The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Ansbacher (Bahamas) is accusing a Puerto Rican bank of "wrongfully retaining" $10.087m of its funds that are "urgently needed to honour customers' transactions".

The Bahamian institution, part of AF Holdings (the former Colina Financial Group), is demanding that the US federal courts order Bancredito International Bank to return the money to it and pay damages equivalent to the sum being "illegally withheld".

It is alleging that the Puerto Rican bank repeatedly stalled on its requests for the funds to be returned by wire transfer, even suggesting that it needed to conduct 180 days' due diligence on Ansbacher (Bahamas) request.

Bancredito ultimately informed Ansbacher (Bahamas) it had issued a cheque for the $10.087m - a move the latter argued would cause problems with regulators since it would be viewed as a "suspect banking transaction" that none of its other correspondent banks are prepared to handle.

Legal documents obtained by Tribune Business reveal that the lawsuit, filed on August 27, stems from a correspondent banking relationship Ansbacher (Bahamas) inherited through its acquisition earlier this year of Lyford International Bank.

That deal, which was delayed by a dispute involving Lyford International Bank's two shareholding families, saw Ansbacher (Bahamas) take over the correspondent banking relationship the former had established with Bancredito on July 31, 2017.

This resulted in Lyford International Bank opening an account with the Puerto Rican institution, with the latter assuming responsibility for guarding and investing any deposited funds. Ansbacher (Bahamas), which is alleging that it has been unable to locate a copy of the correspondent agreement, completed its 100 percent acquisition of Lyford International on February 1, 2019.

Bancredito executives met with Ansbacher and Lyford International's principals in Nassau almost three weeks after the deal closed, the lawsuit alleged, with the merger of the latter's assets into its fellow Bahamian bank due to be completed by July 31, 2019.

With Ansbacher (Bahamas) now possessing "the right to obtain possession of all funds within the account in the name of Lyford maintained at Bancredito" through the acquisition, the Puerto Rican bank was instructed on June 4, 2019, to return $5m to the former.

Despite "an explanation that these funds were urgently needed for continued operations and to be able to timely honour customer transactions", Ansbacher (Bahamas) alleged: "Despite sufficient good funds on deposit in the account, and despite Lyford and Ansbacher making repeated demands upon Bancredito on and after June 4, 2019, to perform the US $5m wire transfer, Bancrédito acknowledged receipt of the June 4, 2019, wire transfer request but failed to respond at all until June 17, 2019."

The Puerto Rican bank blamed the hold-up on a "compliance" review of the wire transfer request. The two Bahamian institutions continued to make repeated "demands" for the $5m's return, "expressing an urgent need for funds in the account", to which Bancredito responded at end-June by requesting more due diligence information.

Alleging that they fully complied with the request, Ansbacher and Lyford claimed that Bancredito's continued stonewalling prompted a July 3, 2019, demand that the account and correspondent banking relationship be terminated and the $10.087m returned.

They alleged that no response was received until three weeks' later, when the Puerto Rican institution said it "intended to conduct 180 days of additional unspecified due diligence, to be completed by December 30, 2019 or thereafter, before any release of funds from the account".

This prompted the two Bahamian institutions to threaten legal action, to which Bancredito responded on August 12, 2019, by informing them it had closed the account and "inexplicably issued a cheque to Lyford" for the $10.087m.

Ansbacher and Lyford objected to both the payment method and its dispatch to an address that was no longer valid, while arguing that a "cheque for such a large amount would likely be considered a suspect banking transaction, which would certainly cause deposit and collection problems".

"As of this date, plaintiffs are unaware whether the $10.087m cheque to Lyford was actually sent, or delivered, but it is not in the possession of the plaintiffs," the two Bahamian institutions alleged.

"Due to, among other things, existing [US] and other related regulatory and security rules, restrictions and constraints upon financial institutions, neither Ansbacher or Lyford are able to deposit or negotiate a $10.087m cheque payable to Lyford even if such a cheque was payable to Ansbacher.

"Plaintiffs have exhaustively inquired with all their corresponding banks, and none are able or willing to accept deposit of such a cheque, and any remittance of the account balance must be made to Ansbacher by SWIFT wire transfer."

Accusing Bancredito of acting "recklessly and not in a commercially reasonable manner", the Bahamian institutions alleged: "Bancrédito has wrongfully retained over $10m of Lyford's and Ansbacher's money in the account, using it for its own pecuniary gain, to the detriment and damage of both Lyford and Ansbacher.

"Bancredito's delays, inaction, actions and conduct described above are wholly abnormal and commercially unreasonable, and entirely unacceptable, within the applicable standards in the banking industry.

"It typically takes only hours, or perhaps a business day or two, to conduct due diligence, and honour the valid written wire instructions of an account customer and/or to close an account and transfer account funds upon the written instructions of a customer."

Ansbacher and Lyford are not the first Bahamian financial institutions to experience such alleged difficulties with Bancredito. Tribune Business reported in November 2017 how Capital Union Bank, which is based at the Lyford Financial Centre, was forced to initiate legal action to recover $2.343m deposited in Puerto Rico via a similar correspondent relationship.

Capital Union had alleged that the Puerto Rican institution failed to return the funds despite 10 written requests made over six weeks, with the monies urgently required for its "operations with other counterparties" and their absence threatening to trigger a $2.4 million hit to its capital base and extra scrutiny from Bahamian regulators.

That legal battle was settled soon after it attracted media scrutiny.