The Cyprus-based FBME bank, permanently blocked in April by a US court from access to the US banking system and thus basically shut down, has among its depositors arguably the biggest collection of financial outlaws the world has seen in decades.
It is as if every illicit international operation on the globe from the Russian Mafia, allegedly backed by Russian President Vladimir Putin, to Indonesian, Japanese and Thai money launderers to Somali pirates to phishing scams to international drug syndicates and manufacturers of sarin nerve gas for Syrian President Bashir Assad decided that the bank, a branch of the Tanzanian FBME Bank Ltd, was the place to store ill-gotten gains. There are suspicions that Hezbollah, the Shi’ite organization labeled a terrorist group, has routed its financial operations through shell entities found in the bank’s 6,500 accounts.
The bank is owned and operated by a Lebanese family including Ayoub-Farid M, Fadi M and Michel Norbert Saab, a son. The tangle of interests enmeshed with FBME demonstrates how difficult it is to uncover and trace illegal interests, even as strict financial disclosure laws are coming into force through most of the world in response to US pressure. Innocent depositors are also seemingly caught up in the mess.
The bank has been guided through the US Treasury-ordered self-liquidation in New York, Washington, Paris, Cyprus and Tanzania by law firms Quinn Emanuel Urqhardt and Sullivan and Hogan Lovells International LLP, which allegedly represent a wide range of FBME bank depositors.
One source told Asia Sentinel that it is likely that some of the depositors in FBME will never show up to reclaim their holdings because doing so would bring them to the attention of the international law enforcement community. Some observers are calling the scandal bigger than the Panama Papers, the leak of thousands of documents belonging to the Panamanian law firm Mossack Fonseca, containing personal financial information on tax dodge schemes by wealthy individuals and public officials.
“The case is complex,” said Floris Alexander, a Dutchman who heads Legal Floris LLC, which represents more than 1,300 depositors seeking to recover their money from FBME. “The cross-border activities of the bank and the involvement of two central banks with different agendas make it difficult to come to a swift conclusion. Businesses have been forced to stop operating and individuals fear to lose their life savings. It could have stopped earlier, but the vision of the authorities and the owners of the bank are too far apart.”
As Asia Sentinel reported on April 10, hundreds of millions of dollars disappeared out of Indonesia’s Bank Century in 2008 and 2009 as the Indonesian government struggled to save it. With US$732 million (at then-prevailing exchange rates) pouring into Bank Century, at least US$350 million was pouring out overseas. According to a report by money-laundering expert Peter Barrie Brown, enormous amounts went into and out of FBME and Saab Financial (Jersey) Ltd., a dissolved company whose successor and alter ego is known as Financial (Bermuda) Ltd. It is also in liquidation.
There are allegations that money has continued to be laundered under the new owners on Bank Century, the Japanese financial conglomerate J Trust, which bought the renamed bank in 2014. J Trust has denied the allegations and threatened a defamation action against Asia Sentinel.
In his report, which is in the New York federal courts, Brown said, “The number of separate reasons for being suspicious are so many in total that I rate the whole arrangement and its operation to be the greatest collection of suspicious circumstances I have ever encountered in real life.”
The Destruction of Hermitage Capital
However, the most notorious flow of funds is believed to be from Russian interests* which, according to one source – who declined to be named because, he said, “I don’t want Russian thugs to come to my door and kill me” – allegedly deposited and laundered as much as US$500 million through FBME. The bank started life in 1953 as Federal Bank of the Middle East, an international commercial bank offering banking services and products to corporate and individual clients.
The money that the interests allegedly transferred through FBME came through Altem Investment Ltd and Zibar Management Ltd. The original source was said to be Hermitage Capital Management, once the largest holder of Russian securities and the brainchild of an American named William Browder. US government lawyers alleged the money was tax payments stolen fraudulently from Hermitage by three well-connected Russian businessmen with ties to the Russian government’s tax department.
In an interview with Asia Sentinel, Browder said some of the stolen money was traced to Sergei Roldugin, a cellist and godfather to the children of Russian President Vladimir Putin. Asked if Putin was the ultimate force behind the theft of Hermitage’s assets, Browder said the connections make it likely.
Credit: The Atlantic
Although the US charged that Prevezon Holdings had stolen US$230 million from Hermitage, laundering it through a tangle of companies from Russia into Moldovan, Latvian and Cypriot banks via wire transfers routed through US banks, the US ultimately settled for a fraction of that amount, US$5.4 million. Prevezon settled without admitting to the charges.The incredibly complex web of transactions out of Hermitage and allegedly into Prevezon is illustrated here in a graphic crafted by US government lawyers seeking to corner the Russian concern.
Click image to enlarge
One of Browder’s lawyers who complained to Russian authorities that Hermitage had been defrauded was Sergei Magnitsky, who was promptly arrested and jailed, dying in a Russian prison at age 37. His case became an international scandal and led to the passage of what is commonly called the Magnitsky Act by the US Congress, barring the Russian officials believed to be involved in his death from entering the US or using its banking system, which in effect froze all of their funds. That is because the entire international electronic financial system is largely routed through the US SWIFT payment system. Russia followed that up by blocking hundreds of families from adopting Russian orphans.
*Corrected on 7 July 2017 to reflect new information