ruled that the Central Bank was not legally justified when it attempted to liquidate FBME Bank Ltd registered in Tanzania.There has notably been very little press coverage of this decision, which is in keeping with the negative portrayal of FBME Bank Ltd in the media. We therefore wish to update depositors on this development and confirm that we are doing everything in our power to ensure the return of their deposits.

On 22nd December 2015, the CBC filed an ex–parte application in the District Court of Nicosia seeking an order for the special liquidation and the appointment of a special liquidator against FBME Bank Ltd. This followed the events where the CBC and the Resolution Authority revoked the license of FBME’s Cyprus branch. On 10 May 2017, the District Court of Nicosia ruled that this application was unfounded, as the conditions for the relevant legislation to issue such an order were not met, and it had not been proved that the CBC’s actions and specifically the application to liquidate the Bank served the public interest, contrary to what the CBC attempted to claim.

The Honourable Judge, Ioannides, P.D.J., dismissed the application finding that the CBC failed to prove the legal requirements for the issuance of the said order.

The CBC disputed this judgment and appealed to the Supreme Court of Cyprus, which, on 21 June 2018, unanimously dismissed the CBC’s appeal and awarded costs in favour of FBME and its creditors.

In its unanimous decision the Supreme Court stated that they were in full agreement with the relevant findings of the court of first instance. The correct analysis, as endorsed by the Supreme Court, was as follows:

FBME Bank Ltd could not be subject to liquidation proceedings because it was a foreign bank with a branch in Cyprus (and not a Cypriot bank). This was the case even though more than 90% of its deposits were held at the Cyprus branch; the branch did not have a separate legal personality.

1) The CBC was in no circumstances permitted to grant an operation licence to a foreign bank (in this case to FBME Bank Ltd to allow it to operate the Cyprus branch) if the foreign bank was not already in possession of a licence from its own authorities (in this case the Tanzanian regulator). Consequently, the CBC could not revoke the operation licence granted by Tanzania, which was an element of the relevant criteria required in order to liquidate FBME Bank Ltd in Cyprus.

2) The CBC essentially sought to liquidate FBME Bank Ltd, hoping in due course that this would serve the public interest (which is not what the law provided). However, the public interest would not be served by the bank’s liquidation, and nor would liquidation do anything to “restore the good reputation and credibility of the Cyprus Banking System“.

3) FinCEN was not a court of law. Whilst FinCEN had deemed FBME Bank Ltd to be a bank of “primary money laundering concern“, it was clear that there were no findings on behalf of FinCEN to support the view that FBME Bank Ltd was involved in money laundering.

The shareholders of FBME Ltd are pleased that the Supreme Court of Cyprus has vindicated the position they have held since the CBC’s erroneous actions.

The 10 May 2017 judgment of the District Court of Nicosia, which was upheld, can be found here:

http://www.cylaw.org/cgi-bin/open.pl?file=apofaseised/pol/2017/1120170388.htm&qstring=fbme

The 21 June 2018 judgment of the Supreme Court of Cyprus has not been uploaded online yet.