NICOSIA, Cyprus (AP) — For Cypriots, it was a collective “here we go again” moment.
In April, the United States and the United Kingdom included a handful of Cypriot nationals and businesses registered in Cyprus on a list of “facilitators” helping Russian oligarchs circumvent sanctions. It was an unwelcome reminder of the lingering perception that the island nation remains somehow Moscow’s financial lackey.
For years, authorities in this tiny European Union member country have been scrambling to shake that reputation, partly underpinned by a 2013 financial crisis when all eyes were on Cypriot banks filled with Russian cash. . At the time, almost a third of the 68 billion euros in deposits – more than three times the entire economy of the country – were held by Russians.
This was compounded by a poorly structured and poorly executed citizenship-for-investment program. For more than a decade, he has generated billions handing out Cypriot passports – and by extension access to the EU – to hundreds of wealthy Russians and others, some taking advantage of lax vetting procedures to cover up a murky past. .
This program was scrapped three years ago amid allegations that it encouraged money laundering. An independent commission concluded in a 2021 report that Cypriot authorities illegally issued passports to relatives of wealthy investors. In its 13 years of existence, the program has granted 7,327 citizenships, more than half of them to family members of investors.
The Cypriot government has since begun to revoke citizenship in the most egregious cases. So far, revocation proceedings have started for 68 investors and 165 family members, mostly Russians.
With this turbulent past, the April 12 announcement – and another on May 19 – sounded the alarm in Nicosia. The United States and the United Kingdom included Cypriot lawyers, businessmen and companies on a list targeting a “sanctions circumvention network” supporting Russian billionaires Alisher Usmanov and Roman Abramovich in 20 countries.
The news sent the Cypriot government scrambling to shore up a tattered reputation, offering reassurances that the country was now firmly on the right path.
“When there is a rotten apple… you have to remove it. And I repeat, we are not here to offer coverage to anyone. I want to be perfectly clear,” President Nikos Christodoulides recently told reporters in response to criticism that he would bend to the will of London and Washington.
Even US Ambassador Julie Fisher stepped in to calm the frayed Cypriot nerves. In an interview with the daily Fileleftheros last week, Fisher said the sanctions were less about punishing Cyprus for past – or present – misdeeds and more about prosecuting those who help Russian President Vladimir Putin continue his war in Ukraine.
“We are not trying to target Cyprus, or Cypriot individuals or entities,” Fisher said. “What we’re trying to do is tackle the networks. We pursue the networks of the oligarchy, the networks controlled by the Kremlin and those who enable the illicit financial regime, money laundering, circumvention of sanctions.
Networks or not, sanctioning Cypriot individuals and businesses has dealt another blow to the island’s reputation. Finance Minister Makis Keravnos said there was a benefit in that it gave authorities the chance to clean house.
Keravnos said the government saw it as “an opportunity to clear the name of Cyprus once and for all”. Cypriot authorities have requested and received detailed information from Washington and London on the Cypriot natural and legal persons on the list to determine whether they have also escaped EU sanctions. That investigation is still ongoing, with Attorney General George Savvides saying little or nothing because “our country’s credibility is at stake.”
Some of these Cypriot facilitators are lawyers and accountants who, according to US and UK authorities, help reorganize the assets of Russian oligarchs through a network of trusts and front companies.
The Cyprus Bar Association, which regulates 4,362 lawyers and 1,963 firms, as well as the Institute of Chartered Accountants of Cyprus (ICPAC), which has 5,700 members and some 1,100 licensed entities, told the ‘Associated Press that they had strong monitoring procedures in place. – including on-site inspections – to ensure that their members comply with the sanctions regimes.
A corollary problem triggered by the sanctions affected dozens of employees at more than 600 companies where payrolls were halted when Cypriot banks froze their accounts. Some of these companies are law firms, trusts or are involved in a wide range of business activities such as real estate, marine, aviation and secretarial services.
It’s unclear exactly how many workers have been left behind, as many of these companies employ only skeleton administrative staff.
Still, it is understood that many remain unpaid weeks after the sanctions were announced, despite the government’s decision to unfreeze accounts and “normalize” a situation which Keravnos said had destabilized the financial services sector.
Registrar of Companies Irene Mylona-Chrysostomou told the AP it works by replacing the directors of a company whose boss is on the sanctions list. The banks would then release the accounts of the new unencumbered “management”.
Mylona-Chrysostomou said “most” of the companies affected by the April 12 announcement have changed their directors. His organization is in the process of making these changes to a few hundred other people affected by the May 19 announcement.
Whatever the impact on the Cypriot economy of a Russian business flight, authorities are banking on the island nation’s resilience to weather the storm, just as it did after the 2013 financial crisis.