Like a hidden vault

The likelihood of seeing meaningful capital statements published in Cyprus is slim

On Monday, September 13, the statements of wealth of members of parliament elected in May were uploaded onto the internet site of the House of Representatives. They are useless documents, and it is not worth spending time to study them. Admittedly, this is mainly due to the deficiencies of the legal framework within which they are drafted.

Many of these deficiencies are readily apparent even to the uninitiated. For example:

• The date of filing is cited but the date as at which these statements were compiled is nowhere to be found.
• Many of the returns have been completed by hand and are in many cases illegible.
• No subtotals / totals are provided, making the validation of the mechanical transcription of the numerical information impossible.
• In some cases, the information required is not provided and, instead, reference is made to attachments (on which the information is presumably reflected).
• The information provided in respect of investments is often confined to the name of the investee and the number of the shares or units held (by itself, a meaningless piece of information).
• The information provided in respect of numerous captions clearly indicates a complete lack of understanding of what is required.
• In some cases, a range of values is given and it is up to the reader to determine the appropriate value.
• In many cases, the year of acquisition of the declared assets is missing.
• In many cases, no information concerning the cost of acquisition of particular assets is given. Without this information the statements of wealth filed cannot be “bridged” in a meaningful manner.
• No reference is made to – let alone no quantification is provided of – the family living expenses of the politically exposed person. Without this information and certain other basic data, we will never be able to draw any meaningful conclusion from the celebrated “pothen esches” exercise. It will thus continue to be a waste of time and money.

The basic requirements that will enable the system to function properly are:

• The person filing must bridge the statements of wealth with the family income and the family outlays himself/herself.
• The reference period of the bridging process must (for practical reasons) be the calendar year.
• The reported values must be the historic cost of the reported assets.
• The belief of certain persons that the euros held (in hand or at the bank) are “ear-marked” and that the origin of each and every coin can be traced back to its source is a conceptual fallacy, which must be demolished. The tracing of the source of cash and cash equivalents can only be sought on a global annual basis. It is true that the period examined can extend over more than one calendar year, but the longer the period, the more difficult the exercise becomes.
• The forms used for reporting the various assets and the liabilities and for bridging two consecutive statements must be standardised and they must be fully computerised. Filing financial returns in a hand-written form is a practice that is associated with the stone-age.
• The management of the “pothen-esches” system must be entrusted to an independent authority comprising a three-member council of experienced accountants, appointed by the cabinet of ministers and ratified by the legislative and judicial arms of the state (say, for a term of three years) and by a very small team of permanent employees. This function must be totally independent of the political establishment to ensure that they can retain their independence, not merely in terms of form but also in terms of substance.
• To be meaningful, the statements compiled must include the assets and the liabilities of spouses and underage children. Otherwise, it is like having a hidden vault in your home, where you can easily hide all your valuables.
• They must also include all the assets that are beneficially owned by the politically exposed person, irrespective of the fact that the formal ownership of the assets may be under the name of somebody else (for example, under the name of a trustee).

Having reviewed many of them uploaded on the parliament website, I have come to the conclusion that these statements are not “auditable”. The principal issue, which must be addressed prior to undertaking any audit (verification) work that would confirm that the information provided is correct, accurate and complete, is the objective inability of the reader of these statements to draw any meaningful conclusion concerning the “pothen esches”, i.e. to confirm the legitimacy of the economic transactions entered into by the politically exposed persons.

Merely confirming that the information provided is, in fact, correct is not sufficient. Clearly, an auditor cannot audit information, which has not been placed at his/her disposal nor can the auditor be turned into a bloodhound. Certainly, an auditor is not permitted to re-compile the return, for and on behalf of the politically exposed person. If the auditor were to do that, he/she would become an accountant of the person filing the return and he/she would cease to be an independent and impartial auditor. This would clearly be an undesirable situation.

My conclusion? The likelihood of seeing meaningful capital statements of the politically exposed Cypriots being published and of a satisfactory “bridging” of their “before” and “after” net worth being provided in the foreseeable future appears slim. For as long as technically deficient persons committed to maintaining the status quo insist on driving the process and on re-inventing the wheel, corruption and collusion will keep marching on in Cyprus.

Christos Panayiotides is a regular columnist for the Cyprus Mail, Sunday Mail and Alithia