12° Nicosia,
22 June, 2024

Cyprus banks' strict adherence to sanctions worries legitimate entities

Cypriot banks unwilling to take risks in serving individuals or entities under sanctions, including freezing and blocking accounts

Panayiotis Rougalas

Panayiotis Rougalas

Banks have grown cautious when it comes to the sanctions imposed by the USA, EU, and UK, and they are unwilling to take any risks in serving individuals or entities in Cyprus who are under sanctions. They are even closing accounts categorized as high-risk based on guidelines, regardless of their connection to sanctions. All of this is in accordance with the already announced sanctions, and there is anticipation for new individuals from Cyprus to be subjected to sanctions by this Friday. "K" had previously reported that new sanctions targeting individuals and entities in Cyprus would be implemented before the end of the current month, while we are currently receiving visits from British and American officials concerning the significant issue of sanctions.

The Cypriot banks do not facilitate any transactions involving frozen accounts linked to individuals under sanctions. During the presentation of the Bank of Cyprus' financial results, CEO Panikos Nikolaou emphasized that it is not the banks' responsibility to seek exceptions for processing salary payments that may be pending for frozen individuals or entities. According to Mr. Nikolaou, the Bank strictly adheres to the sanctions imposed by the US, EU, and UK, following the protocols, guidelines, and obligations in place. Acting as a representative of the Association of Cyprus Banks, he expressed strong support for President Nikos Christodoulides' statement that "now is Cyprus' opportunity to clear its name regarding sanctions." Mr. Nikolaou stressed that the banks rigorously implement and enforce sanctions as soon as they receive notification. The question arises whether temporarily unfreezing an account to process one month's salary for a frozen individual or entity is a viable option. It is viewed as a temporary measure, and even if it were allowed based on a special permit from the competent authorities of the US or UK, what would happen in the following months? Mr. Nikolaou raised this concern. However, he emphasized that if an individual or entity obtains a special exemption permit from the British, American, or European authorities to temporarily unfreeze an account for payment purposes, the banks will facilitate the payment process without any issues. Nonetheless, it was repeatedly emphasized during the presentation of the Bank of Cyprus' results that this policy applies solely to cases with special exemption permits.

They do not take risks

Banks have made significant progress in establishing four (4) correspondent banks in Cyprus for dollar transactions. Mr. Nikolaou stressed that they would not take any risks by conducting transactions with individuals subject to sanctions, as it could jeopardize their dollar transactions. Marios Skandalis, the Director of Compliance at the Bank of Cyprus, who attended the presentation of the bank's financial results, pointed out that apart from individuals listed under sanctions, there are also "secondary sanctions" that impose specific legal obligations on the bank.

As he explained, if a bank fails to implement the sanctions imposed by countries, there is a possibility that the bank itself may be subjected to sanctions, in addition to cutting off its transactions involving the dollar (as a correspondent bank).

Complaints from lawyers

In its Monday statement, the Pancyprian Bar Association reports that it has noticed the freezing and blocking of bank accounts in Cyprus, which belong to Cypriot business entities of international companies. These entities are owned by law-abiding and compliant investors who strictly adhere to the AML compliance framework. It is important to note that these entities have no familial, cooperative, or business ties with professional firms or Russian oligarchs ("Legal Client Companies") subject to the sanctions. Their only connection is that they have received legitimate administrative services from these firms, as clarified by the association, emphasizing that they were simply clients of those firms.

According to the statement, starting from April 12, 2023, the banks have chosen to comply with and enforce the restrictive measures and sanctions imposed by the US and UK on the same date. The statement includes the following comments: "While we acknowledge and respect their decision, as we fully grasp its purpose and necessity, we disagree with the banks' choice, which lacks any substantial or legal grounds, to proceed with further freezing and blocking of the bank accounts belonging to legitimate client companies that have not been subjected to sanctions by any organization or country and are not owned or controlled by individuals included in such sanctions." Additionally, in their announcement, the lawyers emphasize, "especially in cases where these companies have provided all the necessary lawful documentation to substantiate the termination of their valid client relationship with the aforementioned firms."

Furthermore, the statement continues to explain that "the changes in their structure for the replacement of these firms, based on the Companies Law, Chapter 113, are considered legally completed, provided that they are registered in the relevant registries maintained at their registered office." It also notes that "this treatment leads to cascading effects as it causes an inability for the client companies to carry out their operations and activities and inability to pay salaries to their personnel." It warns on their part that "the risk is visible and immediate and will undoubtedly lead to a deadlock in a significant sector of our economy if we do not take appropriate compensatory actions." 

[This article was translated from its Greek original]

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