FBME, one of Tanzania’s largest commercial banks,
has been cut off from accessing the US financial system on suspicions
that the bank has facilitated money laundering, terrorist financing, and
organized crime.
The action finalizes a 2014 ruling
from the US Treasury Department’s Financial Crimes Enforcement Network
(FinCEN) naming FBME “a foreign financial institution of primary money
laundering concern” under the Patriot Act.
FBME is headquartered in Dar es Salaam, Tanzania's commercial capital. (Reuters/Andrew Emmanuel)
“[I]t demonstrates that the United States will
not allow a compromised foreign bank to send dirty funds through the
U.S. financial system,” FinCEN director Jennifer Shasky Calvery said in a statement.
The agency argued that the bank has shown a lax
approach to its anti-money-laundering (AML) controls, thereby opening
itself up to being used by criminal elements for illegal activities,
including terrorism.
When these concerns first surfaced, FBME denied the allegations
and argued that an audit found the bank “in compliance with applicable
AML rules of the Central Bank of Cyprus and the European Union.” Despite
this insistence, the central bank of Cyprus took over operations of the bank last year upon FinCEN’s initial ruling. (Though headquartered in Tanzania, FBME conducts the bulk of its business through Cyprus.) The Bank of Tanzania, meanwhile, took over the management
of FBME’s four branches in Tanzania and put them under the supervision
of Lawrence Mafuru, who is also the ministry of finance’s treasury
registrar. Mafuru could not be reached to comment on the US regulatory
action.
As a result of the ruling, American financial
institutions are now barred from doing business with FBME or trading on
its behalf. Institutions in other countries might not face the same
restrictions, but effectively they have been put on notice by FinCEN of
the risks involved in dealing with FBME.
There are implications for Tanzania as well. As recently as a year ago, Tanzania managed to get itself removed from a list of countries
considered to be at high risk for money-laundering activity. This
latest development could raise concerns as to whether east Africa’s
second-largest economy is doing enough to tackle the problem. A return
to the list could compromise trade inflows and foreign investment.
In 2013, a much-needed financial bailout for Cyprus by the European Union got delayed due to money laundering concerns
(paywall) centered around activities by FBME. At the time, the lender
said that it was “fully applying” AML regulations in both Tanzania and
Cyprus.