Cyprus Confidential is a joint reporting project, shedding light on how Russian ultra and high-net-worth individuals purportedly used Cyprus to move money across the EU.
This media scandal highlights the importance of compliance – not just at the national level, but systemically within subsectors of the economy, and companies, every leader in the industry needs to replace the Old Boys Network mindset with one of true transparency and integrity for the sake of the nation’s reputation as a viable financial centre.
What is the Cyprus Confidential
The Cyprus Confidential is the latest compliance leak impacting the tax and corporate services sector based on data collected from 67 media outlets. It is reported over 3.6 million documents from Cyprus law firms and professional services firms were obtained by investigative journalists. These documents have a date range between 1995 to 2022 and highlight attempts at circumventing regulations and even sanctions that have yet again tainted the Cyprus professional services sector.
What has the Cyprus government said about the Cyprus Confidential?
According to the Guardian, the Cyprus authorities are “promising a “zero-tolerance approach” to sanctions violations”, they have already been working with the UK to set up a sanctions implementation unit, and with an EU cross-border sanction implementation team.
Konstantinos Letymbiotis, the Cyprus Government Spokesman has informed that “the Republic of Cyprus is a reliable country, with a reliable financial system, possibly with one of the strictest frameworks surrounding it, and we will continue to maintain this reliability,” the question is – how reliable is the implementation of all these rules and regulations?
Are all these actions to enhance compliance being made too late, were they too little, and will they actually have any impact on being remedial to the corporate service industry’s reputation?
What response has been seen from professional services industry players in Cyprus?
This week will likely see an influx of commentary on the matter, with vehemently protective statements to defend the country’s financial services sector and those using it as an arsenal to push forward their position (political or otherwise).
One of the most widely shared anecdotes from these expansive Cyprus Confidential files relates to PwC Cyprus and their sanctioned Russian clients. A senior member has retorted that “any allegation of non-compliance with applicable laws and regulations is taken very seriously, investigated and appropriate action is taken if necessary.”
The witch-hunt for tax-effective jurisdictions
Major media outlets have always gained clicks for the age-old rhetoric of presenting the wealthy as being above the law, and many supra-national bodies and organizations have been defiant against sovereign states’ low-tax or no-tax policies.
Admittedly the findings of the Cyprus Confidential files will add fuel to that fire, but these ‘scandals’ need to be evaluated with a level head.
Fact: Cyprus does offer some of Europe’s most favourable tax laws and a wide network of double tax treaties. Tax planning – which can involve the set up of multi-layer multi-jurisdictional structures – is in itself a legal option for those who want to minimize their tax exposure. If done appropriately – absolutely acceptable.
Also a fact: Circumventing sanctions or compliance frameworks (if that is in fact what has occurred) is unacceptable.
Cyprus has a low corporate tax which makes setting up a local company attractive, it has an incredible Intellectual Property solution that is great for techpreneurs, and it has been working hard to position itself as a tech hub. Cyprus also offers wealthy families a residence by investment program and has been striving to place Cypriot funds on the global funds’ map.
Accountability and Action
The financial services sector in Cyprus is expansive, an intertwined web.
It seems as if every professional you meet there is either an accountant, lawyer, banker, tax adviser, corporate or fund administrator.
This is also one of the key reasons why these types of scandals have such strong ripple effects across the country and its economy. Cyprus has already battled a few! from its citizenship by investment program collapsing to the Panama Papers and now this latest Cyprus Confidential report.
The actions of a few taint the integrity of the whole – and sadly this is why industry players and regulators need to be accountable and take veritable action.
Regrettably, when a few bad apples act outside the rule book, they affect the crop, especially when the errors are such significant actions/failures to act, that cannot be swept under the carpet.
Many highly educated and internationally experienced professionals on the island are fully supportive of compliance and commit to it in their day-to-day work and service.
But there is still, this unspoken understanding that if a C-Suite executive or partner knows the right person in the right role with sufficient authority – then all can be resolved behind closed doors.
The Cypriot Business ecosystem demands change
“My cousin’s best friend’s neighbour’s father knows someone who works at [insert name of X-influential entity] – so we can definitely sort a deal” -…this may sound like a convoluted sentence for some, however, this type of business model and mindset can still be witnessed in Cyprus – prime breeding ground for this Cyprus Confidential scandal to take place.
Worryingly it also sets the scene for the next one unless systemic change happens.
Until the Cypriot financial industry – including all the external stakeholders and authoritative entities – puts the still very prevalent Old Boy Network mindset to rest (eternally) these scandals may persist – unjustly harming the whole financial services sector.
