Russian « fishing » could hurt Cyprus reputation

Financial Mirror

Will the Attorney General betray confidentiality?

Russian investors and local business service providers are growing increasingly worried that Cyprus’ eagerness to satisfy the Kremlin’s demands for lifting of confidentiality in exchange for a multi-billion euro bailout could jeopardise the island’s reputation as a leading financial services centre.

Recent developments involving Russian-interest companies in Cyprus and the authorities’ willingness to hand over confidential information about shareholders, directors and their assets to the government in Moscow suggest that the current administration’s relations with the Kremlin are much closer than anticipated.

These relations obviously go beyond the 2.5 bln euros Russia loaned to Cyprus on favourable terms earlier this year and another 5 bln euros it hopes to get soon after being shut out of international financial markets for more than a year in part because of fiscal slippage.

The biggest concern is that the authorities in Russia, that had until last year stubbornly refused to remove Cyprus from its black list of tax jurisdictions, could deploy « fishing expeditions » to track down information about critics of Vladimir Putin’s regime, allegedly on the grounds of national security.
One such case is the lawsuit filed in Limassol by George Philippides, a director of the services and management company Oneworld, against Mikhail Kuzovlev, the president of the Bank of Moscow that used to be headed by Yuri Luzhkov, the former mayor of Moscow who was removed from office by Putin and replaced in the bank by its board in a « politically motivated persecution ».

Kuzovlev alleged mismanagement at the bank and implicated Cyprus investors, a fact which was proven wrong as Oneworld said in a statement that « the Cyprus companies have transferred to Bank of Moscow all the assets which they have acquired through their loans, thus repaying all their debt obligations to the bank. »

Another case took place in 2003 when tremendous pressure was brought upon the Cyprus government by the Russian authorities to disclose confidential information relating to the Yukos-Khodorskovsky case for alleged tax evasion and money laundering. At the time, the Cyprus government as well as the Central Bank refused to give in to the Kremlin’s pressures citing perfectly legitimate reasons. This stance won Cyprus much respect and proved a significant catalyst in the increase of international business to date.

However, this policy seems to have changes, according to John Mavrokordatos, a Nicosia-based chartered accountant.

« Already, requests for confidential and personal information from the Russian authorities are granted by the Cypriot authorities and enforced by the Cyprus anti-money laundering unit [MOKAS] without a problem and recourse to Cypriot law, especially the one relating to confidentiality and non-disclosure as enshrined in the Cyprus constitution, » Mavrokordatos said.

« There is no doubt that once this government policy becomes known amongst Russian (and non-Russian) clients, the services sector will experience a huge flight of clients, together with their capital to more secure jurisdictions. This will be a devastating blow and cause irreparable damage to this vital sector and the economy at large, creating huge liquidity problems for the local banks, » he added.

« Cyprus’s international credibility is being gravely undermined and will be totally destroyed under the present government. »

At stake, according to Mavrokordatos, are the billions of euros collected from VAT, income and defence taxes that have bolstered state finances over this period, as well as the large cash deposits placed in the Cyprus banks by these international companies (estimated at over 30 bln euros) which have provided local banks with much needed liquidity and shielded them from the financial crisis experienced over the past five years.

The Institute of Certified Public Accountants of Cyprus (ICPAC), representing 3,000 accountants and auditors, discussed the issue at its board meeting this week and is expected to draft a policy which it will discuss with members.

« There is now doubt that we support the fundamentals of Cyprus law and respect and cooperate with all state officials on all matters related to the Attorney General’s investigations into companies and individuals, investigations by MOKAS into money laundering and any other illicit business practices, » said a senior ICPAC member.

« However, we cannot tolerate this ‘fishing expedition’ that will jeopardise all that we have worked for and the good reputation Cyprus has built up over the years, » he added.

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