US sanctions imposed on entities and individuals in Cyprus are not targeting the country but oligarchs and arms traders that enable Russia to continue waging its war in Ukraine, US Ambassador to Cyprus Julie Fisher said on Wednesday.
She was addressing the Sanctions and Export Controls: Best Practices seminar, which brought together representatives from the Central Bank of Cyprus, compliance officers of the Cyprus banking sector and officials from the US Treasury, Justice and State Departments.
“Our designations, while they may touch entities and individuals in Cyprus, not targeting Cyprus but instead targeting the oligarchs, the arms dealers, high tech and dual use goods traders, who are enabling the Kremlin’s military machine to produce sophisticated missiles, aircrafts and bombs and used with devastating effects against innocent civilians in Ukraine,” Fisher said.
She called for “constant alert,” by banks’ compliance departments, as “sanction evasion networks use transshipment hubs in Europe, the Middle East and Asia to move high-tech goods first to countries which are allowed to import US technologies like Cyprus before sending them on elsewhere.”
Fischer pointed out that banks in some cases have proceeded with the closure of accounts of high-risk clients and sanctioned individuals’ relatives, adding that “some caution on that suspicion is warranted certainly to ensure that those doing nothing wrong are not negatively affected.”
She noted that “we have seen some Cypriot banks adopt and follow the best practice standard namely a prohibition of clients involved in arms, military or defence sectors, making it easier for banks to close those clients’ accounts.”
“This standard was adopted by Cyprus banks on your advice, the advice of compliance departments and it is a higher standard than many others in the EU,” she went on to say.
Compliance officials presented data showing a reduction of the Cyprus banking sector’s exposure to overseas business, as well as the reduction of the sector’s exposure to Russian and Belorussian clients.
Currently, the figure is less than one per cent of banks’ balance sheets, compared to 12.5 per cent in 2014, they said.
Fisher highlighted the role of the banks’ compliance department in improving the banking sector’s reputation internationally, adding that this work is acknowledged and highly respected in Washington.
She said in some cases Cypriot banks have adopted higher standards than other EU countries with regard to sanctions implementation.
State Department Senior Advisor on threat-financing Blake Princhett said the work of compliance departments to combat sanction evasion is “incredibly important.”
“As Ambassador Fisher noted your country has taken significant steps to curb arms diversion and to work on issues of sanctions violations, to look at money-laundering activities so we want to continue working on this together.”
Since Russia’s invasion of Ukraine in February 2022, the US and its partners have imposed sanctions on more than 5,000 entities and individuals in Russia and abroad, while the EU has imposed 14 sanctions packages, Princhett said.
Noting that compliance means extra costs for the banks, Princhett added that the compliance field is not static, as “every time we impose sanctions, the Russians are adopting and changing, looking for new vendors, new partners.”
“So it is really about the network we have to target,” he added.
Outlining reforms in Cyprus banking, Director of Bank of Cyprus’ Compliance Division Marios Skandalis said a host of measures were designed “not merely to enhance the compliance function but to reform the culture of the economy and restore confidence in its financial system.”
Skandalis referred to the stricter regulations against money-laundering, enhanced KYC procedures (Know-your-client), requirements for sanctions implementation and reporting, as well as the stricter regulations on ultimate beneficial owners (UBOs).
He noted that Cyprus banks have terminated non-transparent shell companies, noting that further to the 2018 provision “Cyprus had and still has, I think, the most precise clear definition of what constitutes non-transparent shell activity and gives clear instructions of what to do in such a case which is to terminate the relationship.”
Banks, he went on to say, are monitoring clients’ portfolios and transactions against all international sanctions, including the US and the UK, in real time and on a daily basis. He also noted that staff in compliance departments have tripled.
Skandalis highlighted that the Cypriot banks’ “most daring initiatives” involve adhering to the sanctions outside their regulatory obligations.
He said the banking sector has shown significant reduction in its exposure to international business and added: “Let us not forget the size of the banking sector which was primarily supported by overseas activities in 2012 which was eight times the GDP of the country, has dropped today to less than three times our GDP and this has been the result of this monitoring process and stricter framework we have applied.”