Our View: Is Cyprus under pressure to stop offering services to wealthy Russians?

After someone praised the government’s prompt and decisive response to the sanctions imposed on Cypriot nationals by the UK and US governments last April, in a conversation with a top ranking official at the finance ministry, the latter smiled and said this was only the beginning. “The Americans,” he said, “want us to dismantle the whole system that provides professional services to Russian businessmen. They want us to stop registering Russian companies and stop them setting up offices here.”

Although nothing has been mentioned publicly, the government must be under significant pressure from the United States to gradually end the provision of professional services to wealthy Russians, many of whom have close links to President Putin and act like his agents abroad. The Cyprus Confidential files, a cache of 3.6 million records leaked to the Washington-based International Consortium of Investigative Journalists (ICIJ) and Germany’s Paper Trail Media could have been another way of forcing the Cyprus government to act, while also pushing the European Commission to apply pressure. The ICIJ and international media ran several detailed stories, based on the leaked records, on how Cyprus professional service providers were managing the money of the wealthy Russians.

Perhaps the government is not considered to be moving fast enough in tightening its controls, even though it has sought the UK’s help to prepare the legal base and structure for all the measures needed to monitor and ensure compliance with sanctions and expects to have the first stage completed by the end of the month. By the end of the year the Unitary Supervisory Authority that will monitor law offices, auditing firms and financial services providers will also be set up, in another government move to show that it is tightening its control over the sector serving the oligarchs.

Some of the facts presented by ICIJ, although dismissed as nothing new by the government, illustrated the scale of links between Cyprus and Russian oligarchs. It said that Cyprus professional services were working on behalf of 71 Russians who came under sanctions since February 2022. It also reported that “among the 104 Russian billionaires Forbes magazine identified in 2023, two-thirds – a total of 67 individuals – also appear in Cyprus Confidential documents, along with their family members, as clients of the island’s professional services providers.”

These are staggering numbers, which also highlight the difficulty the government would have in its efforts to terminate, or at least scale down, such lucrative business, assuming this is its objective. It may be that its priority is to ensure compliance with sanctions rather than to dismantle a very lucrative sector, which the US as well as the European Commission sees as offering Putin’s mega-wealthy friends and allies a gateway to Europe. The provision of these services is not seen as strictly business in the West, as they are considered to have a political dimension, dealing with which has become an imperative since Russia’s invasion of Ukraine and the return to a Cold War-type period.

This is what is at stake for the West and the reaction of finance ministry officials, politicians and commentators to the ICIJ reports missed the point in complaining that they offered nothing new. Finance ministry permanent secretary Giorgos Panateli said he expected to see “something more powerful, but it was republication of several facts which journalists try to link.” There was “nothing tangible indicating violation of sanctions” as there had been no EU sanctions in the period 2014-22 which the journalists dealt with, he said. It is a valid point, literally speaking, but the critics of the report are unwilling to see the broader picture. Reports added concrete evidence to the case made against Cyprus for years that it has given extremely wealthy Russians, most of whom are close allies of Putin, access to Europe. Professional service providers in Cyprus set up shell companies for them, helped them hide their money, sometimes used to finance Putin’s agenda.

This is what the West wants to stop and is applying pressure on Cyprus, which also has the golden passports industry tarnishing its reputation. President Nikos Christodoulides, although considered close to Moscow before his election, appears to have switched camps and is fully cooperating with the US, following its advice and taking all measures to ensure compliance with sanctions. He is aware of the harm that can be caused to the country if he does not. How far he is prepared to go and whether he has the resolve to stop the servicing of Russian oligarchs by Cyprus is unknown.

Rather than complain about the Cyprus Confidential investigations, seen by some as an attempt to ‘demonise’ Cyprus and its professional services, which it may have been, we should see it as another warning from the West. That the world is divided in two again and Cyprus cannot belong to one camp while offering professional financial services to the other. It seems that having a foot in each camp is no longer an option.