Noncompliance would be ‘bad for Cyprus’
No impact on financial stability has been recorded so far by the US and UK sanctions against Cypriot people and firms for assisting sanctioned Russian nationals apart from Cyprus’ credibility, Central Bank of Cyprus (CBC) Governor Constantinos Herodotou said, noting that noncompliance would pose “very negative consequences to the economy.”
The US and the UK have placed a number of Cypriot individuals and entities on their sanction lists over facilitating transactions of sanctioned Russian citizens. Although the Republic of Cyprus implements sanctions by the EU and the UN, the banking system has opted to comply with US and UK sanctions and as a result has frozen the accounts of the sanctioned Cypriot natural persons and entities.
“Although there is no legal framework for mandatory compliance with the US sanctions, noncompliance would have very negative consequences on the economy,” Herodotou told the parliamentary ethics committee on Wednesday. As he noted, if a bank does not freeze the accounts of persons included in the sanctions, then the bank would be deemed in violation of the sanctions and the banking institution as a whole could be considered as a designated entity.
“If this were to happen it would be detrimental not only for the bank but for the country because we would be stigmatized,” to the extent that investors would leave, triggering many other consequences, Herodotou said, noting that should a banking institution come under the US sanctions, it would lose access to US dollar transactions, something which could possibly avert new investments, while current investors could choose to leave Cyprus.
He also explained that the American law includes secondary sanctions which allows the US to prosecute those who facilitate persons included in the primary sanctions list, and recalled that in their general rules the Cypriot banks stipulate that they comply not only with EU and UN rules but also those of other countries.
On the frozen accounts, Herodotou said the CBC has called on commercial banks to expedite the due diligence process and unfreeze accounts where appropriate. He also explained that exemptions for transactions such as staff salaries by a sanctioned entity could be provided, but only after a request by the affected company to the US authorities, not by the bank.
