Once an individual acquires a bad reputation, hard as he might try, it is very difficult to shake it off. The same seems to apply to a state, as Cyprus found out after the publication of the indictment file of Paul Manafort, the former campaign manager of President Trump, charged by the US authorities with, among other things, money laundering, tax evasion and acting as an unregistered foreign agent. According to the indictment, Manafort and his partner Richard Gates owned or controlled a dozen companies registered in Cyprus through which they moved tens of millions of dollars.
Having thought it had cleaned up its act and got rid of its reputation as a money laundering centre, earned in the nineties and noughties, Cyprus last week had to face its rather shady recent past. Reports in the international media referred to the alleged laundering of funds by Manafort and Gates through various foreign countries, including Cyprus, Saint Vincent and the Grenadines and Seychelles. All the good work done by the government in the last few years, to establish Cyprus as a reputable financial centre, vanished into thin air, the Manafort case giving the impression abroad that nothing has changed.
Nobody has examined the dates when the money transfers took place through Cyprus – the indictment said between 2006 and 2016 – and whether these had gone through the banking system. The locally registered companies may have transferred funds through banks based in other countries. Several accounts held by companies owned by Manafort in the now defunct Laiki were reportedly closed in 2012 because they had failed to meet anti-money laundering requirements. Three remaining accounts with Laiki that were moved to the Bank of Cyprus, when it took over the former’s portfolio, were closed in 2014. None of this was taken into account by media reports on the latest case, which finance minister Harris Georgiades said did not ‘do us justice’, because they ‘relate to cases of the past’.
He had a point, when he said on Thursday: “I do not believe recent media reports do us justice because they overlooked extensive efforts made. In fact I would claim that no other jurisdiction has been through such independent scrutiny as we have.”
This was no exaggeration, considering Cyprus ranked top for transparency in a report by Transparency International this year, disclosing the most complete set of anti-money laundering (AML) data among 12 countries, including the US, UK, France and Germany.
The Cyprus AML law was revised at the end of 2013 in line with the EU’s Fourth AML Directive, even though it did not have to be implemented until this year. Strengthening Cyprus’ AML rules was a requirement of the 2013 memorandum of understanding and Cyprus’ banks promptly reviewed their entire client portfolios and slashed the high-risk ones.
The real problem for Cyprus is that despite the tightening of AML regulations and the strengthening of the banks’ compliance departments it has still not done enough to change the old perceptions. The Anastasiades government avoided co-operating with France in an investigation into alleged money laundering of tens of millions of dollars by Russian officials, reported by American investor Bill Browder, for fear of upsetting Moscow. But when Moscow wanted to investigate Browder for alleged money laundering – a request turned down by EU countries and Europol because the probe was regarded as politically motivated – it was quick to oblige. Such decisions, which receive extensive coverage internationally, undermine Cyprus’ efforts to present a new face to the world and raise suspicions that it is still being used for laundering by Russian oligarchs.
Meanwhile, the failure to prosecute any high profile case for money laundering has not helped either. Justice minister Ionas Nicolaou issued an announcement on Thursday saying that from 2011 to 2015, ‘we had 403 cases and 91 individuals were sentenced on money laundering charges’. The suspicion is that the stats related to petty offenders, because no high-profile lawyer, banker or businessman has ever been charged in Cyprus for money laundering. The failure of the authorities to prosecute suspected offenders and their accomplices does not support the image we are trying to promote, even though we now have a stricter regulatory framework than most EU countries. Without any prosecutions it is difficult to convince outsiders that we have completely cleaned up our act and are clamping down on money launderers, even if this is actually the case.
Nor is it helpful to claim, as the Chairman of the Institute of Certified Public Accountants of Cyprus, Marios Skandalis, did on Wednesday, that the latest reports were the work of competing countries trying to take business away from Cyprus’ financial sector. This nonsense – the money laundering reports were sparked by the Manafort indictment – of blaming outsiders for problems we have caused ourselves after years of bad practices needs to stop if we are to restore the country’s reputation. What has happened this week should be seen as a warning against complacency and a reminder that we have not done enough yet to discard the bad reputation the country had earned over the years.
It is obvious that much more than tightening the regulatory framework needs to be done for Georgiades achieve his aim of ‘clearing our name and fully restoring our reputation’.