Ho an Lovells US LLP Hogan Lovells November 21. 2014 FOIA CONFIDENTIAL TREATMENT REQUESTED BY FBME BANK LTD. BY ELECTRONIC FILE TRANSFER Jennifer Shasky Calvery Director Financial Crimes Enforcement Network U.S. Department of Treasury Attention: ichard Mai Director, Office of Special Measures Re: Notice of Proposed Rulemaking -- Financial Crimes Enlorcement Network Supplemental Information RIN 1506-A827 Dear Director Shasky Calvery: On behalf of our client. FBME Bank Ltd. or the and as discussed with you and Richard May. we want to reiterate our client's willingness and commitment to respond fully and address all concerns set forth in the Notice of Proposed Rulemaking (the and Notice of Finding (the "Notice") (together the "Notices"). The enclosed submission. Bates numbered FBME00000615 to 1, details the specific actions FBME has taken to enhance the Bank's anti-money laundering and sanctions compliance program ("Compliance Program" or "'Program") in response to recommendations by external auditors of the Bank 7 most recently the audits by KPMG in April 2013 and EY in September 2014. FBME takes seriously the observations and suggestions ol third party auditors and recognizes that compliance is a continual. dynamic process. With this submission. FBME seeks to demonstrate to its firm commitment to continued improvement of its Compliance Program. The Bank self-identified. prior to the issuance of the Notices, the need to improve its Compliance Program and both had taken. and was in the process of implementing, a number ol steps to do so. As the Department of the Treasury has noted, Section 311 special measures can spur rehabilitative conduct on behalf of the affected financial institution. The Bank wants to Jennifer Shasky Calvery -2- November 21, 2014 work closely with FinCEN to continue this process. Accordingly, we respectfully request that the Bank be given an opportunity to meet and discuss this information, and the EY transactional report that we will be submitting, with FinCEN and engage in the rehabilitation process. For these reasons, we continue to request that FinCEN withhold issuance of any final rule.1/ We anticipate that you will have questions or want additional information based on the submissions to date, and we look forward to the opportunity to elucidate these issues further in a face-to-face meeting. As discussed on November 17, we plan to submit a Transaction Report by EY on their work to date shortly. Please let us know when you would like to meet in person regarding this matter. I. Management Response to KPMG Audit In March 2013, over a year prior to the issuance of the NPRM, FBME requested that KPMG review its Compliance Program. The review consisted of documentation (including 68 customer files), walkthroughs and interviews. The scope of the review covered four main areas: risk management (AML/CTF risk analysis, risk response, risk monitoring, risk reporting); AML Organization (AML functions, internal policies and procedures, suspicious activity reporting, recordkeeping); Risk Mitigation for Customers and Transactions (KYC, periodic reviews, sanctions and PEP screening, transaction monitoring); and Quality Assurance (employee training, internal supervision, internal and external audit). Enclosed is a copy of the KPMG Audit Report (the “Audit Report”), issued in April 2013. Overall, the Audit Report concluded that “FBME basically fulfills the requirements as set out by the Cyprus regulator and is in principle in compliance with EU standards.” KPMG found that FBME employed AML-compliant procedures, including using standardized account opening forms, assigning risk ratings to customers, verifying customer and UBO information, and performing database searches on all customers. KPMG also identified areas where FBME could improve its Program, and FBME took these suggestions seriously. Enclosed is a document outlining the steps that FBME has taken in response to KPMG’s recommendations. For example, after reviewing the Audit Report, FBME changed its risk assessment procedures, appointed an alternate MLCO, made amendments to its Manual of Policies and Procedures, upgraded its software, and implemented additional procedures to enhance its KYC process. The chart provides details about the specific actions taken. “In some instances, the entities of primary money laundering concern have rehabilitated their practices and implemented significant reforms to mitigate some of the risks and vulnerabilities identified as supporting the finding of primary money laundering concern. In such circumstances where the continuing risks to the U.S. financial system appeared to be diminished, Treasury has decided not to pursue a final rule implementing special measures and notice has been given to rescind the regulatory proposal." U.S. Department of the Treasury, “Fact Sheet: Overview of Section 311 of the USA Patriot Act,” (May 22, 2012), available at http://www.treasury.gov/press-center/pressreleases/Pages/tg1591.aspx 1/ Jennifer Shasky Calvery -3- November 21, 2014 II. Management Response to EY Assessment On September 23, 2014, Hogan Lovells submitted to FinCEN EY’s Assessment of FBME Bank Ltd’s Anti-Money Laundering (AML)/Sanctions Compliance Program (the “Assessment”). As noted in our earlier submission, EY observed in its Assessment that the Program “incorporates the requirements” of the EU's Third Money Laundering Directive (2005/60/EC) and the fourth issue of the Central Bank of Cyprus ("CBC") Directive to credit institutions in accordance with Article 59(4) of the Prevention and Suppression of Money Laundering Activities Laws of 2007 to 2013, issued in December 2013. EY’s Assessment further reported that FBME “has protocols in place that allow the Bank to continuously keep the Program aligned with these legal requirements.” The Assessment covered critical elements of FBME’s Program, including compliance policies and procedures, employee training, customer identification and due diligence, risk assessments, transaction monitoring / account surveillance, and alert investigations. EY documented FBME’s efforts to improve its Program over the years, and recommended areas of improvement where FBME could further strengthen it. The Bank has reviewed EY’s observations and recommendations. The Bank has already taken steps to implement these recommendations, even in the current environment where it is under resolution by the CBC and the Special Administrator was put in place by the CBC to sell the Bank within three days of the Notices. Enclosed is a document outlining each recommendation and detailing the actions FBME has taken in response to each recommendation. The document specifies the procedures that have been implemented, new IT or other upgrades that have been proposed, and timelines for completion. For example, in response to EY’s observations, FBME instituted enhancements to its AML/sanctions employee training program and is updating its AML/CTF risk assessment to include a documented methodology for FY2014. With respect to its customer identification and due diligence procedures, FBME is implementing new forms to capture additional KYC information, enhanced documentation in customer files of what KYC research has been performed, and software adjustments to ensure centralized maintenance of the information collected. Although the Bank already uses industry-leading electronic screening solutions, FBME is making upgrades to its screening software and alert investigation systems. These and other actions are detailed in the chart attached. *.*.* This submission details the enhancements FBME has made, and continues to make, to its Compliance Program. These improvements to FBME’s procedures, software, documentation, and other Program elements demonstrate FBME’s continued dedication to operating in accordance not only with the legal requirements of its regulators, but also with industry best practices. FBME reaffirms its commitment to continue to cooperate with the U.S. Government, as well as the governments of Cyprus and Tanzania in the fight against money laundering and other illicit activities. Jennifer Shasky Calvery -4- November 21, 2014 We look forward to working with FinCEN to resolve its concerns so that it may withdraw the Notice and NPRM. We thank you for your consideration of the foregoing, and we welcome your questions or comments and look forward to discussing further. Sincerely, Peter Spivack Beth Peters Evans Rice Hogan Lovells US LLP Counsel to FBME Bank Ltd. cc: Mona Sahaf, FinCEN FBME Bank Ltd. Jeanne Archibald Louise Lamb Anthony Capobianco