A COUPLE of weeks ago, Cyprus was paid a visit by the US Treasury Department’s Assistant Secretary for Terrorist Financing Marshall Billingslea, who met the Finance Minister, Foreign Minister and Governor of the Central Bank.
The visit did not receive much media coverage, but the US embassy’s website posted statement, which said Billingslea discussed “the positive improvements and reforms that Cyprus has made in its anti-money laundering regulations and regulatory oversights,” with the officials and “explored areas where the US and Cyprus can continue to partner to fight threats to the international financial sector.”
The statement also mentioned the need for a “strong and well-regulated banking sector,” but a clearer indication about the nature of the discussions was given by the following: “It is vital that illicit actors know that Cyprus is not open for business. The US was encouraged by the commitments made by Cypriot officials today and will continue to work together to combat and corruption, money laundering and other financial threats.”
Who are these “illicit actors” the US Treasury is so concerned about, it sent an Assistant Secretary to tell the Cyprus authorities that it should turn them away? Could he have been referring to the Russian businessmen that make up the main clientele of auditing firms and law firms and are granted citizenship when they buy an expensive property?
It was no coincidence that immediately after Billingslea’s visit, the Cyprus Bar Association and the Institute of Certified Public Accountants of Cyprus (ICPAC) issued circulars to their members advising them to be more diligent in scrutinising the activities of their clients, applying anti-money laundering regulations properly and avoiding doing any business with individuals or businesses on the US sanctions lists. ICPAC advised members to “remain alert for possible reports concerning new sanctions and high-risk individuals.”
The Cyprus Securities and Exchange Commission (CySEC) also issued a statement warning the entities it supervises to study the US sanctions list and “avoid the commencement of a business relationship with such a person (on the list).” In the case of existing clients on the list, CySEC companies were “urged to carefully examine the action (or) measure which they may have to take,” which included the freezing of funds and accounts.
Meanwhile the Central Bank issued another anti-money laundering directive to the banks, the compliance departments of which are under unrelenting pressure from the supervisor. The Bank of Cyprus, which had one of the Russian individuals included on the US sanctions list issued last month, as its client is believed to have frozen his accounts. The bank has closed accounts of other individuals and terminated the practice of customer introducers, usually law and audit firms.
It is very clear the US turned the screw on the Cyprus authorities, which are now desperate to show that they are following the US ‘advice’. This, however, will not be achieved by issuing circulars to members warning them not to deal with individuals and companies on the US sanctions list. Much more drastic action than this would be expected from the Americans, Billingslea, reportedly, also raising the issue of the citizenship by investment scheme, as one of the Russian billionaires on the sanctions list possesses a Cyprus passport. There are probably other Russian businessmen with Cyprus passports the Americans are interested in.
Cyprus has not been singled out by the US, which is moving against financial centres, primarily connected with Russian business, all over the world. Billingslea has also been to the Lebanon and Latvia. That there is a US policy aimed at dealing with what the Americans described as “threats to the international financial sector” should be very worrying for Cyprus as it suggests the matter will not be forgotten, once a couple of measures are implemented by the authorities. The country will be closely watched and expected stay in line with the US policy. It could be argued the US has no right to interfere in this way in the affairs of a sovereign state, but the government knows the consequences of ignoring the Americans are too frightening to contemplate.
Cyprus has implemented all the anti-money laundering directives issued by the Central Bank and the banks follow all the rules regarding money transfers and the monitoring of bank accounts, but it still remains a financial centre, for Russian businesses many of which seem to be of primary concern to the US Treasury. The citizenship by investment scheme, although a big boost to the economy, has only made matters worse as it has attracted wealthy Russians of interest to the US authorities.
It may sound alarmist to say the new US policy, aimed at Russian business interests, could threaten Cyprus’ economic model, on which growth is based, but our government needs to take it very seriously if it wants to avoid the worst consequences.