U.S. prosecutors in Brooklyn are examining whether FBME Bank Ltd., a small international bank already barred from the U.S. financial system over suspected terror financing, also aided fraudulent activities by online pornography and gambling companies, according to people familiar with the matter.

The previously unreported investigation of FBME’s credit-card unit is one of two federal criminal probes touching on the activities of FBME, which was shut out of the U.S. financial system this year after the U.S. Treasury Department accused it of laundering money for international terrorist and criminal organizations. The other investigation is looking into alleged laundering of money from a Russian fraud.

The bank, which was licensed in Tanzania and has operated largely in Cyprus, has been seized by regulators in those countries and is winding down its operations and returning funds to depositors. It held only a few billion dollars in deposits and provided banking services to clients that included Somali pirates, terrorists and chemical-weapons manufacturers, according to a Bloomberg review of thousands of pages of court documents, regulatory filings and internal bank documents, as well as people familiar with the matter.

FBME said that it was not aware of any criminal behavior in its credit-card division and that it replaced the unit’s management after it discovered problems.

Billing Activity

FBME’s credit-card services unit is under examination by FBI agents and prosecutors for the U.S. attorney’s office in Brooklyn, according to people familiar with the matter who were granted anonymity to discuss a confidential probe. Internal investigations of the unit’s practices found that bank managers had helped devise a system to mask fraudulent billing activity in U.S.-run digital companies, the bank’s records show. The U.S. attorney’s office declined to comment.

The digital companies offered online pornography, dating and gambling services as well as nutritional supplement sales. It isn’t clear whether the authorities are focused on the bank, its executives or both, the people said.

“FBME Bank had a card services subsidiary which experienced specific issues relating to processing online transactions,” FBME said in a written statement. “The board recognized this by replacing the management team and undertaking a remedial program.”

The bank added: “We were not aware of any criminality in our card services division, and this would not have been tolerated.”

Russian Money

FBME has also emerged in a long-running case filed by the U.S. attorney’s office in Manhattan over how a portion of $230 million in stolen Russian government funds wound up invested in New York real estate.

The Manhattan prosecutors settled a civil asset-seizure case related to the Russian funds earlier this year. But prosecutors in that office are continuing a criminal inquiry into the laundering network of people, banks and companies that moved the money out of Russia, the people said.

From 2005 to 2007, FBME served as a conduit for money that financed a chemical weapons manufacturer, according to documents reviewed by Bloomberg that included internal and third-party investigative reports about the bank’s activities.

The Treasury Department’s Financial Crimes Enforcement Network in 2014 moved to cut off the bank from the U.S. financial system after accusing it of helping organized crime and terrorist groups that were allegedly laundering money, evading sanctions and developing banned weapons.

Hezbollah Backer

The Treasury Department found that FBME had received a deposit of several hundred thousand dollars from a financier for Hezbollah and held more than $7 million stolen from the treasury of Equatorial Guinea for the country’s president and his son, the department told the bank.

The U.S. ban took effect this year after a years-long court battle. Tanzania authorities also pulled FBME’s license. FBME’s activities have been the subject of a series of articles this week by Buzzfeed.

The court ruling should “trouble any fair-minded observer who values justice and the rule of law,” a bank spokesman said at the time. “FBME was a family-owned bank that worked strenuously to meet every compliance requirement and to engage responsively with all regulators.”

The bank had access to the U.S. financial system through correspondent accounts at banks including, through mid-2014, Deutsche Bank AG’s U.S. unit. In a one-year period in 2013 and 2014, the Treasury Department said, FBME was able to run nearly $390 million in suspicious transactions through correspondent accounts with banks in the U.S. The transactions exhibited “high-risk money laundering typologies,” the Treasury Department said.

There is no indication that Deutsche Bank is under investigation in the matter. “We severed our relationship with FBME in 2014,” a Deutsche Bank spokesman said by email. “We have increased our anti-financial-crime staff and controls in recent years and take our responsibilities under the AML/BSA laws very seriously,” the spokesman said, referring to anti-money-laundering laws and the Bank Secrecy Act.

‘Hold Mail’

According to the documents reviewed by Bloomberg, FBME offered an array of services valued by clients who sought to hide their money from prying eyes. It allowed at least 70 clients to use the bank’s street address as their own, as a way of limiting the paper trail tied to their accounts — a variation on so-called “hold mail” services that keep some distance between clients and their accounts. The practice, though not necessarily improper, can be a red flag to authorities. It can be used to circumvent controls by allowing blacklisted parties to use the financial system because the bank’s own identifiers show up in wire transfer messages instead of the clients.

The reports include investigations of the bank conducted by corporate intelligence agencies and commissioned by Cyprus’ central bank, Visa Inc. and, in one case, by FBME itself, in an attempt to address Treasury Department concerns. The documents were obtained by adversaries of FBME and provided to Bloomberg by people hoping to publicize the bank’s practices.

The bank also allowed hundreds of other clients to effectively mask their true ownership through shell companies, many of them registered at the same address in the British Virgin Islands, according to a U.S. regulatory filing.

“FBME solicits and is recognized by its high-risk customers for its ease of use,” the Treasury Department said in its initial finding. “FBME advertises the bank to its potential customer base as willing to facilitate the evasion” of money-laundering restrictions.

Internet Companies

The Brooklyn prosecutors are looking at whether the bank helped internet companies defraud their customers. One such company offered free trial access to a pornography site as long as a credit card number was provided to gain access, then billed the card anyway, according to documents reviewed by Bloomberg. Those who complained would have their money refunded by a card provider.

The pornography company worked with an FBME executive to determine what level of fraud would set off a review by credit-card companies. Then, according to documents reviewed by Bloomberg, the bank and the company created thousands of small and apparently legitimate transactions that would keep the overall fraud ratio below the trigger point.


source: Bloomberg