Cyprus Mail

UPDATE: Attorney-general lips sealed over CBC affair

CBC chief Panicos Demetriades

By Elias Hazou

ATTORNEY-general Costas Clerides declined on Monday to confirm or deny reports that he intends to press charges against Central Bank governor Panicos Demetriades.

Earlier in the day, daily Alithia said the AG was gearing to prosecute Demetriades in connection to a contract concluded between the Central Bank of Cyprus(CBC) and consultancy firm Alvarez & Marsal. Criminal proceedings against Demetriades would be launched within days, the paper claimed.

But a written statement released by Clerides’ office in the afternoon read: “Because he has repeatedly been asked by the media to confirm or deny [these] reports, the Attorney-general would like to state that his office is trying to complete his duties in a confidential manner for obvious reasons. Therefore, any leak of any information false or true of the Attorney-general’s intentions, does not oblige him to confirm or deny any such publications.”

Likewise, deputy government spokesman Viktoras Papadopoulos withheld comment, deferring to the Attorney-general.

“The Attorney-general is… the sole competent official who, should he deem that there exists evidence for any crime, may prosecute, or not, any person against whom any offences are being investigated. This is the government’s position and the government has nothing more to say,” Papadopoulos said.

Asked whether the Attorney-general has briefed the President on his intentions – as also claimed by the same press reports – Papadopoulos responded that he was unaware of any such communication.

Speaking to the state broadcaster, Demetriades’ attorney George Papaioannou said he had not been informed by the Attorney-general on the prospect of his client being prosecuted. The lawyer said that, following the newspaper’s publication, he has asked the AG in writing to confirm whether the reports are true and was still awaiting an answer.

Commentators, meanwhile, suggested that the report was engineered to pressure Demetriades into resigning. Alithia is known to be a pro-DISY publication.

The poor relations between the government and the central bank chief – appointed by the previous administration – have been well documented, amid prior reports that Demetriades was offered a severance package to leave quietly.

Last month, the Attorney-general asked police to take additional affidavits as part of a probe into an agreement between the central bank governor and consultants Alvarez & Marsal.

Sources, wishing to remain anonymous, have confirmed to the Mail that the police probe has been wrapped up, but they declined to comment further.

The investigation was launched in late October following media reports that Demetriades had agreed to pay A&M a 0.10 per cent fee on any amount needed to recapitalise the banks, including when cash was seized from depositors.

The deal was allegedly signed after the Eurogroup decided to seize depositors’ cash to recapitalise banks.

Last month’s instructions from the AG came after Clerides studied the investigators’ report.

An internal CBC audit, leaked to the media late last year, concluded among others, that Demetriades had withheld information and agreements signed with A&M, misled the CBC board, committed millions that were not budgeted, and without the approval of the board signed an agreement to pay the consultancy a “success fee” after the fact, and awarded jobs to one company without a tender procedure.

Perhaps ironically, the police probe was initiated after Demetriades then charged the central bank board of directors of leaking confidential documents without authorisation.

A key finding of the CBC audit related to a deal between Demetriades and A&M, whereby the latter would be awarded a “success fee”. The wording was subsequently changed to “recapitalisation fee.”

The consultancy was also awarded the contract to negotiate the sale of Cypriot bank branches to Greece’s Piraeus Bank.

According to the CBC’s damning report, the arrangement points to a “huge” conflict of interest: “The lower the sale price, the higher the haircut and the recapitalisation fee claimed by the company.”

On March 16 last year, the Eurogroup decided to impose a levy on all bank deposits in Cyprus to recapitalise Laiki Bank and Bank of Cyprus. This was rejected by parliament.

On March 23, the central bank boss struck two additional deals with A&M.

One was for the restructuring of the Cypriot banking sector, the other for its recapitalisation.

This was two days before a second Eurogroup meeting decided to close Laiki and seize uninsured customer deposits to recapitalise BoC.

Demetriades had effectively authorised A&M — allegedly without the central bank board’s permission – to handle the recapitalisation of Cypriot banks and the sale of their Greek operations.

On March 28, Demetriades also agreed to afford A&M a “recapitalisation fee” of 0.10 per cent of the total gross capital benefit into the banking system.

It was backdated March 23, two days before the Eurogroup ‘bail-in’ decision.

It’s understood that it is precisely this backdating which now provides the grounds for charges of forgery to be brought against the central bank boss – assuming the Alithia report is accurate.

According to the CBC’s internal audit, the agreement “obliged the CBC to possibly pay a recapitalisation fee of many millions without at least exempting the bail in — as the bank’s external legal adviser had suggested — knowing that it was preceded by the March 25 Eurogroup decision to recapitalise banks through a bail in.”

After that report had been leaked, Demetriades claimed he signed the March 28 agreement under duress.

His copy stated, in English: “Signed under duress. Mr. Hirsch [Hal Hirsch, A&M Head of Global Asset Risk] threatened to move the entire Alvarez team out of Cyprus at the peak of the crisis if I did not sign.”

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