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Ignoring US and UK sanctions would be ‘catastrophic’ to Cyprus’ economy

Central bank governor Constantinos Herodotou

Furore over AG’s absence from House committee

There has been no impact to Cyprus’ financial stability as a result of the sanctions, only to its international reputation, Central Bank of Cyprus governor Constantinos Herodotou said on Wednesday.

Speaking to MPs at the House institutions committee which tabled the matter, Herodotou specified there is no legal framework that requires Cyprus to implement UK and US sanctions.

Not doing so however would have been detrimental to the economy.

Much to the ire of some deputies, Attorney General (AG) Giorgos Savvides did not attend the session, despite being invited to do so.

“He has made it clear that he does not believe he is obliged to come to parliament. And this reveals arrogance and that parliament itself must deal with the uncontrollable actions by the AG who acquits whoever he wants and covers up for whoever he wants.”

Committee chairman and Disy MP Demetris Demetriou said “not only did he refuse to come, he didn’t even send a representative.”

Demetriou said the AG had the option of attending the session and to hold it behind closed doors. Nonetheless, following the developments he would be writing to the legal service.

Mass exodus of investors

Herodotou told deputies that despite the fact Cyprus is only legally obliged to comply with EU and UN sanctions, any bank which chooses not to freeze accounts of sanctioned individuals or companies can be considered to be violating the sanctions.

As a result, banks become a designated entity. This would be catastrophic not only for the bank but for the entire country, as it would stigmatise Cyprus risking an exodus of investors and much more.

Having a bank under US sanctions will mean losing access to the US dollar, which could easily deter new investments, Heredotou added.

The governor explained the US also has secondary sanctions targeting those on primary sanctions list.

Additionally, the general terms banks operate in, specify that when new accounts are opened, they will comply with EU an UN conditions, as well as those from other countries.

No risky moves

Commenting on the fact that relatives of sanctioned individuals also had their banks accounts frozen, Herodotou said banks have been called to look into the matter as long as the banking institution is not put at risk.

Responding to questions, he said there is a possibility of having certain exceptions, for instance allowing for wages to be paid but this must be done through a procedure with US authorities and not a bank in Cyprus.

Herodotou said there was no issue of whether the legal framework is sufficient – it is implementing the law and ensuring penalties that make sanctioned individuals feel the consequences that is important.

Nonetheless, there is no saying what the effects of a feared second tranche of sanctions may include, the governor told deputies.

Evangelos Savva, representing the foreign ministry during the committee made a point of saying many countries were sanctioned and that Turkey is ‘everywhere’ on the sanctions.

EU got it wrong?

He told deputies the ministry would be sending a letter to the EU Commissioner for Justice Didier Reynders over ‘mistaken information’ he had over Cyprus’ low amount of sanctioned Russian assets.

During his visit to Cyprus last week, he expressed concern that assets worth €104 million have been frozen which “seems to be a little low” compared to other EU member states that have frozen between €2-4 billion of Russian assets, of sanctioned individuals.

The commissioner also cited statistics by Cyprus’ Central Bank saying that in 2020 alone, the country received €96 billion in Russian investments. Savva however said the number is much lower at €50bn.

A representative of the finance ministry said they would be sending the commissioner a letter detailing the error.

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