CBC Governor on sanctions: Financial stability intact; Cyprus’ reputation not
08:19 - 11 May 2023
The inclusion of Cypriot persons and entities in the US-UK sanctions for assisting Russian oligarchs following the war in Ukraine has not impacted the country’s financial stability as yet, Central Bank (CBC) Governor Constantinos Herodotou told MPs, though he added the same can’t be said for Cyprus’ reputation.
He was addressing the House Institutions Committee, which tabled the matter for discussion. And he said that even though Cyprus is not legally obliged to comply with the sanctions, failure to do so would be detrimental for the economy.
“Although there is no legal framework for mandatory compliance with the US sanctions, non-compliance would have very negative consequences on the economy,” Herodotou said.
The US and the UK have added a number of Cypriot persons and entities to their sanctions lists, accusing them of helping sanctioned Russian citizens to carry out transactions. Although the Republic of Cyprus implements sanctions by the EU and the UN, the banking system has opted to comply with US and UK sanctions and as a result has frozen the accounts of the sanctioned Cypriot natural persons and entities.
As he noted, if a bank does not freeze the accounts of persons included in the sanctions then the bank would be deemed in violation of the sanctions and the banking institution as a whole could be considered as a designated entity.
“If this were to happen it would be detrimental not only for the bank but for the country because we would be stigmatised,” to the extent that investors would leave, triggering a domino effect of dire consequences, Herodotou said.
As he explained, if a bank is sanctioned by the US, it loses access to US dollar transactions, which could potentially discourage new investments while also prompting current investors to leave Cyprus.
He also said that the relevant law includes secondary sanctions that allow the US to prosecute those who facilitate persons included in the primary sanctions list.
According to Herodotou, the Cypriot banks’ general guidelines are that they comply not only with the EU and UN rules, but also those of other countries.
On the issue of the frozen accounts, Herodotou said the CBC has called on commercial banks to expedite the due diligence process and unfreeze accounts where appropriate, without placing any banking institution at risk.
Herodotou also contradicted the numbers mentioned by EU Justice Commissioner Didier Reynders recently regarding the amount of Russian assets that were frozen in Cyprus, saying Russians’ deposits in the Cypriot banking system amount to €50b and not €96b.
Georgia Themistocleous, member of the sanctions team at the Ministry of Finance, said all the data relating to the UK/US sanctions had been conveyed to the Attorney-General, and that the Ministry was currently drafting a reply to the EU regarding the total investments in Cyprus before and after the sanctions.
Meanwhile, Attorney General Giorgos Savvides’ failure to attend the session, despite being invited to do so, angered MPs, especially given that he did not even send a representative. As the Committee Chairman, DISY’s Demetris Demetriou, said, Savvides had the option of asking for the session to be held behind closed doors. But decided to not show up. And so, the MP said he would be writing a letter of complaint to the Law Office of the Republic.