articles | 01 February 2013

Finance Minister Vassos Sharly: Cyprus has nothing to hide

Cyprus stands ready to undergo any inspection on its anti money laundering legal framework, Finance Minister Vassos Sharly told Dutch lawmakers, adding that Cyprus has nothing to hide.

Finance Minister Vassos Shiarly was yesterday confronted with some of the misinformation recently being bandied about Europe in relations to Russian deposits, and money laundering in Cyprus. Shiarly was on a mission to the Netherlands to debunk accusations that the island is a money-laundering and tax haven – allegations that could jeopardise the indebted island’s request for a rescue package for which European taxpayers would foot the bill.

The minister was quizzed by skeptical lawmakers at the finance committee of the Dutch parliament in the Hague, some of whom have joined their German counterparts in questioning the wisdom of approving a bailout for Cyprus. During a question and answer session following his address to the committee, Shiarly was asked by one MP about the €2.5 billion Russian loan for Cyprus approved in 2011. He told them there was no “hidden agenda” with regards to the loan. This is a totally pure, totally commercial loan," he said.

Another Dutch MP asked him if it were true that Cyprus banks held €150 billion in deposits. Shiarly called this a gross exaggeration.  He said that deposits actually total €70 billion. Domestic deposits account for €45 billion, he said, whereas less than €30 billion was from foreign depositors, of which €15 billion was from Russian depositors.

Addressing the allegations of money laundering, Shiarly repeated that Cyprus had nothing to hide. He said inspectors from both the International Monetary Fund and other organisations, such as Moneyval of the Council of Europe, had recently been to the island and given Cyprus high scores vis a vis compliance with anti-money-laundering measures.

“We’ve done everything that was requested,” Shiarly told Dutch MPs. “We are very understanding of sensitivities in certain areas. We will leave it to them. We don’t put pressure on our partners. If someone suggests that they [inspectors] return to the island, I would say: ‘Come tomorrow, today even, we are ready, we have nothing to hide.”

Cyprus has been in the spotlight after certain EU leaders suggested investment flows between Russia and Cyprus are disproportionate, creating the suspicion that laundering may be behind the transactions. It was precisely these notions that Shiarly sought to dispel yesterday. On the sharing of information for tax purposes, the finance minister said he had personally instructed authorities here to release data within 10 days from the date of request, even though the regulations in place provide for a period of up to three months.

Asked about possible Russian participation in a Cyprus bailout, the finance minister said euro-area finance ministers had discussed the issue. The size of the bailout would be in the vicinity of €17.5 billion. “We therefore believe that if the Russians wish to participate in the €17.5 billion, they would do so on the same terms as the other creditors. There is no question of the Russians participating on different terms,” he said.

Shiarly said also he was confident a €2.5 billion loan from Russia due in 2016 will be extended soon to 2021. “We have every reason to believe that Russia will respond favourably, although so far there has been no official response,” he added. According to Shiarly, only junior bondholders would face losses in the bailout of Cyprus’s lenders, which may need about €10 billion. Senior creditors and depositors won’t be touched, he said.

The terms of the bank rescue are still under consideration as authorities await a final report from Pacific Investment Management Co. on Cypriot lenders’ capital needs. “But I think it concluded as a matter of principle the bailing-in of junior bondholders,” Shiarly said. The finance minister was also quizzed on how prepared Cyprus was to privatise state assets should the nation’s debt be deemed unsustainable. He reiterated that Cypriot authorities had agreed to consider, if need be, privatisation of state-controlled organisations, such as the public electricity utility, telecoms and the Ports Authority. Estimated revenues from privatisations would be anywhere from €1 billion to €2 billion. Although this might sound like a low figure, it still came to about 10 per cent of the island’s GDP, he said. The finance minister conceded that the size of the banking sector was disproportionate to the island-nation’s GDP, but said the Central Bank had hired consultants who would look into this and propose corrective action. “Unfortunately the banks expanded far too much in Greece, and that is where the problem arose,” he said.

A team of officials were accompanying the finance minister on his mission to the Netherlands. Eva Papakyriacou, head of the Unit for Combating Money Laundering (MOKAS), informed Dutch MPs that Cyprus was not found wanting when it came to implementation, not just adoption, of the relevant regulations. Papakyriacou said also that reports by European media outlets were often inaccurate and misleading, adding that “some reporters should first check their facts.” Kikis Pafitis, a Finance Ministry official in charge of taxation matters, undertook to counter allegations that the island was a tax haven. Although the nominal corporate taxin Cyprus is 10 per cent – the lowest in the EU – the effective tax rate comes to almost double that, when one factors in the taxes on dividends and other fees, he said.

Maria Themistocleous, a representative of the Central Bank, said monetary authorities here closely tracked the movement of deposits. The regulator asks commercial banks for monthly reports on their deposits and additionally carries out scheduled as well as ad hoc checks at the banks to ensure that the relevant laws are implemented.

Source: Cyprus Mail

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