Cyprus Mail www.cyprus-mail.com
Thursday, May 16, 2013
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CYPRUS
BUSINESS
REPORTAGE
INSIGHT: who’s who of the great March bank run
Eurozone slips into its longestever recession
Cannes Festival opens with lavish Great Gatsby
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‘Our credibility was below zero’ Sarris tells inquiry €2.5 billion Russian loan just went on more spending By Stefanos Evripidou
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HE PREVIOUS government’s economic policy was wide off the mark, leading to devastating consequences for the country, said former finance minister Michalis Sarris yesterday before the committee of inquiry looking into Cyprus’ near financial collapse. The delay by Demetris Christofias’ government in commencing substantive negotiations on a loan agreement with the troika proved disastrous for the economy, said Sarris who served as finance minister under the late Tassos Papadopoulos and in the first five weeks of President Nicos Anastasiades’ government. Sarris took part in both Eurogroup meetings in March which resulted in the first ever “bail-in” in the eurozone, effectively using bank depositors’ money to wind down Laiki and restructure Bank of Cyprus. During his testimony, Sarris outlined the mistakes of the previous government, referring to Christofias’ increase in spending on social and other benefits and overzealous protection of the rights and benefits of highly-paid public employees. He also discussed his brief stint in charge of Laiki Bank in 2012 and his removal from the bank. Responding to a series of questions by committee chair Giorgos Pikis, Sarris went over the details of the crucial events as they unfolded at the first Eurogroup meeting on March 15, as well as the lead up to them, going as far back as 2008 when Cyprus joined the euro and Papadopoulos
handed a fiscal surplus to the Christofias government. Cyprus’ healthy financial indicators meant the country entered the eurozone in a strong position and was able to neutralise intentions, mainly from Germany, to use euro entry as a pressure point for a solution of the Cyprus problem. However, the former World Bank director said the clouds of the global financial crisis were already forming in 2008, and measures should have been taken to prepare for that. “We could have made adjustments (but) we didn’t,” he said. When the time came for real negotiation in Brussels, the “Damocles’ sword” was visibly hanging over the island, seriously restricting Cyprus’ negotiating position. Despite desperate efforts, “we had lost all credibility, and even when we told them we’re prepared to fast for ten years to pay our debts, they did not believe us”. So by the time March, 2013, arrived Cyprus’ credibility was below zero, and the European appetite to make a victim of Cyprus huge. Sarris argued that the government had three opportunities to negotiate a better bailout agreement with dignity: before May 2011 when Cyprus was locked out of international markets; in July 2011 after Mari and in October 2011 following the massive losses sustained by the Greek sovereign debt haircut. Instead of seeking the help of Cyprus’ EU partners after the Mari explosion, the government chose to borrow €2.5 billion from Russia. “The Russian loan allowed
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Workmen dismantled all ‘Laiki’ and ‘Popular’ signs from the bank’s landmark headquarters in Nicosia yesterday. Under the bailout deal, Laiki was wound down and its balance sheet absorbed into the Bank of Cyprus’ books (Christos Theodorides)
Massive failure by Cypriot banks on ‘dirty money’ By Poly Pantelides CYPRUS’ banks suffer from “systemic deficiencies” in implementing anti-money laundering (AML) measures, according to a troika report summarising the results of two audits on credit institutions on the island. The four-page summary drawn up by international lenders was distributed to the Finnish media yesterday summarising the assessments by the Council of Europe’s money-laundering watchdog Moneyval and private firm Deloitte. The summary, seen by the Cyprus Mail, states that between 2008
and 2010, Cypriot banks reported not a single suspicious transaction under anti-money laundering regulations, and flagging only one in 2011 and “a few” in 2012. This despite Deloitte’s forensic analysis of sample customer transactions during its short investigation, identifying 29 potentially suspicious transactions during the last 12 months, none of which were reported by the Cypriot banks. Banks’ current customer due diligence measures, i.e. the steps taken to ensure the institutions know their clients and understand what risks are inherent by doing business with them, are insufficient, the summary said.
Audited institutions did not appear to uphold accurate and well-documented customer profiles “and therefore were not consistently in a position to understand the purpose of the account, define the customer’s business economic profile and evaluate the expected pattern and level of transactions,” the report said. Cited examples included “missing or insufficiently detailed” documentation on customers’ source and size of wealth and annual income, where customers’ money came from and where it was expected to go, as well as “overly
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