The firm at the heart of the Paradise Papers leak provided offshore services to a bank accused of facilitating terrorist financing, transnational organised crime and the Syrian government’s chemical weapons programme.
Appleby represented the Cayman Islands holding company of FBME Bank for at least a year after the US Treasury published an extraordinary roster of allegations against the bank, and acted as its agent for more than a decade beforehand.
FBME, which was banned from the US financial system last year, denies all the allegations against it. It said Appleby regularly carried out full compliance checks on FBME Ltd, which it took on as a client in 2004.
Revelations from Appleby’s internal files, obtained by the German newspaper Süddeutsche Zeitung and shared with the US-based International Consortium of Investigative Journalists, were exposed in the Paradise Papers investigation last year.
The investigation was praised by politicians and campaigners for shining a light on tax havens and revealing the myriad ways in which companies and individuals can avoid tax using artificial structures.
The Guardian revealed how Appleby was repeatedly criticised by inspectors in multiple jurisdictions for failing to apply regulations designed to guard against money laundering and terrorist finance in secret reports by offshore regulators.
Appleby is suing the BBC and the Guardian over the Paradise Papers investigation, arguing that none of the articles published were in the public interest. In a statement issued at the time it denied wrongdoing but said it was “not infallible” and always acted quickly to “put things right”.
It has asked the court to permanently ban both media organisations from using its leaked files to investigate its conduct or that of its clients.
FBME was described as “a financial institution of primary money laundering concern” in a notice of finding published in July 2014 by the US Treasury’s Financial Crimes Enforcement Network (Fincen).
“FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organised crime, fraud, sanctions evasion and other illicit activity internationally and through the US financial system,” Fincen said.
Appleby withdrew from acting as the FBME holding company’s registered agent 17 months later in December 2015. According to a US court judgment, Appleby decided that “FBME did not fit [its] risk profile”. FBME Ltd effectively ceased to exist in the Cayman Islands, a UK territory, as a result.
Appleby declined to comment on its longstanding relationship with the holding company of FBME Bank, which ended in December 2015. It said it had sold the part of the firm that handled offshore services, which is now a separate company called Estera, and so could not answer questions about the business.
Estera said it could not comment on “any historical dealings that Appleby may have had with any particular client”.
“Full compliance checks were carried out by Appleby. They requested these on a continual basis and we provided them with updated KYC and AML (anti-money laundering) documentation in line with international law,” FBME’s spokesperson said.
“Appleby declined to renew FBME Ltd’s registration despite there being no proof of any wrongdoing. The resulting lack of a registered office provider ultimately caused FBME Ltd to lose its ability to challenge Fincen in court.”
It is not known if Appleby was aware of any of the evidence of the malfeasance alleged by Fincen before the 2014 notice was published. It is unclear what its due diligence efforts specifically entailed. But some argue that offshore firms should be required to have as full as possible an understanding of their clients’ business.
Campaigners have paid increasing attention to law firms and registered agents operating in the offshore world in recent years, arguing that it is insufficient for offshore services firms to react only after allegations have been made by governments, campaigners or journalists.
Instead, they argue, the offshore industry has a responsibility to proactively vet both their clients and their clients’ business on an ongoing basis.
“Time after time, we hear registered agents proclaiming their innocence, denying they could have done anything differently and claiming their due diligence processes work just fine. To everyone else it is blindingly obvious that things are not right,” said Robert Barrington, executive director of Transparency International UK.
“Banks are particularly high-risk with regard to money laundering, and that kind of red flag requires a high standard of due diligence,” he said.
Murray Worthy, a senior campaigner on anti-money laundering at the campaigning group Global Witness, argued that as part of conducting due diligence on a client that was a bank, “that would include, you hope, who it’s providing those services to”.
He added there were “clear warning signs” that the bank warranted more thorough scrutiny prior to 2014.
“Tanzania was on the FATF [Financial Action Task Force on money laundering] blacklist from 2010 to 2014 as a high-risk or non-cooperative jurisdiction for money laundering,” he said. “Having a bank registered in a tax haven blacklist should have been a concern.”
Among the allegations made against FBME by Fincen in 2014 were that a “customer received a deposit of hundreds of thousands of dollars from a financier for Lebanese Hezbollah”, and that “as of 2008, a financial adviser for a major transnational organised crime figure who banked entirely at FBME” had “maintained a relationship” with the bank’s owners.
Fincen alleged that at least one of FBME’s customers was a front company for the Syrian Scientific Studies and Research Centre. The group, alleged to be part of the Syrian government’s chemical weapons programme, was first sanctioned by George W Bush in 2005.
FBME denies the allegations made by Fincen. “FBME has not engaged in money laundering and was never accused of such until the Fincen allegations,” a spokesperson said. “The bank has acted in compliance with all the EU and Cyprus anti-money laundering directives, as corroborated by multiple third party auditors.”
The spokesperson added that Fincen had never presented evidence that FBME facilitated weapons proliferation in court. “The outrageous claims that FBME acted for terrorists, or knowingly acted for any sanctioned individuals, are false and deliberately damaging. Any client that was sanctioned had their accounts frozen immediately and were reported to the regulator. FBME conducted all required KYC (know your client) and UBO (ultimate beneficial owner) checks.”
The bank began legal action against Fincen in an effort to block the imposition of the ban, but ultimately failed. The ban came into force in 2017.
FBME: from obscurity to US Treasury target
Prior to 2014, few outside the world of banking would have heard of FBME. It was established in the early 1980s by two Lebanese brothers, Ayoub-Farid and Fadi Michel Saab, and went by its full title – Federal Bank of the Middle East – until the mid-2000s, when it became FBME Bank. Despite being headquartered in Tanzania, where it grew to become the country’s largest bank with $2bn (£1.4bn) of assets under management, the firm conducted more than 90% of its business in Cyprus.Press reports had raised occasional questions about the profile of the bank’s customers. In 2007 the US government applied to seize funds in an FBME account that it alleged belonged to a trafficker in human growth hormone. Three years later a developer accused of hiding money offshore was reported to be a client. In 2012 employers of the murdered Russian lawyer Sergei Magnitsky alleged that some of the money connected to a tax fraud he was investigating was transferred through an FBME account.
But it was in July 2014 that the most serious allegations were levelled against the bank, by no less an accuser than the US government. The Financial Crimes Enforcement Network, an arm of the US Treasury tasked with analysing financial data to combat money laundering and terrorism, published a “notice of finding” alleging that the bank had provided financial services to perpetrators of, among other offences: terrorist finance, political corruption and transnational organised crime. Soon after the Central Bank of Cyprus seized its assets.
FBME has furiously denied all the charges against it, and has taken action to contest both Fincen’s attempt to blacklist it in the US as well as the seizure of its assets by Cyprus. Last year BuzzFeed News published an investigation into the bank and its clients, drawing upon a host of details recounted by investigators brought in to carry out an internal inquiry into the merits of Fincen’s claims.
Among them was an email sent by a senior director at the bank alleging that one of its clients profited from the distribution of images of child sexual abuse. It also reported that FBME’s head of compliance had presented a forged degree from Harvard as legitimate, and alleged that the bank had provided accounts to a network of Russian entities running a “slush fund”.
“As soon as we found out that there were issues surrounding the degree of our head of compliance, we accepted her resignation,” an FBME spokesperson said, adding that the bank had been unable to secure a replacement as a result of the US blacklisting.
“The bank and FBME Card Services reported the client allegedly involved in child pornography to the Financial Investigations Unit in Cyprus in July 2012. Even after the FIU closed their file on this client, we still pursued it through the courts in order to prevent them from being able to collect funds on illegal activity.”
The spokesperson said claims that the bank knowingly provided services to terrorists or sanctioned individuals were “outrageous” and that sanctioned clients’ accounts were immediately frozen.
In March 2016, Fincen’s effort to ban the bank from the US was approved by the courts after three attempts, and last year the bank’s appeal was unsuccessful. Regulators in Tanzania and Cyprus now retain control over the bank’s business. Meanwhile, FBME continues to fight the charges against it. Its owners have filed arbitration proceedings against the state of Cyprus and are demanding €1.5bn (£1.3bn) in damages over the fate of the bank.
