Sanctions leave Cyprus’ economy reeling

As Cyprus braces for an almost inevitable new wave of sanctions to hit soon, the government conceded on Wednesday the effect on Cyprus’ services sector has been detrimental.

The impact goes beyond just the service sectors. Scores of people have lost their jobs, and companies shut down, but more controversially – clients of sanctioned entities have also seen their bank accounts frozen.

Spokeswoman for the bar association Georgia Constantinou Panayiotou, told the Cyprus Mail what was happening was in fact “overcompliance.”

“Fear creates inaction. No one signs anything, no one does anything at this point”.

On the ground, the effects of the first tranche of sanctions left individuals and companies reeling, while the government has been slammed for its modus operandi to approach decision-making through a political lens. It is accused of creating a hot-potato situation of inaction, amid accusations that this has worsened the impact on employees who had nothing to do with sanctions.

Considering Cyprus’ questionable history and international reputation with Russian money, this could also explain the government’s move to be extra-cautious.

The confusion stems from the fact that banks in Cyprus have moved to freeze accounts of clients tied to sanctioned entities. This also encompasses clients that used the now-sanctioned firms for licensed administrative services including trustee, directorship or nominee shareholders.

As a result, this has created a rush to cut off connections with sanctioned entities and have this change illustrated through the company registrar. The registrar in turn, says it cannot do anything because it is waiting for a government decision.

Permanent secretary of the finance ministry George Panteli explained many companies have been indirectly affected by the US and UK sanctions. “Companies which potentially have directors or secretaries that are sanctioned,” are also affected.

He said the attorney-general had opined on the matter and the ministry is likely to offer further direction by the end of the week.

Panayiotou puts it differently: companies that became clients of these (sanctioned) firms by receiving services have also been hit. Due to the chain, it is impossible at this stage to say just how many employees have been unable to get paid as it is no longer only staff at sanctioned companies – but those of clients too, she specified.

Registrar of Companies and Intellectual Property, Irene Mylona-Chrysostomou told the Cyprus News Agency there have been 500 applications from companies seeking to remove any connection to sanctioned individuals and entities, while there was a slew of phone calls on a daily basis seeking clarifications.

The registrar however has its hands tied as it awaits guidance from the government.

“We are examining the matter and expecting direction based on the government’s decision on what its policy will be on US and UK sanctions,” Chrysostomou said.

Panayiotou, who is also a certified specialist on Russia sanctions (CRMS-RS) however stated it is not a matter of a political decision.

Though there may be fears that some clients may be connected to the Russian oligarch investigations, the sanction measures are clear, Panayiotou explains.

“They should not extend to a certain category of client companies whose actual ownership is also proven through the Registry of ultimate beneficial owners maintained by the registrar of companies since 2022.

“This cannot be a political decision when it comes to legitimate, compliant clients with absolutely no family connection, business relation or ownership/control associated with the sanctioned entities or oligarchs. Such clients – which have decided to disengage from the sanctioned firms – should be allowed to do so, and not have their accounts frozen until a political decision is made,” she adds.

Panayiotou specifies the sanction measures from the US apply on both sanctioned entities and other entities blocked when they meet the ownership criterion set out. For the UK they apply on both sanctioned entities and other entities blocked when they meet both the ownership as well as the control criteria set out.

According to Panteli however, the matter is very much a political one. “Legally, the sanctions are not obligatory for Cyprus to implement,” because the legal framework on the island only makes EU and UN sanctions obligatory, he told the state broadcaster.

“As such, there is no legal basis here. We must see the political element.”

In any case, the effects cannot be denied. “Demand for the services sector has slumped. There is no longer the same interest as there used to be.”

Meanwhile, the chairman of the bar association Christos Clerides has written to the president saying the stalling was unacceptable. “The AG’s opinion was completed on Friday and they’re still studying it.”

He also called on the president to share the data of the second tranche of sanctions sent from the US sanctions.

The delay with the company registrar’s inaction is also why there have been a slew of reports of a Vassiliades-owned restaurant accepting payment in cash only. Demetris Vassiliades was sanctioned by both the US and UK and all his businesses ranging from his winery to eatery, have seen their bank accounts frozen.

However, the CEO of Bank of Cyprus Holdings Panicos Nicolaou said earlier this week during the financial presentation of Q1 results, that banks have no right to make any exceptions that can enable employees to get paid.

Banks are requesting certificates from the company registrar illustrating no connection with sanctioned entities, while the registrar is unable to do anything, and the government must be the one to clarify what can or should be done.

The Central Bank of Cyprus governor previously told MPs at the House institutions committee that ignoring the sanctions would have been catastrophic to economy and would have risked an exodus of investors.

The confusion comes amid rumours that have circulated that a new wave of sanctions is set to come on Friday. The news is in line with the US’ “no surprise policy” which aims to inform states privately before the developments are announced publicly.