Our View: Caught in sanctions’ crossfire

When sanctions were imposed on two Cypriot companies that had been providing legal and administrative services to Russian oligarchs, a month ago, banks immediately froze all the accounts linked to the directors of these two companies. In other words, if a director of the sanctioned companies sat on the board of a company which had nothing to do with oligarchs and sanction-busting, the banks still froze their accounts. They also froze the accounts of companies that were suing the administrative services of the sanctioned companies.

Cyprus banks were terrified that if they failed to freeze the assets of all companies linked to the US, UK-sanctioned firms they might be penalised by American banks. This resulted in a few hundred companies having their accounts frozen, even though they had no links to oligarchs, nor were they in any way violating sanctions. Without access to a bank account, carrying on with their operations has become near impossible as they cannot make any payments either to creditors or employees. Receipts could also end up in frozen bank accounts.

Understandably, these companies which have done nothing wrong or unlawful, have gone to the registrar of companies to submit changes to their boards, something perfectly legitimate, but were not allowed to do so. Apparently, the registrar had instructions from the government not to accept changes of directors and secretaries of these companies. This was indirectly confirmed by the finance ministry’s permanent secretary Giorgos Panteli on Wednesday, when he told the state broadcaster that the government would send written instructions to the registrar of companies to proceed with requested changes to board members.

Why has it taken so long for the government to take a decision? The sanctions were imposed and bank accounts frozen a month ago and it has still not given the go-ahead for companies caught in the sanctions by coincidence, to cut their links with the sanctioned firms. Had it contacted the US government to inform it of this plan and to argue that it had no intention to penalise businesses that had done nothing wrong? Under normal circumstances, this should not have been necessary, but the banks might still have refused to unfreeze accounts, after the directors were changed, if they did not have some assurances about the US position on the matter.

Panteli said that the sanctions had dealt a big blow to the professional services sector that would impact the economy. This was why it was imperative for the government to make the correct handling politically. If it failed to do so there would be serious, negative consequences, he warned. He has a point, but it remains unclear whether the government is actually handling the matter.