Filenews 20 April 2023 - by Fanis Makrides
The escalation of sanctions over the Russian invasion of Ukraine and their apparent extension to Cyprus seems to have triggered the imposition of stricter measures by Cypriot banks.
According to information widely broadcast in the last 48 hours, Russian nationals have been warned to close their accounts with Bank of Cyprus (and others). The latter last week reportedly informed Russian customers that after two months it would stop providing services to them.
In fact, about 4,000 Russian customers who do not reside permanently on our island and maintain accounts with this Cypriot financial institution have been informed about this. Our newspaper contacted a competent person of the Bank of Cyprus to ask for comment. The same person referred us to the public statement made yesterday by Marios Skandalis, head of the Compliance Division of Bank of Cyprus.
Indicative of the situation, however, are the reports published yesterday in the Russian edition of Forbes, as well as the Russian news agency TASS. The latter publishes a letter allegedly received by a Russian client of Bank of Cyprus.
The letter states: "We would like to thank you for your cooperation with our bank, for utilizing our services to support your business activities. However, due to ongoing changes related to due diligence measures and processes such as the Know Your Customer program. Know Your Customer), as well as after reviewing your account, it has been decided that the provision of banking services is outside the policy We give you two months' notice from the date of sending the letter to close your bank account."
The letter invokes laws and international regulations leading to this measure, while assuring customers that the bank will cooperate in the smooth settlement of the issue.
In reports by Forbes and the TASS agency, it is noted that a mass letter of such letters was sent and that the measure touches "Russian citizens who do not reside permanently in Cyprus and do not have a passport of other European countries".
In particular, Forbes cites two testimonies of Russian customers of Bank of Cyprus, in order to give the general picture of the cases affected by this measure. It cites reports from a person who, through a message on a well-known online platform, claims that he had an account only to pay current expenses, such as electricity and water bills.
Another person claimed to have opened an account with the Cypriot bank to buy real estate. He reportedly claimed, however, that he never transferred money from Russia to Cyprus. However, she received notice of closure of her account.
Forbes also notes that problems with account closures are faced not only by Bank of Cyprus customers, but also by those served at Hellenic Bank and Alpha Bank branches.
TASS news agency records that it requested a comment from the Bank of Cyprus the day before yesterday, but, according to what it notes, it had not received a response until the publication of this report.
It is not clear whether these new Bank of Cyprus measures are related to recent US and British sanctions against a total of 10 Greek Cypriots, six Russian Cypriot passport holders and 18 other Cypriot companies.
However, a competent source active in the sector who has a good knowledge of bank policy told us yesterday that the above development "is not at all irrelevant to sanctions". He also commented that these measures should not be surprising. He referred to an organized effort on the part of the Republic in recent years to improve the profile of the Cypriot banking sector.
Besides, official data obtained yesterday by "F" show that in previous years drastic measures have been taken by banks resulting in their upgrade. According to statistics, between the years 2014-2020, 85,000 accounts of 40,000 persons in Cypriot banks have been closed. This measure had the direct effect of losses of €70 million. on the balance sheets of Cypriot banks.
In addition, in the same period of time, out of about 1,700 clients engaged in the professional services industry (introducers) to foreign investors, banks ended up working with 800. "It was judged that the others were moving strangely. They were either related to sanctioned businessmen, or there were suspicious movements in some accounts," said a person familiar with the data.
Since 2014, Cypriot banks have been fully compliant with the sanctions of the US Department of the Treasury (OFAC). Although only the restrictions imposed by the UN Council and the EU are binding on the Republic of Cyprus (see legislation), they are mandatory for banks, due to the international control mechanism of financial institutions that also transact with dollars (see correspondent banks). In fact, sanctions were also imposed on associated natural and legal persons, with the entrepreneurs included in the relevant lists. The same applies to sanctions imposed by Britain.
What does President Christodoulides expect to find?
Yesterday's new meeting at the Presidential Palace, chaired by Nikos Christodoulides, was held with the aim of ensuring that the Republic of Cyprus complies on the basis of legislation with international sanctions related to the Russian invasion of Ukraine. This is also evident from yesterday's statements by government spokesman Konstantinos Letympiotis, but also from information provided by "F".
As we noted, US and British sanctions are not binding on Cyprus. However, the same is not true for the banking sector of our island. It is, in fact, indicative that the Governor of the Central Bank, Constantinos Herodotou, informed yesterday's meeting at the Presidential Palace that banking institutions proceeded to freeze the bank accounts of natural and legal persons who were on the sanctions lists. He also said that in recent years 43,000 shell companies have closed in Cyprus, 123,000 bank accounts have been closed and today of the total deposits only 2.2% have final beneficiaries Russian nationals.
Indications and information indicate that what the President of the Republic wants to find out is whether Greek Cypriot foreign investment service providers included in last week's sanctions had not complied with the applicable legislation.
In this context, it is expected that what was noted in a report yesterday in the Guardian newspaper will be investigated. While the European Union imposed sanctions against Russian businessman Konstantin Malofeyev in July 2014 (see Crimea), the MeritServus company of Dimitris Ioannidis, who last week was included with his company on Britain's sanctions list, provided services to the Russian oligarch until 2017. He allegedly assisted Malofeyev to have 35 million euros in transactions by spring 2017. Meritservus, however, officially told the Guardian that it had informed the Institute of Certified Public Accountants of Cyprus (ICPAC) in 2017 when it found that Malofeyev was on a sanctions list and that the company had never committed any wrongdoing. However, Cypriot legislation making compliance with EU sanctions mandatory has been in force since 2016.
So far, no action has been taken by government agencies on the basis of the US and UK lists published last week. The data will change if the sanctions are adopted by the European Union. As an example, the Registrar of Companies will immediately put business entities on ice.
BEHIND THE LINES
The normal development...
On April 19, 2019, U.S. Assistant Secretary of the Treasury Marshall Billingsley met in Cyprus. Billingsley had seen the then Foreign Minister and current President of the Republic, Nikos Christodoulides, as well as Haris Georgiades, who held the portfolio of the Ministry of Finance. In fact, during his visit to our island, he spoke of Cyprus' "enormous progress" in the banking sector. This was due to the efforts of Cypriot banks to raise their profile and their close cooperation with the US authorities to combat money laundering. The immediate response of Cypriot banks after the US sanctions, therefore, is the normal course of events.
