Back-to-back meetings, an air of perceptible panic, lawmakers engaged in frenzied damage limitation, and Cyprus once again in the eye of a Russia-related storm. It has been an unusually tense fortnight for the newly installed president on the Mediterranean island, arduous in ways Nikos Christodoulides could never have imagined when he took office on March 1.
First came the news that 13 Cypriot entities and individuals had been placed on Anglo-American sanctions lists for allowing Russian oligarchs. The measures were aimed at dismantling the financial networks of Roman Abramovich and Alisher Usmanov, both close allies of Vladimir Putin. Bank accounts and other assets belonging to his alleged “financial arrangements” were frozen overnight.
The Foreign Ministry acted after the publication of the Guardian of the Oligarch files, a series of reports that raised concerns about the application of sanctions in Cyprus.
But the US and UK sanctions also signaled something else: the realization that what was at stake was nothing less than “Cyprus’s name as a reliable business and financial centre”, in the words of the spokesman for the Greek Cypriot government. A decade after the easternmost member of the EU narrowly avoided economic collapse in a banking crisis that exposed the extent of the small island’s addiction to Russian money, its financial integrity appeared to be on the line again.
“In no way should we allow anyone to tarnish the name of our country,” Christodoulides told reporters earlier this week, saying he had asked the UK and US to provide more evidence to allow local authorities to investigate. the violations.
A national sanctions implementation unit had been announced by Wednesday, with government spokesman Konstantinos Letymbiotis reiterating that “the credibility of the nation must be safeguarded” and that “any deviation from EU sanctions will not be tolerated.” . The new unit will be established with technical support from the UK.
By Friday, as rumors swirled that even more Cypriot and Cyprus-based companies would be added to sanctions lists drawn up by London and Washington to further penalize Russia for its war in Ukraine, the island’s biggest lender, the Bank of Cyprus confirmed that around 10,000 accounts owned by 4,000 Russian depositors would be closed. In a statement, he revealed that affected account holders had been informed en masse about the decision.
“The Bank of Cyprus has notified 4,000 customers who hold Russian passports and do not reside in an EU country that their accounts will be closed,” it said, citing the customer acceptance policy and relevant risk appetite. “The action follows the suspension of Russia’s membership by the Financial Action Task Force and the designation of Russia as a non-cooperative tax jurisdiction by the EU.”
Reserves in the accounts amounted to less than 0.5% of the bank’s total deposits, it said.
The closures are seen as going “beyond” restrictions on holders of Russian banks in other parts of the EU where transfers from depositors have been limited, with transactions exceeding €100,000 (£88,000), but have not been been forced to close accounts. Insiders insisted that the lender’s decision predates the latest round of US and UK sanctions. But in private they also recognized that “it should not be taken.” The Russians were told they had two months, a notice period described as standard banking procedure, to make alternative arrangements.
Fears that the bank will be perceived as failing to comply with sanctions, possibly ending up in the hands of the US State Department. The Treasury’s list of specially designated citizens and blocked persons has undoubtedly played a role, Nicosia-based analysts said.
“If the United States removes the ability of a bank to transact in dollars, that bank cannot survive,” said Fiona Mullen, director of Sapienta Economics, a consultancy based in the island’s capital. “I have been saying for a long time that the Republic of Cyprus must treat its reputation for international probity as an existential problem, just as it does the Cyprus problem,” he added, referring to negotiations aimed at reuniting the only divided state of Cyprus. Europe. Peace talks with the breakaway Turkish Republic of Northern Cyprus have been frozen since 2017. “I think the penny finally fell off,” she said.
Few countries have exploited geopolitical turmoil as masterfully as Cyprus. Following Turkey’s invasion in 1974 following a coup aimed at union with Greece, the country’s shattered economy rebounded spectacularly after thousands of Lebanese, fleeing civil war, sought solace in the internationally recognized south. During the Yugoslav wars, the island, by then an established tax haven, a status lost four years ago when the corporate tax rate was raised to 12.5%, became a go-to for the Milošević regime to launder money. .
After the collapse of the Soviet Union in 1991 came the first Russian oligarchs. With its reputation for low taxes and light regulation, a thriving service industry was created with the express purpose of attracting foreign investors and affiliated companies to Russia. The two Cypriots sanctioned by the UK last week headed a law office and an accounting firm, part of the network of well-connected companies that have long facilitated oligarchs.
Abramovich, like others who would amass fortunes soon after the chaotic breakup of the USSR, was one of several billionaires who chose to park funds on the island, often hiding assets through a labyrinthine system of locally run brass companies and trusts. Subsequently, more than 1,000 Russians obtained Cypriot nationality under a controversial “golden passport” scheme, instituted in 2013, which allows citizenship in exchange for real estate investments of €2 million or more in the country. The programme, which spawned extravagant real estate projects in Limassol, the coastal city home to some 60,000 Russians, was credited with generating around €7bn before being revoked in 2020 after intervention by EU officials. outraged. The scheme helped earn the island the nickname “Moscow in the Mediterranean.” But in recent years, Cyprus has also tried to distance itself from its reliance on Russian money under pressure from US regulators who are trying not only to minimize Russian investment but also the country’s influence in the region. Russian-owned bank accounts have dwindled precipitously, with just 2.2% of all bank deposits held by Russians, a far cry from the tens of billions parked in Cypriot bank accounts before the 2013 financial crisis.
Attending this week’s emergency meeting at the presidential palace, the governor of the island’s central bank, Constantinos Herodotou, said that Cypriot authorities had not only closed 123,000 suspicious bank accounts, but also some 43,000 shell companies.
“Cyprus was addicted to Russian money before the Americans started weaning them very efficiently,” said Professor Hubert Faustmann, a professor of history and political science at the University of Nicosia. “They have really cleaned up their act and what we are seeing is the latest act in a story that has gone on for decades.”