For Cypriots, it was a collective “here we go again” moment.
In April, the U.S. and the U.K. included a handful of Cypriot nationals and Cyprus-registered companies on a list of “enablers” helping Russian oligarchs skirt sanctions. It was an unwelcome reminder of the lingering perception that the island nation somehow remains Moscow’s financial lackey.
For years, authorities in this tiny European Union member country have tried hard to shake that reputation, partly buttressed by a 2013 financial crisis when all eyes were on Cypriot banks flush with Russian cash. At the time, nearly a third of the 68 billion euros in deposits — more than triple the country’s entire economy — was held by Russians.
That was compounded by a badly structured and shoddily executed citizenship-for-investment program. For more than a decade, it generated billions by handing Cypriot passports — and by extension access to the EU — to hundreds of wealthy Russians and others, with some taking advantage of lax vetting procedures to cover up a shady past.
That program was scrapped three years ago amid allegations that it abetted money laundering. An independent commission concluded in a 2021 report that Cypriot authorities unlawfully issued passports to relatives of wealthy investors. Over its 13-year run, the program granted 7,327 citizenships — more than half to investors’ family members.
The Cyprus government has since begun revoking citizenship in the most egregious cases. So far, revocation procedures have begun for 68 investors and 165 family members — most of them Russians.
With that checkered past, the Apr. 12 announcement – and another on May 19 — set alarm bells ringing in Nicosia. The U.S. and U.K. were including Cypriot lawyers, businessmen and companies on a list targeting a “sanctions evasion 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 assurances that the country was now firmly on the straight and narrow.
“When there’s a rotten apple … it must be removed. And I repeat, we’re not here to offer cover to anyone. I want to be perfectly clear,” President Nikos Christodoulides recently told reporters in response to criticism that he’s bending to the will of London and Washington.
Even U.S. Ambassador Julie Fisher weighed in to calm frayed Cypriot nerves. In an interview with daily Fileleftheros, last week, Fisher said the sanctions were less about punishing Cyprus for past — or present — misdeeds than going after those who are helping Russian President Vladimir Putin prosecute his war in Ukraine.
“We are not trying to target Cyprus, or Cypriot persons, or entities,” Fisher said. “What we are trying to do is go after networks. We are going after oligarchy networks, Kremlin-controlled networks and those that are enabling the illicit finance regime, the money laundering, the sanctions evasion.”
Networks or not, sanctioning Cypriot individuals and business was another blow to the island’s reputation. Finance Minister Makis Keravnos said there was an upside in that it affords authorities an opportunity to clean house.
Keravnos said the government sees this as “an opportunity to clear Cyprus’ name once and for all.” Cypriot authorities have requested, and received, detailed information from Washington and London about Cypriot individuals and legal entities on the list to determine whether they also evaded EU sanctions. That probe is still ongoing, with Attorney-General George Savvides saying little to nothing because “our country’s credibility is at stake.”
Some of these Cypriot enablers are lawyers and accountants that U.S. and U.K. authorities allege help shuffle assets for Russian oligarchs through a web of trusts and shell companies.
Both the Cyprus Bar Association, which regulates 4,362 lawyers and 1,963 companies as well as the Institute of Certified Public Accountants of Cyprus (ICPAC) which counts 5,700 members and some 1,100 licensed entities, have told The Associated Press that they have in place robust supervisory procedures – including on-site inspections — to ensure their members comply with sanctions regimes.
A corollary problem triggered by the sanctions affected scores of employees at more than 600 companies where payrolls were stopped when Cypriot banks froze their accounts. Some of these companies are law offices, trusts or involved in a broad range of business activity such as real estate, marine, aviation and secretarial services.
It’s unclear exactly how many workers have been left in the lurch because many of these companies employ no more than a skeleton administrative staff.
Nonetheless, it’s understood many remain unpaid weeks after the sanctions announcement, despite a government decision to unfreeze accounts and “normalize” a situation that Keravnos conceded had unsettled the financial services sector.
Registrar of Companies Irene Mylona-Chrysostomou told the AP that the way this works is by replacing the directors of a company whose boss is on the sanctions list. Banks would then unfreeze accounts to the new, unencumbered “directorship.”
Mylona-Chrysostomou said “most” of the companies affected by the Apr. 12 announcement have changed their directors. Her organization is in the process of making those changes to a few hundred more affected by the May 19 announcement.
Whatever the impact on the Cypriot economy from a flight of Russian business, authorities are banking on the island nation’s resilience to weather the storm, just as it did following the 2013 financial crisis.