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THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

35 | FEBRUARY 14 - MARCH 13, 2014 | THE FUTURE OF THE AUDIT PROFESSION IN CYPRUS

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ISSUE 35 FEBRUARY 14 - MARCH 13, 2014 PRICE €4.95

BANKING

How Spain restructured its system

BITCOIN

The Future of the Digital Currency

INTERVIEWS

Peter Greenberg Matthew Kidd Alexis Tsielepis

The Future Wealth and Investment Management

*Available between the hours of 0830 and 1700 Monday to Friday. Calls may be recorded for security reasons and so that we may monitor the quality of our service. Call costs may vary. Please check with your telecoms provider. Barclays offers banking, wealth and investment management products and services to its clients through Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP. Barclays Bank PLC is regulated by the Central Bank of Cyprus in the conduct of its banking and investment business in Cyprus. Barclays Bank Plc Cyprus branch is now recognised as a Foreign Bank under the Enforcement of Temporary Restrictive Measures on Foreign Banks in case of Emergency Third Decree of 2013 (the Foreign Banks Decree). In accordance with the Foreign Banks Decree, Barclays Bank Plc Cyprus Branch can only service International Clients as defined by the Foreign Banks Decree.

gold cover me diafimiseis.indd 1

OF THE AUDIT Profession in Cyprus

10/02/2014 15:54

©2014 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Cyprus.

Quality service is our target In today’s ever-changing business environment, there is a need for professional business advisors, who not only have the ability to see the broader picture, but also the commitment to serve each client as an individual. KPMG operates in 156 countries with more than 152.000 people working in member firms around the world, offering Audit, Tax and Advisory services. Visit our website at:

www.kpmg.com.cy or our web tv at:

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Issue 35 February 14- January 13, 2014

6 EDITORIAL 8 UP FRONT 16 FIVE MINUTES WITH…

18 The Future of the Audit Profession

in Cyprus ➜

➜

EVER SINCE THE ENRON SCANDAL IN 2001, THE AUDIT PROFESSION HAS BEEN FIGHTING AN UPHILL BATTLE TO REGAIN ITS ONCE GOOD REPUTATION AND CLEAN UP SOME OF ITS PRACTICES. WE SOUGHT THE VIEWS OF SENIOR TAX/ASSURANCE PARTNERS FROM A DOZEN OF THE LEADING AUDIT AND ACCOUNTING FIRMS IN CYPRUS ON WHAT NEEDS TO BE DONE TO TACKLE THE PROBLEMS FACING THEIR PROFESSION.

38 | GOING THE EXTRA MILE For Alexis Tsielepis, Director and Head of Taxation at Costas Tsielepis & Co Ltd, Chartered Accountants, the Cyprus crisis last March set off unprecedented client turmoil that required careful, timely and pre-emptive handling.

42 | SPANISH LESSONS

FEATURE

TRANSPARENCY IS NOT ENOUGH By Petros Florides 26 TAXES: A STATUTORY OR MORAL OBLIGATION? By Costas Markides

MAKE OR BREAK TIME By Kyriakos Iordanou 48 THE BITCOIN ADVENTURE, PART 2 By Michael Hill

of Aristo Developers, and Chairman of the Association for Large Development Projects.

68 | CHILDREN OF THE REVOLUTION growing ties between Cyprus and the UK and why he remains optimistic about the island’s future.

+ OPINION

Antonio Carrascosa, General Director of Spain’s Fund for Orderly Bank Restructuring (FROB), on how Spain restructured its banks and financial sector.

44 | MAKING A DIFFERENCE

The debate surrounding Bitcoin rages on. Does it represent the way of the future or is it just a phase that will soon be forgotten? Danny Brewster, CEO of Nicosia-based Neo and Bee, has some choice words for the doubters.

SPECIAL ADVERTISING SUPPLEMENT 49 | CYPRUS SHIPPING DIRECTORY 2014

Interview with Theodoros Aristodemou, Chairman and Managing Director

12 | IN BUSINESS AWARDS 2013 Photos from the 6th annual IN Business Awards ceremony.

27 | WINDSOR BROKERS LTD. CELEBRATES ITS 25TH ANNIVERSARY Photos from the gala dinner at the Four Seasons Hotel in Limassol.

30 | ‘LIFE BEGINS WHEN YOU LEAVE YOUR COMFORT ZONE’ Peter Greenberg outlines the challenges facing the Cyprus tourism industry

34 | THE TIMES THEY ARE A-CHANGIN’ British High Commissioner Matthew Kidd talks about the events of last March, the

ORACLE’S THREE-WORD KEY TO SUCCESS ORACLE’S THREE-WORD KEY TO SUCCESS

74 78 82 84 86

{money} {business} {economy} {tax&legal} {lifestyle}

4 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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EDITORIAL ISSUE 35 FEBRUARY 14 - MARCH 13, 2014 PRICE €4.95

Better Late Than Never

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the international investment, finance & professional services magazine of cyprus

BANKING

How Spain restructured its system

BITCOIN

The Future of the Digital Currency

INTERVIEWS

f there is one thing that we have learned from the events of last March, it is that the time and opportunity have finally arrived to resolve longstanding problems, to restructure inefficient organisations, to adopt new, progressive policies, to halt complacency and to correct past mistakes. If anyone believes that this situation would ever have been reached without the country teetering on the brink of bankruptcy and the subsequent pressure of the Troika’s Memorandum of Understanding, this betrays a total lack of insight into the realities of Cyprus. The good and pleasantly surprising thing about all this is the remarkable degree to which everyone – from the Government and the public sector to all areas of private enterprise – appears to be taking the opportunity to put things right. Indeed, in what will probably be his final interview with Gold as British High Commissioner (page 34), Matthew Kidd notes how “Throughout those weeks and months of the most serious and critical pressure, the readiness of public opinion to stay calm and to listen carefully to what they were being told – and to make rational responses – was very impressive. In terms of Cyprus’ ability to rebound from the crisis, that is a really important asset which I hope can be preserved and built on.” You will see that the theme of getting things fixed runs throughout this issue. Our cover story on the future of the audit profession (page 18) looks at how a dozen representatives of the leading accounting & audit firms on the island view the challenges facing them if their particular area of expertise is to regain some of its tarnished reputation. Meanwhile, Alexis Tsielepis, Director and Head of Taxation at Costas Tsielepis & Co Ltd, Chartered Accountants, shares his experience of reassuring his clients that Cyprus would survive and that their money was safe (page 38). He also has some firm ideas about what needs to be done at the Inland Revenue Department. In a similar vein, Kyriakos Iordanou, General Manager of the Institute of Certified Public Accountants of Cyprus (ICPAC), argues in an opinion piece (page 48) that his members also need to operate with greater and more visible compliance with regulations and ethical standards if Cyprus is to restore investor and public confidence in its ability to remain a reputable international centre for business and financial services. Elsewhere the acclaimed Travel Editor of CBS News, Peter Greenberg, puts forward some radical ideas about what Cyprus needs to do if it is to maintain and grow its essential tourist industry (page 30), a theme taken up by Theodoros Aristodemou, Chairman of the Association for Large Development Projects who suggests that it’s time to focus on catering for more specialist needs (page 44). Lessons from Spain’s restructuring of its banking sector (page 42) are outlined by Antonio Carrascosa, General Director of Spain’s Fund for Orderly Bank Restructuring (FROB), who was in Cyprus last month, while Danny Brewster (page 68) and Michael Hill (page 71) look to the future as the digital currency Bitcoin arrives with great fanfare in Cyprus. It is a great shame that it took the earth-shattering events of last March to awaken the island’s financial and banking sectors to the reality of what was wrong with the way they had been operating for too many years. In this respect, the country’s politicians have a lot to answer for, given that government officials and members of every political party were happy to close their eyes to a crisis which, since 2009 at least, was clearly on the way. The fact that some of them continue to criticise the serious efforts that are being made even at this late hour, without having any feasible alternative, simply illustrates how politically immature – not to mention audacious – they are. Yes, things should have been fixed long ago but, now that a genuine attempt is finally being made, we should all breathe a sigh of relief and murmur “Better late than never”.

John Vickers, Chief Editor john@imhbusiness.com ISSUE 30 SEPTEMBER 14 - OCTOBER 13, 2013 PRICE €4.95 POwEREd By:

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www.pwc.com.cy

We are proud of our people

Nicoletta Neophytou

Joint Fifth Place and the Cassleton Elliott price 2013 Professional Annual International Order of Merit

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2013 Professional Annual International Order of Merit

Athina Germanou

Joint First Place Audit and Assurance paper in the recent ICAEW examinations

Chrysanthos Papachrysanthou Joint First Place Audit and Assurance paper in the recent ICAEW examinations

Eleni Georgiou

Joint First Place Audit and Assurance paper in the recent ICAEW examinations

In PwC, we believe that the biggest strength of our country is the quality of its people. 19 trainee accountants of PwC Cyprus have won 27 prizes in the ICAEW examinations since 1999. We continuously invest in the training and professional development of our experts in order to build their capabilities for the future.

up front

Nicosia Municipality Sustainability Study from KPMG

icosia Municipality and KPMG Ltd have signed a contract for the preparation of a study to ensure the Municipality’s sustainability over the next 25 years. Given the current difficult economic conditions in Cyprus and the financial state of the local authorities, Nicosia Municipality will continue to play a significant role in everything concerning the preservation of the quality of life of local residents, including issues of safety, cleanliness and the upgrading of the capital in general. KPMG will examine the Municipality’s current financial situation and forecast future cash

flow under different scenarios. The study will then be the basic tool for the disbursement by the Municipality of funding from loans for the completion of important infrastructure projects. The total cost of the study, which will be funded by the Municipality, amounts to €12,500 plus VAT. The contract is expected to start immediately and its implementation will span 24 months. The Head of KPMG’s Advisory Services, Christos Vasiliou, said that “During a difficult period for the economy, business and the local authorities, KPMG is providing practical support to all of them in order to add value which will, in turn, contribute to growth”.

Emirates

Completes 21 Aircraft “Make-Overs” in 2013

mirates operates the world’s largest fleets of A380s and Boeing 777s, and to serve these aircraft, it runs the world’s largest state-of-the-art aircraft paint hangar owned by an airline. Located at Dubai International Airport, Emirates’ paint hanger is more than twice the size of a football field, and has been designed to deliver quality that exceeds even the standards of aircraft manufacturers. In 2013, Emirates’ advanced paint hangar completely stripped 21 aircraft (or nearly 10% of its fleet) of exterior paint and gave them a brand new coat. It took 6,550 hours in total, or 273 days and nights

A Boeing 777 is stripped of its exterior paint in the Emirates paint hangar.

of non-stop stripping and repainting, to complete these “make-overs.” In addition to these major projects, the paint shop was kept fully engaged with over 60,000 other paint touch-up jobs on the exteriors and interiors of the aircraft, as well as cabin items. “Our aircraft livery is one of the most recognisable and visible aspects of our brand. It is what people see in the sky, and the first thing our passengers see at their boarding gates. We take pride in maintaining our aircraft to the highest possible standards, and it is important our planes look pristine on the outside as well as on the inside,” said

Cyprus Airways Wins Punctuality Awardyprus Airways

has been awarded by Israel’s Ben Gurion Airport, for its punctuality with regards to departure times in 2013. The distinction comes following Cyprus Airways achieving the highest score (97%) amongst hundreds of other airlines assessed, which fly to and from the airport in Tel Aviv. The airline’s official press release praises the distinction as reaffirming the high quality of service offered, and proving the prestige with which the airline is viewed in important airports in the Middle East. Prior to this latest recognition, Cyprus Airways was honoured by travel agents and tour operators who, in October 2013, voted it the third most friendly and flexible airline in the APG World Connect competition. Cyprus Airways currently operates six flights a week to Tel Aviv, with the intention to increase flight frequency to 11 per week in March.

Barclays Cyprus

Downsizes Adel Al Redha, Executive Vice President and Chief Operations Officer, Emirates. “It’s not just about looking good. The paint coat has to withstand fierce weather conditions, including severe wind, bitter cold and searing heat, and an exterior coat that is clean of debris and imperfections improves aerodynamics and reduces fuel consumption. Emirates already flies a young and efficient fleet, but with fuel prices at consistently high levels, every little bit of efficiency counts,” he added. Since the paint hangar started operations in August 2010, it has completed 59 full aircraft “strip-and-repaint”

8 Gold the international investment, finance & professional services magazine of cyprus

projects and several hundred thousand aircraft component paintings. After every seven to eight years in service, Emirates fully strips its aircraft of their exterior colour and gives them a brand-new coat. A Boeing 777 requires a team of 26 to 30 people for a full strip-and-repaint project, which is turned around in just 12 to 13 days. Emirates operates four scheduled flights weekly from Larnaca to Dubai: every Monday, Wednesday, Thursday and Saturday. On these days in the morning, EK 107 arrives from Dubai while in the afternoon EK108 arrives from Malta on its flight back to Dubai.

arclays, the UK’s second-largest bank by assets, is cutting hundreds of jobs in its investment arm around the world and its two branches in Cyprus will be affected with more than half of the 45 employees losing their jobs. Some 20 are expected to retain their positions. A Barclays spokesperson said, “As part of its new global strategy, Barclays Wealth and Investment Management recently announced that it would undertake a full review of its Cyprus business. Following a thorough review, we confirmed at the end of last year our commitment to maintaining a presence in Cyprus in both Nicosia and Limassol, but that this will be in a reduced form. We are committed to fully supporting our clients and employees through this transition.” Barclays Chief Executive Officer Antony Jenkins said twelve months ago that he was seeking to remove £1.7 billion of annual expenses by 2015, eliminating 3,700 positions. In June it was announced that Barclays would move 4,000 administrative jobs at its investment bank to lower-cost locations to reduce expenses.

Cyprus Shipping Chamber Celebrates 25th Anniversary

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he Cyprus Shipping Chamber (CSC) celebrated it’s 25th anniversary last month and it will continue to mark its 25 years throughout 2014. The CSC was established on 26 January 1989, and constitutes the trade association of the shipping industry in Cyprus. The main purpose of the Chamber is to promote the interests of Cyprus shipping and to continuously further the reputation of the Cyprus flag. At the same time, the Chamber acts as a lobbying group for the promotion and safeguarding of the legitimate interests of its member companies, at a national as well as at international level. Today, the CSC is one of the largest national shipping associations in the world. In the framework of the various events that will be organised to mark this special occasion, the Chamber will be the hosting the Annual General Meeting of the International Chamber of Shipping in June 2014 in Limassol. In cooperation also with the Maritime Administration and exploiting the presence of the international shipping community in Cyprus, the CSC is also planning a Summit Meeting of Shipping Ministers from around the world.

olakis Sarris & Co LLC has been named Tax Investigations Law Firm of the Year in Cyprus in the 2014 Corporate Intl. Magazine Global Awards. The firm specialises in taxation and corporate law and related litigation issues. Referring to the award, Antigoni D. Fakonti, Partner, said: “Cyprus has been strongly criticized for allegedly not complying with tax investigation requests from other jurisdictions. However, noone has noted that, in the course of both accessing and exchanging information, certain rights should be respected, including the taxpayer’s right to privacy and to the confidentiality of any obtained data. This award is a proof that Cyprus can be successful in maintaining a balance between the two.”

Hellenic Bank on Medlook App

edlook has launched a free app called Discover Cyprus, the aim of which is to provide everyday useful, practical and valid information about health, wellness, longevity, psychology, relations, food, wine, attractions, sports, events, history, culture and holidays in Cyprus. Hellenic Bank is included in the Selected Services section of the app, which features information

on the Hellenic Bank Group, the Hellenic NetBanking service and more, including a branchfinder for all Hellenic Bank branches across Cyprus. Medlook (www.medlook.net) is an online portal dealing with health, medicine and wellbeing. It contains more than 6,000 articles and is updated daily. Short daily messages, news and articles of the Discover Cyprus app about

health and wellbeing are written by experts, doctors, scientists and other Cyprus tourism specialists from Medlook.

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up front

Bloomberg

Ranks Cyprus 35th for Business

ings, Bloomberg analysed 157 countries on six broad criteria, based on data collected in 2013: the degree of economic integration; the cost of setting up a business; the cost of labour and materials; the cost of moving goods; less tangible costs like inflation and the amount of corruption; and the health of Canada its consumer base. Hong Kong once again tops the list. Its first-place ranking is credited in part to the low cost of starting a business there. Canada jumped from sixth place to second, largely because of the receptivity of its consumers, measured Singapore by the size of its middle class, household consumption and GDP per capita. = The US, meanwhile, fell from second to third place, as the cost of setting up a business has increased considerably relative to other countries. Germany The BRIC countries (Brazil, Russia, India and China) mostly improved their standing this year. Brazil, Russia, and India entered into the top 50, positioned 38th, 44th, and 48th respectively. China, however, dropped from the 19th position Netherlands in the ranking’s first year of publication to 28th this year, influenced by its score on lesstangible costs being 46th lowest among the 50 countries. Cyprus dropped from 32nd place in 2013 to 35th this year, achieving a total score of 65.5. Hong Kong, ranked Sweden first, achieved a total score of 83.4. Cyprus’ score for the loomberg Rankings has cost of setting up a business just presented its analysis of is very competitive compared the world’s most attractive with other countries in the list, countries for doing busi- though its overall score is afness in 2014, with Cyprus fected dramatically by the cost ranked 35th in the world. of labour and materials. To create this year’s rank-

The Top 10

➊ Hong Kong

➌ USA

➎

Australia

➐ UK

➒

B Spain

➋

➌

➎

➑

➓

10 Gold the international investment, finance & professional services magazine of cyprus

Danish Embassy in Cyprus to Close

he Embassy of Denmark in Cyprus is to close in August, in a move by the Danish Foreign Service to withdraw operations in five countries in Europe. The embassies in Cyprus, Switzerland, Luxembourg, Slovenia and Slovakia will close, while new embassies will be established in four new countries: Colombia, Nigeria, Myanmar and the Philippines. The Danish Minister of Foreign Affairs Holger K Nielsen commented on the restructuring of the Danish Foreign Service, “It is a tough and difficult decision to close missions. It affects both the embassy’s users and staff. However, in the places where missions will be closed, primarily in Europe, we will find new and different ways to cooperate with the countries concerned and to promote Danish interests. But it will be in another and less intense manner. The changes to the embassy structure will, all in all, give Denmark direct access to over 300 million more people and consumers than at present – distributed throughout three continents – including important emerging markets. We will open

missions in regions and countries where economic growth is booming, where there is a huge potential – and where the economic power shift is accompanied by increased political clout.” A statement posted on the Nicosia Embassy website reads: “On 16 January 2014, the Ministry of Foreign Affairs of Denmark launched a reform of the Danish Foreign Service implying an adjustment of the network of Danish Missions abroad. The reform means that there will be changes to the Danish presence in more than 25 countries. In this connection, a number of Missions will close for budgetary reasons. The reform implies that Denmark unfortunately must close the Embassy in Nicosia as of 1 August 2014. Denmark will attach importance to finding other ways to continue the good cooperation with Cyprus and to pursue Danish interests in Cyprus after the closure of the Mission. More detailed information will be presented on the Embassy website, including information on how the consular services tasks of the Foreign Service in Cyprus will be performed in future.”

Cyprus Trade Mission to Qatar

resident Anastasiades led one of Cyprus’ biggest trade missions in recent history to Qatar last month, accompanied by Yiorgos Lakkotrypis, Minister of Energy, Commerce, Indutry & Tourism, Nicos Kouyialis, Minister of Agriculture, Natural Resources & Environment, Ioannis Kasoulides, Minister of Foreign Affairs and numerous other government officials. In addition to the official delegation which also included Phidias Pilides, President, of the Cyprus Chamber of Commerce & Industry,

Christodoulos Angastiniotis, Chairman of the Cyprus Investment Promotion Agency (CIPA) and Marios Lanitis, President, Cyprus Qatar Business Association, senior representatives of some 60 companies from the private sector, many of them property and land developers, also traveled to Doha. At a Business Forum in the Qatari capital, presentations included “Investing in Cyprus” by CIPA Chairman Christodoulos Angastiniotis, “Oil & Gas Industry: Prospects and Cooperation” by the Minister of Energy,

Commerce, Industry and Tourism, Yiorgos Lakkotrypis, and “How to do business in Qatar” by the Qatar Chamber of Commerce. The Business Forum in Doha is viewed with great optimism by all concerned. A source with the delegation told Gold that “this is the first time that Cypriot entrepreneurs truly believe that something positive can emerge from such a mission”. Another was more restrained and cautioned that “it will take several months before we see the results of out efforts.”

up front

The World’s

Highest Earning Football Clubs

he 17th edition of the Deloitte Football Money League was published last month, in which it profiles the highest earning clubs in the world’s most popular sport. Real Madrid once again top the Money League and FC Barcelona are again in second place but Manchester United slip out of the top 3 to be replaced by Bayern Munich. There are three other

Real Madrid

€518.9 million

Real Madrid’s have now topped the Money League for the past 9 years. Despite a trophy-less finale to the season, Real Madrid’s revenue continued to increase, to €518.9m in 2012/13. Whilst revenue growth is at a slower rate (a little more than 1%) than in any of the previous five years, Madrid enjoy a healthy €36m revenue advantage over their closest challenger, Spanish rivals Barcelona.

FC Barcelona

English Premier League clubs in the Top 10. To draw up the list, Deloitte has used the figure for total revenue extracted from the annual financial statements of the company or group in respect of each club, or other direct sources, for the 2012/13 season (unless otherwise stated). Revenue excludes player transfer fees, VAT and other sales related taxes. Last year’s position is shown in brackets.

ing English champions for a record-breaking 20th time, helped Manchester United grow revenues by £42.9m (13%) to £363.2m (€423.8m). Despite this growth, unfavourable movements in the Sterling exchange rate and Bayern’s unprecedented on-pitch success resulted in the club slipping out of the top three in the Money League for the first time in the publication’s 17-year history.

won the Europa League, they were runners-up in both the UEFA Super Cup and FIFA Club World Cup, semi-finalists in both domestic cup competitions, and came third in the Premier League.

Paris Saint-Germain

Arsenal drop two places to 8th in the Money League, recording revenues of £243.6m (€284.3m), an £8.7m (4%) increase on the previous year. On the pitch the 2012/13 season was similar to 2011/12. UEFA Champions League football was achieved for the 16th consecutive year, 4th position in the Premier League being secured on the last day of the season. Overall broadcast revenue increased to €103.2m.

€398.8 million

French champions Paris Saint-Germain blast their way into the Top 5 with a record turnover of almost €400m, up €178.3m (81%) on the previous season. Driven by FC Barcelona remain second for the 5th successive year, huge commercial revenue of €254.7m – the highest-ever with total revenue of €482.6m being similar to 2011/12. single revenue source in the history of the Money League Last season saw the Catalans regain the La Liga title from Real Madrid, having equalled the record tally of 100 points 5 – PSG become the first new Top 5 entrant since Arsenal in 2006/07 and the first French top five club ever. set by their great rivals in the previous season. The club also exited the Champions League at the semi-final stage, Manchester City beaten by eventual winners Bayern Munich.

€482.6 million

€316.2 million

Bayern Munich

€431.2 million

Bayern Munich’s treble winning season resulted in them leapfrogging Manchester United into third position, their highest placing for 11 years, with total revenue growing by an impressive €62.8m (17%) to €431.2m. Success in the UEFA Champions League, where Bayern beat German rivals Borussia Dortmund, contributed to a €25.6m (31%) increase in broadcast revenue, of which UEFA distributions represented €55.1m – an €11m increase on 2011/12.

Manchester United

€423.8 million

Success on the pitch in 2012/13, with the team becom-

1(1)

Chelsea

€303.4 million

Chelsea slip down two places to seventh, after a marginal decline in revenues to £260m (€303.4m) in 2012/13. Although not reaching the heights of their inaugural Champions League triumph the previous season, in 2012/13 they

4 (3)

€284.3 million

Juventus

€272.4 million

2012/13 was a year of further progress on and off the pitch for Juventus, with the club reaching its highest position for 4 years in the Money League and overtaking AC Milan and Internazionale to become Italy’s leading revenue generating club. They secured a second consecutive domestic title, progressed to the semi-finals of the Coppa Italia and reached the quarter-finals of the UEFA Champions League.

AC Milan

€263.5 million

9AC Milan drop two places to 10th position in the Money League, despite revenues increasing by €6.6m (3%) to €263.5m. On the pitch, the Rossoneri required a dramatic late fightback in their final league game in order to secure third spot in Serie A – and thus Champions League qualification for 2013/14 – having exited the 2012/13 Champions League at the round of 16 stage.

7 (5)

5(10)

3 (4) 2 (2)

Manchester City’s rise up the Money League continues in 2012/13, climbing one place to sixth; the highest the club has achieved and notably seeing them move ahead of their Premier League rivals Chelsea and Arsenal. In the five years since Sheikh Mansour’s takeover early in the 2008/09 season, turnover has more than tripled from £87m (€102.2m) to £271m (€316.2m), with 17% growth in the year 2012/13.

Arsenal

6 (7)

8 (6)

9(14) 10(8)

the international investment, finance & professional services magazine of cyprus

Gold 11

6th Annual IN Business Awards

President Anastasiades greets guests

Lakis Tofarides, Constantinos Yiorkatjis & Nicholas Tofarides

THE 6TH ANNUAL IN BUSINESS AWARDS CEREMONY TOOK PLACE AT THE HILTON PARK HOTEL, NICOSIA, ON FRIDAY, ATTENDED BY PRESIDENT ANASTASIADES, GOVERNMENT MINISTERS AND BUSINESS LEADERS. Master of Ceremonies for the evening was Chrysanthos Tsouroullis. The Awards were presented by Hellenic Bank for the 6th consecutive year and sponsored by MTN Business, Chivas, TFI Markets and the Cyprus Institute of Marketing (CIM).

Marios Kampanellas & Alexis Charalambides, Charalambides Christis

Odysseas Christodoulou and Marcos Komodromos, Global Training

Makis Keravnos, Hellenic Bank

Finance Minister Harris Georgiades

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George Michail, IMH, welcomes President Nicos Anastasiades

Andreas Papaellinas, C.A. Papaellinas

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Young Business Leader Award (in memory of Andy Hadjicostis) was presented to Loucas Marangos, CEO, TFI Markets Ltd by Nicosia Mayor Constantinos Yiorkadjis and Constantinos Ioannou, Member of the Board, IMH.

The New Product/Service award was accepted by Christoforos Minas, Operations Director of Zita Dairies Ltd, from Ionas Nicolaou, Minister of Justice & Public Order, and Vasilis Petrides, CEO of Laiko Cosmos Trading.

Elena Leontiou, Head of Media, IMH and Daphne Roditou Tang, General Manager of IMH, presented the Honorary Editor’s Choice award to the General Manager of Carrefour Cyprus, Thierry Noyer.

Andreas Papanicolaou, Director of Marketing, Public Relations and Cultural Activities, Hellenic Bank Group and Eleni Theocharous MEP presented the Corporate Social Responsibility award to Marios Kampanellas, General Manager, Charalambides Christis Ltd. 6

CIPA Chairman Christodoulos Angastiniotis and Cornilios Corniliou, Permanent Representative of Cyprus to the EU presented the Foreign-based Cypriot Entrepreneur award to John Christodoulou.

THE WINNERS OF THE MOST PRESTIGIOUS AWARDS IN CYPRUS WERE AS FOLLOWS: Business: Alphamega Hypermarkets

The Services award was accepted by the CEO of the GAP Vassilopoulos Group, George Vassilοpoulos, from Demetra Kalogirou, Chair of the Cyprus Securities & Exchange Commission, and ICPAC Chairman Ioannis Charilaou.

Charalambos Pattichis, Managing Director of Remedica Group accepted the Honorary Lifetime Achievement award on behalf of his faher, Takis Pattichis, Founder & Chairman of the Group.

The Manufacturing/Processing award was accepted by Yiannos Christoforou, Marketing Manager of Papaphilippou & Patisserie Panayiotis Ice Cream Ltd., from Foreign Minister Ioannis Kasoulides and the President of the Employers & Industrialists Federation, Philios Zachariades.

Manager: Symeon Kassianides, CEO, Hyperion Systems Engineering Services: GAP Vassilopoulos Group S.M.E.: Gnora Communication Consultants Manufacturing/Processing: Papaphilippou & Patisserie Panayiotis Ice Cream Ltd Corporate Social Responsibility: Charalambides Christis Ltd The Manager award was presented to Symeon Kassianides by the President of the Cyprus Chamber of Commerce & Industry, Phidias Pilides and the CΕΟ of Hellenic Bank, Makis Keravnos.

Best Workplace/ Employer of Choice: Four Seasons Hotel 10 New Product/Service: Zita Lactose-free Yogurt (Zita Dairies Ltd)

Averof Neophytou, President of the Democratic Rally (DISY), and Theo Hadjiyiannis, Director-General of the Cyprus Institute of Marketing, presented the Best Workplace/ Employer of Choice award to Andreas Loizou, HR & Quality Director of the Four Seasons Hotel.

Foreign-based Cypriot Entrepreneur: John Christodoulou, The Yianis Group HONORARY AWARD Editor’s Choice Award: Carrefour Cyprus

The Business award was accepted by George Theodotou, Marketing Manager of Alphamega Hypermarkets, from the Chairman of Hellenic Bank, Andreas Panayiotou and Finance Minister Harris Georgiades.

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HONORARY AWARD Young Business Leader Award (in memory of Andy Hadjicostis): Loucas Marangos, CEO, TFI Markets Ltd HONORARY AWARD Lifetime Achievement Award: Takis Pattichis, Founder & Chairman, Remedica Group

Andreas Neocleous, Business Director of MTN and Antigoni Papadopoulou MEP presented the S.M.E. award to the Managing Director of Gnora, Andreas Hadjikyriakos.

10/02/2014 13:48

Elias Neocleous, Andreas Neocleous & Co LLC

Thomas Kazakos, Cyprus Shipping Chamber

Maria Matsentidou, Bank of Cyprus & Fotis Pavlou (l) and Yiangos Hadjiyiannis, CIM

Marios Mavides MP

Michalis Panayides & Thierry Noyer, Carrefour Cyprus

Emily Yiolitis, Harneys Aristodemou Loizides Yiolitis LLC

Panayiotis Paschali, A. S. P. & K Paschali Developers Ltd

Panayiota Konnari, Cyta

Andreas Panayiotou, Hellenic Bank & his wife

Maria Terezopoulou, Neo Doros Iliodorou, Hellenic Bank Marlen Michael & Lefteris Athanasiou, MTN

Louis Patsalides entertains the President and his guests

Kyriakos Kokkinos, ΙΒΜ

Phildias Pilides, CCCI

Andreas Papanicolaou, Hellenic Bank

Demetris Fessas, Embassy of Israel

Antonis Papas, Lanitis Group

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Louis Patsalides and Tefkros Neocleous provided satire and humour

Pandora Tseriotou, Unicars

Andrew Demetriou, Ioannides Demetriou

Capt. Dirk Fry, Columbia Shipmanagement

Demetris Ioannides & Natalie Christofides, Action Global Communications

Loucas Marangos, TFI Markets, & his wife Elpida Mikaiou

Evros Papadopoulos, Laiko Cosmos Trading

Stefi Drakou, Insurance Association of Cyprus, & Monica Papaellina, Costas Papaellinas Organization

Maria Theodorou & Charis Charilaou, TFI Markets

Katia & Vasos Theodotou, Alphamega Hypermarkets

Evdokimos Xenophontos, Institute of Directors

Andreas Christofides, Î&#x161;PMG

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Myrto Meletiou and Stelios Antoniou provided the musical entertainment

George Papanastasiou, VTT Vasiliko

10/02/2014 13:49

interview

five minutes with...

Christos S. Christodoulou FCCA Managing Director, CSC Christodoulou, Chartered Certified Accountants, Business Advisors

ow does it feel to be celebrating the company’s 10th anniversary? We are very proud and, at the same time, completely satisfied with the growth rate of our firm and the awards and honours received during these ten years. We have proven who we are and what we can deliver. Year by year, our firm has grown and expanded, we have highly professional staff, our reputation has spread by word of mouth, and we now have prestigious clients and a solid presence in the market. How has the professional services sector changed since the company started out? The sector has always been – and will continue to be, despite the effects of what happened in March 2013 – one of the most important sources of income in Cyprus. Top quality, reliable accounting services in Cyprus are offered via highcalibre professionals who have demonstrated – like our firm – that they cater to local and international business clients in all aspects. During the last 10 years, the sector has made significant progress which, in turn, has helped our particular practice to grow. The firm has gained much professional recognition over the years. Is there an

award that is of particular significance to you? Undoubtedly, receiving global recognition by the ACCA for our quality professional services, and having succeeded in two consecutive monitoring visits, is a great honour and it has marked the way our firm does business. Awards and honours received certify a firm’s culture to do business with its clients. With us it’s a state of mind, not a game of impressions. And what really touches us emotionally is the warm telephone call from a prospective client, to whom we have been recommended by existing clients, seeking not only our tax and assurance services but the personal care that we show to all our clients. What would you say is the key to CSC’s success? We provide more than numbers. We are there, next to the client; we care, we follow through and we deliver quality services. We spend our time on details and we are continuously updating our online library (www.cschristodoulou.com) with all the compliance and other issues that the businessman needs to know. We make sure that we communicate these things to our clients and ensure that they are working in a safe business environment. We then focus on the deliverables. We don’t remain seated in our chairs but we are constantly engaged in meeting

16 Gold the international investment, finance & professional services magazine of cyprus

with clients and the authorities and being where we need to be in order to deliver. Given what happened in Cyprus last year, do you think the next 10 years will pass as smoothly as the first 10? 2013 was indeed a tough year for everybody but we have worked hard and exceeded our limits in order to overcome the difficulties. And if we have managed to grow under such circumstances, then I am confident that great opportunities will come in the next 10 years. Clients know how to appreciate and evaluate the good professional and they are now seeking the highest quality and professionalism. That’s what we deliver. What are your more immediate plans for CSC in 2014? 2014 is the beginning of a new business plan for our firm. Firstly we wish to express our gratitude to our clientele and we have planned several activities to this end for 2014. Business-wise, we shall focus on delivering expert tax and assurance services in specific sectors and groups for large local and international clients. This will involve expansion through professionals and other resources, both in Cyprus and abroad. We also intend to continue to offer our support to the Government and to contribute to the Cyprus economy through our frequent constructive participation in various committees and forums.

The Future

COVER STORY

of the Audit

Profession

in Cyprus

“Financial statements are like looking in the rear view mirror of a car. It can be interesting to learn about a place you’re never going to see again. But it’s not so relevant to where you are going.”

John Gordon, Head of Audit, KPMG Canada By John Vickers. Photography by Jo Michaelides.

n September 2013, there were no fewer than 3,699 active, English-speaking, registered accountants in Cyprus. More than 120 accounting firms and 40 partnerships currently operate on the island. As a key part of the country’s thriving professional services sector, they make an essential contribution to the economy. As with many other professions, the events of 2013 have taken their toll on accounting & audit firms, from the so-called Big Four down to the smallest companies. Unlike many other local professions, however, auditors have also found themselves under pressure internationally, following scandals and incidences of major fraud committed by companies whose books they were signing off. Just as public trust in the overall financial system has been plummeting, the audit profession has been fighting an uphill battle since 2001 to regain its once good reputation and clean up some of its practices. 2001 was when the Enron scandal came to light, leading not only to the bankruptcy of the US energy company Enron Corporation but to the dissolution of Arthur

➜

Andersen, which was one of the five largest audit and accountancy partnerships in the world at the time. Indeed, Enron has been described as “the biggest audit failure in history”. To some, Enron was not a big surprise. Three years earlier, Arthur Levitt, Chairman of the Securities and Exchange Commission under President Bill Clinton, had said in a speech at New York University in 1998 that corporate managers, auditors and analysts were taking part in what he called a ‘game of nods and winks’: “Many in corporate America are just as frustrated and concerned about this trend as we, at the SEC, are. They know how difficult it is to hold the line on good practices when their competitors operate in the grey area between legitimacy and outright fraud,” he said. Enron and other scandals have led some people to question the whole issue of why companies and corporations are allowed to choose their auditors. Indeed, it has even been suggested that the government should audit company accounts, in the same way that the Inland Revenue Department looks at tax returns. In the light of what happened in Cyprus

last year, local auditors are now joining their global counterparts and taking a closer look at their own practices and ways of regaining public confidence in the profession. Gold asked Senior Tax/Assurance partners in a dozen of the leading audit and accounting firms in Cyprus for their views on what needs to be done to tackle the problems facing the profession. While their responses do not include suggestions as radical as those noted above, they are as one in their belief that the audit profession must evolve and change if it is to remain relevant in today’s rapidly changing global economic environment. Issues of concern to audit professionals in Cyprus include going beyond the traditional audit, proper compliance with professional and ethical standards, enhanced transparency, “professional scepticism” (defined as “an attitude that includes a questioning mind and a critical assessment of audit evidence. The auditor should not assume that management is either honest or dishonest”) and the gap between the public perception of what the role of an audit should be and what the audit profession claims is expected of it.

18 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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WHAT’S IT ALL ABOUT? ACCOUNTING

Accounting is the systematic process of recording, storing and presenting company financial data. Accountants maintain complex records of all financial transactions, including things like sales revenue and expenses in addition to costs such as payrolls and taxes. Using the information stored in company accounts, accountants routinely construct financial statements, such as balance sheets and income statements, to provide internal and external stakeholders with insightful glimpses into a company’s financial situation.

AUDITING

Auditing is the process of reviewing and investigating any aspect of a business, whether financial or non-

financial. Auditors are trained to spot areas for improvement, potential dangers and incidents of unethical conduct in their area of expertise. Audits can disrupt the normal flow of business in a company, but the ability to spot and address potential weaknesses can outweigh any temporary losses of productivity. Among the range of issues audits can review are human resources policies, operational procedures, quality or safety policies and, of course, accounting audits.

ACCOUNTING AUDITS

Accounting audits bring these two distinct concepts together and can convey significant benefits to small and large businesses alike. An accounting audit is

by definition a systematic review and investigation of the policies, procedures and systems put in place to record, store and present financial data within a company. Accounting audits cover the full range of the accounting cycle, looking for inconsistencies, inefficiencies, errors and incidents of unethical conduct at all steps in the process. Audits begin by analyzing the systems put in place to ensure that the accounting department receives all transaction documents in a timely manner. Audits review the accounting system in depth to ensure that all necessary accounts are present and maintained accurately. Accounting audits also review financial statements and the processes used to prepare financial statements.

FIVE QUESTIONS WE ASKED THE AUDIT PROFESSIONALS THE FOLLOWING FIVE QUESTIONS. THEIR ANSWERS ARE PROVIDED ON THE FOLLOWING PAGES.

1. What are the main issues and challenges currently facing audit professionals around the world? 2. What are the main issues (if different) facing audit professionals in Cyprus? 3. Why has trust in audit reports been eroded in recent times and how can it be restored? 4. What changes would you propose to the audit process, model or reports in order to improve the system? 5. Can audit quality be ensured in an environment where delivery costs are rising and audit fees falling?

ICPAC

On April 4, 1961, less than a year after Cyprus became an independent republic, a group of progressive and promising accountants established the Institute of Certified Public Accountants of Cyprus (ICPAC). There were 21 founding members: Demetris Antoniades, Andreas Apostolides, Costakis Christofides, Takis Christofides, Loizos Demetriou, Gavriel Gavrielides, Paul Graham, Andreas Iacovides, Nicos Ionides, Nicos Lakoufis, Andreas Loizides, Thiseas Metaxas, Nicos Miltiadou, Angelos Nicolaou, Wifrid Normand, Ioannis Papakyriakou, Angelos Pikis, Xanthos Sarris, George Syrimis, Michael Timenides and Solon Triantafyllides (elected the Institute’s first Chairman). Almost 53 years later, that early vision has grown and ICPAC now numbers more than 3,500 members. It is a member of European Federation of Accountants (FEE), the International Federation of Accountants (IFAC), the International Fiscal Association (IFA), La Federation des Experts Comptables Mediterranéens (FCM), ACCA, ICAEW and AIA. The Institute of Chartered Accountants in England and Wales and the Chartered Institute of Management Accountants chose Cyprus as the first country in the world to train UK Chartered and CIMA accountants outside the United Kingdom, as well as to organize the training of UK Certified Accountants on the island. A major step in the Institute’s evolution was the signing of an agreement with the ACCA of the UK for a joint examination scheme. Today, there are more than 2,500 registered students in this scheme. In 2004, ICPAC signed a new agreement with the ACCA for the undertaking of a quality assurance system for the audit firms in Cyprus. ICPAC’s members have contributed significantly to the development of Cyprus. In the tough years following the 1974 Turkish invasion, the accountancy profession played a major part in the recovery of economy. It is again being asked to make its own contribution to establishing the restoration of trust in many of the island’s financial institutions.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Panicos K. Charalambous

Senior Director, Audit Services, Baker Tilly Klitou

The pace with which the regulatory environment is changing, the need to keep up to date with changes in accounting and auditing standards as well as the introduction of complex products by specialized industries â&#x20AC;&#x201C; especially those in the financial sector â&#x20AC;&#x201C; constitute serious challenges for audit professionals around the world today.

Most of the issues are the same. In addition, due to the events of last year, the Cyprus economy is severely affected by falling revenues, a lack of liquidity, and increasing unemployment rates in all sectors, all of which have adversely affected the ability of many businesses to operate in the current economic environment. As a result, increased pressure is exerted on auditors for reduced fees which leads to more intense competition among audit firms to retain existing clients and attract new ones.

This is the result of recent company collapses. Questions are being asked of the role that auditors should have played in warning shareholders/investors of the risks of failure. Trust in audit reports can be restored by proper communication and disclosure about the role and function of auditors, their independence, the audit methodology used and the supervision and monitoring of audit firms. There is, I believe, an expectation gap between what the public perceives the auditor to be doing and what is being done in practice.Â Auditors need to promote more transparency in order to increase investor confidence.

As indicated above, there should be more disclosures about the audit methodology used as well as the audit findings and the responses of management to those findings. Management would therefore be more accountable to its shareholders and investors enhancing accountability and trust.

The equation is simple: quality can be maintained in an environment of rising delivery costs and falling fees by improving productivity. In this connection, Continuous Professional Development of audit professionals is essential more than ever before, coupled with improved efficiency through the proper utilisation of both technology and people. A positive attitude is essential to be successful.

As with industries and other professions, the auditing profession must heed changes in public needs and demand to maintain its importance to capital markets. Auditors must focus consistently on audit quality and its continual enhancement and should contribute to the integrity and stability of financial markets.

The quality of auditing in Cyprus has been confirmed by the regulators as being fundamentally sound. However, there is a need for consistency in high quality of audits among the auditors in Cyprus so as investors regain confidence in the capital markets.

Maria Paschalis

Partner, Audit Services, Deloitte

Trust and confidence is essential to the functioning of capital markets. The global financial crisis, corporate failures and apparent audit failures in the past few years have eroded public trust in large companies and the accounting firms which audit them. More robust supervision is needed but also increased emphasis on ethical values to reduce fraud and support conscientious oversight on financial reporting.

AUDITORS NEED TO PROMOTE MORE TRANSPARENCY IN ORDER TO INCREASE INVESTOR CONFIDENCE

Auditing firms should transform audit execution in exactly the way it is needed to respond to changes in the marketplace and regulatory environment; this could be achieved to a large extent by focusing on and investing in enhancing audit quality, integrity and independence. Moreover, stimulating closer cooperation throughout the audit engagement, especially the exchange of high quality information between audit committees and the external auditor, will be of great benefit to the stakeholders.

It is of fundamental importance to the stakeholders and capital markets that auditors perform high quality audits and comply with auditing standards. Auditors must avoid the temptation to compromise audit quality, including situations when staff is under unreasonable pressure to do the same work in less time. At the same time, companies must recognize the value of the audit for their shareholders and potential investors, and avoid unreasonable demands on fee reductions.

20 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Many lessons have been derived from the financial crisis and no doubt the general sentiment and trust of stakeholders in the audit process has eroded, triggering a fundamental review of the role an audit serves. Particularly in the areas of professional scepticism, commitment to quality and effectiveness of auditing, regulators, supervisory bodies and professionals are working to clarify and evolve what information an audit report should provide.

2. Angelos Theodorou

Executive Director Euroglobal SEE Audit Ltd

Stavros Pantzaris

Partner and Assurance Leader, EY Cyprus

Today’s business world is complex and fast-paced. The global economy continues to experience difficult conditions as the effects of the financial crisis persist. Volatility in capital markets continues to create uncertainty, resulting in wide-ranging financial reporting implications. Furthermore, complying with the changing regulations on national, regional and international levels is becoming an ever more complex undertaking. Recently, we have seen a number of reforms proposed by regulators covering a range of issues affecting listed companies and the audit profession. Such reforms include important changes to standards that, for the first time in decades, could change the auditor’s report.

2013 has been a year full of challenges for audit professionals in the eurozone and, particularly, in Cyprus. We continue to operate in highly-fraught political

Similar challenges are encountered by audit professionals in Cyprus, particularly now given the current distressed economical climate. Furthermore, the expectations gap seems to have broadened in what the public perceives as the role of an audit to be and what the audit profession claims is expected of it during an audit. As a result this has stimulated even more the need for communicating findings and insight, not only regarding figures and their interpretation but also the more qualitative aspects of risk management and corporate governance.

Trust is often defined as both an emotional and rational act of the economic environment which inevitably erodes when

businesses start failing. In the search for answers as to why, stakeholders naturally turn to the independent auditors. Restoring confidence and reliability will certainly require enhanced dialogue and refined communication with the business community.

It is widely perceived by stakeholders that the current reporting model may not be sufficient, as it primarily focuses on reporting compliance and auditors are not communicating enough or as well as they could. It is no small task but evolving into an alternative integrated reporting model and nurturing the idea to include additional supplementary information as to how auditors arrive at an audit opinion may well be part of the answer.

Audit quality is vested in a firm’s overall culture and commitment, the skills it possesses and the effectiveness exercised during the audit process. Consistently encouraging innovation to evaluate and develop alternatives on how we can do things differently and more efficiently without compromising audit quality is a key determinant to ensure the reliability and usefulness of audit reporting.

and financial conditions, with limited access to credit, an environment which none of us in Cyprus has ever experienced. In light of the current environment, we have an important responsibility under the International Standards on Auditing (ISAs) to properly consider the effects of the recent developments on our audit engagements, including the appropriateness of management’s use of the going concern assumption.

Much-publicised international accounting scandals and the issues that came to light locally, following the partial collapse of the banking sector in Cyprus, have contributed significantly to the erosion of trust in audit reports. Trust will be restored over time by ensuring proper compli-

ance with professional and ethical standards. As professionals, we support those policy reforms that contribute to increased confidence in financial reporting and the long-term role and relevance of audit.

As auditors, we have an important duty to the public trust and the capital markets. Measures taken by the profession and the regulators to restore trust include the adoption of international frameworks of auditing like the ISAs, the increased inspections of audit firms to ensure compliance with professional and ethical standards and timely disciplinary actions taken by accounting bodies and regulators against those who fail to live up to their professional obligations.

Auditing is becoming a more and more competitive business with professional firms facing considerable pressure to keep audit fees low. To ensure that quality is maintained and risks are properly addressed in this fee-pressured environment, audit firms are looking at more cost-efficient means of auditing, for example through the use of technology (e.g. automated data analysis tools), by moving to a risk- based audit and by relying more on entity internal controls which would allow the auditors to reduce the more timeconsuming detailed substantive testing.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

AUDITORS SHOULD PROVIDE BETTER COMMUNICATION TO INVESTORS

Marios Agathangelou

Director, Horwath DSP Limited, Member Crowe Horwath International

Augoustinos Papathomas

Assurance and International Practice Partner, Grant Thornton 1. Audit reports have been challenged due to the global financial crisis and the collapse of various companies around the globe. Auditors have been challenged as to the usefulness of the information reported to the investors and the actual level of assurance provided. Our profession has experienced pressure with regard to auditors’ independence, objectivity and professional scepticism in issuing audit opinions. The time has come for the profession to take the necessary steps to change to perception of the users of financial information. 2. In addition to the above, audit professionals have had to work under more stringent conditions during the last few years due to the economic circumstances as many businesses face issues of going concern, suffer impairment of their investments and experience reduction in the value of their property. 3. Audit reports have been a hotly discussed topic since the global financial crisis which saw the profession internationally become the subject of a range of criticisms as a result of the major corporate collapses that occurred. Audit firms have to play a part in rebuilding confidence in capital markets. Auditors should have a more valuable role in supporting the markets and wider society. Investors should receive more meaningful information about companies with the aim of demonstrating how management has acted in their interests and how auditors have exercised appropri-

ate professional scepticism. 4. Auditors should provide better communication to investors. We need to be more transparent about how we reach audit opinions and, likewise, there should be greater transparency about management’s decisions in preparing the financial statements. In addition to issuing an audit report on financial statements, audit firms must provide new services to meet the changing needs of investors. Auditors could also provide investors with enhanced communication, assurance opinions on increased narrative disclosures in audit committee reports, and assurance opinions on other information provided by the company. 5. Audit quality should be considered in the context of stakeholder needs. There should be a balance between the costs of an audit and the corresponding benefits to shareholders, investors and other stakeholders. The net benefit to user needs will not be enhanced by the performance of work where the related costs exceed the benefits. Grant Thornton is always looking for ways to enhance and sustain audit quality. This can be achieved by taking a combination of different measures, for instance, fully utilising our IT systems and audit tools, reducing our running costs by increasing efficiency and productivity through the effective training of staff without compromising the quality of our work and client service.

1. 2.

Rebuilding confidence in the audit report. This is the auditors’ challenge nowadays. The financial crisis and the growing number of financial scandals have eroded the confidence of stakeholders on audited financial statements. Going concern issues, pressure on audit fees and the recoverability of fees are the challenges faced by local audit firms. Clients have been struggling to survive for the past couple of years with the final hit coming in March 2013. Audit firms are expected to comply with increased regulation and, at the same time, maintain quality.

3. 4.

The collapse of several well-known international companies, and the financial scandals that came to light, challenged the reliability of the audited financial statements and thus the audit work. The audit profession needs to re-examine and realign its purpose with the public interest. Over the last few years, we have experienced increased legislation regarding audit work in an attempt to deal with corporate failures and the public’s expectations. More than 50% of audit time nowadays is spent filling in forms to ensure compliance. It’s time to rethink the audit process and direct efforts onto the value of the audit to the user. The key focus should be the auditor’s judgment and legislation safeguarding the freedom of opinion and expression.

In any profession, quality suffers if fees are under pressure. The audit process should become less of an administrative task and more of a thought process whereby professionals exercise judgment and concentrate on what really matters. Consideration could also be given to audit alternatives that could possibly be more applicable to micro entities whose main stakeholder is usually the income tax office.

22 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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ITY L A U Q G N AINTAINI HE AGENDA M Roys Kassapis NT O H G I H NALS O I S S E BSc FCA Executive Director, InterTaxAudit IS F PRO T I D U A F O

As the world financial crisis lingers on, the audit profession across the globe faces a confidence test. Corporate auditors today have the task of restoring trust in their ability to produce meaningful financial statements for investors and stakeholders. An integral part of confidence building is the need to improve the public’s perception and understanding of the auditor’s role.

Cyprus is facing the exact same issues against a backdrop of the Cypriot debt crisis and its repercussions. Audit professionals need to restore the trust that international companies had in Cyprus and maintain Cyprus as an attractive business destination. While on the one hand the economy is heavily dependent upon the professional services sector, professionals are coming under increasing attack for

more regulation, transparency and other measures.

The banking crisis has eroded confidence in audit reports and instinct points towards more regulation and monitoring of audit practitioners. However, the key in regulation is striking the right balance between flexible rules which promote business and draconian measures which stifle it.

The trend is for users of the financial statements to have more information of a qualitative nature like significant risks and other nonfinancial data. This matter ties in with another contemporary issue hitting the headlines: that of corporate governance and the loss of trust in banking and public institutions. On a more practical level, an issue of concern is the small entity exemp-

Partner, Joannides + Co

Enhanced transparency on the audit and reporting process, enhanced business ethics and corporate governance could collaborate and improve the financial systems.

In the past year, Cyprus has been experiencing the effects of a major financial crisis which, to a certain extent, is a result of long-outstanding structural problems in the public, financial and (to a lesser degree) private sectors of the economy. However, Cyprus remains a

This is a key issue preoccupying all businesses in times of crisis, not just the audit profession. In the current economic climate, it appears that costs are stable if not falling. Maintaining quality is high on the agenda of audit professionals and, indeed, the subject matter of one of the Auditing Standards that form the Bible for all audit work.

velopment of economies globally and will continue to do so. Auditors are collaborating with regulators to enhance the profession’s independence and accountability, so that they can continue helping restore public confidence in financial institutions and, consequently, the economy in general.

Chrysostomos Stephanou The financial failures and collapses of major corporations around the globe since the late 1990s have tarnished the reputation of the audit profession and put at the forefront of regulators’ agendas the type of reforms which would improve the quality of the assurance work and enhance the financial reporting process. The challenge to audit professionals is to exploit their own self-regulation mechanisms and continue their active contribution to the enhancement of the quality of the assurance work, which will improve stakeholders’ confidence and inevitably lead to financial stability.

tion whereby small companies would be exempted from the audit. In place of the audit report, assurance work could be performed, particularly for tax returns. This is what applies in the EU but not in Cyprus. As the world moves towards a global economy, another matter of a technical nature is the increasing need for worldwide regulatory cooperation such as, for example, the adoption of International Financial Reporting Standards in countries like Russia and China.

5. credible place to do business and the crisis has not impacted the level of service that audit professionals are able to provide. In fact, audit professionals are well-positioned to ensure the correct implementation of the current structural reforms that will put the Cypriot economy back on track.

Trust in all organisations surrounding “the finance world” has taken a significant battering following the financial crisis; the audit profession is no exception. Ultimately, the profession has contributed for many decades to the de-

The best qualitative outcome for clients arises where audit firms operate in a competitive market place. If the audit profession is allowed to operate in a regulated and competitive market, where delivery costs are reasonably compensated by audit fees, there is no doubt that the audit quality will not be compromised in any way.

THE CRISIS HAS NOT IMPACTED THE LEVEL OF SERVICE THAT AUDIT PROFESSIONALS ARE ABLE TO PROVIDE

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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COVER STORY

Panicos G. Loizou,

much the same in Cyprus, even more so after the decisions of the Eurogroup. Most companies in Cyprus are facing serious liquidity and viability issues, hence auditors are required to assess extensively going concern issues and apply professional scepticism in their audit reports.

BSc Hon (Econ), FCA, CTA Board Member, Head of Audit, KPMG 1. The financial crisis that started in the USA and spread in Europe and other parts of the world following the collapse of Lehman Brothers, triggered a fundamental review of the role of the auditor. There are areas of subjectivity in the accounting Standards, one of the most important being accounting estimates including fair value estimates. Other important issues are auditor rotation and joint audits. 2. The issues described above are very

3. There is a misconception of the role of the auditor. Changing public perceptions is not an easy task. Throughout the years, regulators, standard setters and auditors worked hard – and continue to do so – to narrow the expectation gap. 4. The audit process is normally set by auditing standards and best practices. Audit quality could be improved by auditors gaining industry specialisation. The use of technology is a must as an audit tool to assist auditors in obtaining relevant and reliable evidence. There are arguments for and against in enhancing the audit report into a long-form report. 5. An audit is not a commodity and

The topics which are under consideration by many jurisdictions globally are: • efforts to increase competition (the market is dominated by the Big 4 firms) and as such mandatory rotation, tendering and joint audit proposals have been suggested to increase the incidence of changes in auditors • restrictions on non-audit services to enhance the appearance of auditor independence and to generally reduce the possibilities for conlicts of interest • increasing regulatory oversight which is justified to meet investor and readers’ expectations and confidence in the audit process

2. 3.

The issues of the profession in Cyprus are not dissimilar to the ones abroad.

Susana Poyiadjis

Partner, Audit and Assurance, Nexia Poyiadjis

Trust has been eroded mainly due to high-profile company failures where the auditor had not identified and/ or highlighted factors that may have indicated that a failure was imminent. Restoration of trust is dependent on the prevalence of significant reporting errors and/or company failures in the future which may be attributed in some part to the lack of an effective audit process. Auditors need to be increasingly mindful of the potential for company failures subsequent to the issue of a clean audit report.

It’s the old message: ‘Auditors not only have to be independent but they must be seen to be independent’. Auditors need to continue to: • develop and maintain a very high compliance culture within their firms

should never be viewed that way. Auditors, as members of their professional bodies, are obliged to follow specific rules and regulations and a strict code of conduct. These are not negotiable and do not depend on the pricing of services. Audit firms, by working smarter, can maintain and even improve quality while making the audit process more efficient. The use of audit service centres is one example.

• develop and maintain a high culture of quality and ethics (including independence) • develop and maintain a high level of professional scepticism • enhance individual client assignment risk assessment leading to appropriate and sufficient audit work • develop more detailed audit reports that explain to the reader the work that has been undertaken and the fact that the conclusions are subject to that work only. This may lead to a greater need for clarity in order for readers of financial statements to understand why some work is/was not undertaken and/or the need to expand the scope of the auditor’s work to encompass areas that are not formally addressed by the audit work and the audit report

The level of fees is determined by the market in which a firm operates and its overall business strategy. That said, the quality of an audit should not be dependent on the level of audit fees and the associated costs incurred by auditors. Quality is governed by the requirements of auditing standards applicable in a particular jurisdiction, as well as extensive planning together with robust risk assessment leading to sufficient work in significant areas and avoiding overauditing or time spent on immaterial areas. These should assist auditors to conduct and complete effective audits within fees quoted based on reasonable expectations of the time and resources required. False economies are achieved where there is insufficient input from the engagement partner and/or the audit manager/supervisior/ lead auditor in order to stay within unreasonable fee quotations based on unrealistic expectations of the time and resources required.

24 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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Tatia Efstathiou

FCCA Director, P.G.Economides and Co Ltd

Petros C. Petrakis

Partner, Assurance & Advisory Services, PwC After over two years of intense discussions, the European Commission, Parliament and Council of Ministers have reached agreement on draft legislation to reform the audit market in the EU. Agreement was reached on the introduction of mandatory rotation of statutory auditors and audit firms of public-interest entities, and on restrictions on the provision of certain non-audit services to audit clients. The new legislation is expected to result in major changes affecting audit professionals and the services they can offer to clients both in and outside the EU. Following the adverse financial and economic conditions experienced in the recent years, both at the macro and micro level, an erosion of public trust and confidence in business has been witnessed which has also affected the audit profession. Restoring trust is essential and auditors have a key role to play in driving the process. The audit profession in Cyprus is faced with similar challenges.

The audit profession has been undergoing significant changes in recent years and companies are operating in an increasingly demanding and competitive environment. Audit firms have to design and implement procedures to meet the increasing requirements set by the professional bodies and international standards while, at the same time, maintaining a reasonable level of profitability.

sector worldwide and for not flagging up the weaknesses in the banking sector. Rebuilding trust in audit reports should be a primary concern of the profession and it will take a long time to achieve. The effort must concentrate on improving audit quality, the transparency of financial information and implementing procedures to strengthen the supervision and accountability of the audit professionals.

Audit firms are generally prohibited from providing non-audit services such as tax advisory and consulting. The majority of the audit firms in Cyprus, being small to medium sized, rely on income from THE provision of other services as well, so a careful selection of the services to be offered is vital. Increasing pressure has been put on local audit firms to further strengthen controls and procedures so to identify and report money laundering issues. As a result of the banking crisis in Cyprus, the professional services industry faced the challenge of reassuring international clients that Cyprus is still an advantageous and professionally reliable jurisdiction. While the leakage of existing business was not as severe as some had anticipated, new business has slowed down.

Auditors were often held responsible for not foreseeing the crash of the financial

It is important that auditors increase efficiency in carrying out the audit. Such efficiency can be achieved by carefully selecting the appropriate audit software which supports the audit methodology of the company. The use of information technology can also assist in forming knowledge centres to offer guidance and assistance during the audit. At the same time, professional critical thinking and input is as important as ever before, and should not be disregarded in favour of any advanced audit software.

The audit quality must be ensured, despite rising costs and falling fees. Audit firms have to explore new and more efficient ways in carrying out the audit, to embrace a culture of innovation and continuous learning, invest in staff training and development, and achieve a better utilisation of information technology.

Auditors have a duty to engage with all stakeholders and continue the debate on measures that will lead to regaining trust in business and the audit profession. Changes that would improve audit quality and financial reporting should be firmly supported. These improvements may be achieved through a more informative and transparent financial reporting and audit report, enhancement of dialogue between auditors and financial regulators, strengthening the role of the audit committee, its relationship with and its oversight of the auditor, as well as the placing of focus on good corporate governance. The new rules and policies brought about by the reform will not only affect EU auditors but also companies. Legislators and regulators should be careful in ensuring that these rules are adopted and implemented in a measured, considered and proportionate manner which will indeed contribute effectively to the strengthening of audit quality without yielding opposite results or even impacting negatively on European competitiveness. The potential increase of delivery costs in an environment where there are strong fee pressures, brings about additional challenges to auditors.

ST U R T G N I RESTOR AL TI N E S S E IS

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opinion

Transparency Is Not Enough

It is time to curb the role of political parties and trade unions in semi-government organisations.

f all the principles underpinning good governance, transparency is probably the most widely advocated. “Sunlight is the best disinfectant” is the well-known quote from US Supreme Court Justice Louis Brandeis that refers to the benefits of openness. Though essential, however, transparency on its own is limited by the assumption that honour and shame will serve as corrective mechanisms against excessive self-interest. Experience tells us this is a big assumption. The recent appointments to the boards of Cyprus’ semi-government organisations (SGOs) provide an interesting case study. The so-called ‘spoils system’ (i.e. “to the victor go the spoils”) has been openly, widely – and quite unashamedly – practised in Cyprus for decades. This is how seats on the boards of SGOs have traditionally been allocated. If transparency were the only criterion for good governance, successive governments could have argued they have always been in compliance, given the openness about using this system. It could have been further argued this has always been done with the tacit approval of an electorate fully aware of ‘the way we do things around here’. But the Cypriots have recently had a rude awakening. Most neutral observers would agree that decades of cronyism and tribalism (that underpin the spoils system) are a significant contributing factor to the inefficiency of the State that is now bankrupt. Moreover, the Cypriot public is now painfully aware of its vulnerability to any incompetence and/or corruption by the powerful elite (whether in the public or private domain). This has brought home the realisation that without real accountability, the impact of transparency may be limited. So, to whom should SGO board appointees be accountable? This takes us to the heart of the governance debate surrounding alternative models. Two examples can be used to illustrate: in broad terms, the ‘shareholder model’ prioritizes the interests of an organisation’s owner(s) whereas the ‘stakeholder model’ takes a more holistic view to consider all those impacted by the organisation’s actions. This is a particularly relevant discussion given the pending denationalisation of Cyprus’ SGOs. It could also serve as a means of providing

Any system of good governance should incorporate the principle of probity

By Petros Florides

“more light and less heat” to an issue that promises to polarise society even further. With the roadmap for denationalisation providing 2-3 years for preparation, sufficient time exists to gain a broad consensus on three key governance questions: (1) To whom is accountability owed? (2) How can the stakeholders be empowered to exercise their rights properly? (3) To what extent should the needs of remaining stakeholders be addressed? Even with transparency and accountability, still more is required. For authority to not be used brazenly whilst answering only to an exploitative few, any system of good governance should incorporate the principle of probity (honesty, fairness, justice, etc.). Probity helps redress the balance between the powerful and the powerless through sound ethics and values. Importantly, however, what is fair and just should not be determined only by the same powerful actors and stakeholders that probity is trying to guard against! Again, the SGOs provide interesting insight. Political parties and unions are the two most powerful stakeholders and they have also set the agenda to date. This can be illustrated by the political appointments to the boards, and the recent admission by one SGO to being “overpopulated” and able to operate perfectly well with fewer people (it is highly likely this applies to other SGOs too). The question is whether other stakeholders – especially paying customers – also approve of SGOs being such gracious – not to mention generous – employers. Probity requires that their opinion be given an adequate hearing. This is especially important in a monopoly environment where the opportunity to patronise only a preferred supplier does not exist. The principle of sustainability is also critical for comprehensive good governance. This includes the economic, social and environmental arena in which an organisation operates. Unfortunately, the Cypriot cultural idiosyncrasies of cronyism and short-termism have weighed heavily on SGOs with the growing financial crisis exposing their inefficiencies. Wider public support is also being severely tested as the growing ranks of the unemployed start to question the value for money offered by SGOs. It is time for Cyprus to introduce comprehensive good governance to chart a better future.

info: Petros Florides is Regional Governance Advisor for World Vision International, and Executive Officer of World Vision Cyprus. He is also on the board of the Institute of Directors (Cyprus), co-founder of the Cyprus National Advisory Council for the Chartered Institute for Securities & Investments, co-founder of the Institute of Risk Management Cyprus Regional Group, and a Chartered Management Accountant. The views in this article represent those of the author and not any other individual or organisation. 26 Gold the international investment, finance & professional services magazine of cyprus

cover story

Windsor Brokers Ltd.

Celebrates 25th

Anniversary

he Directors and employees of Windsor Brokers Ltd. celebrated the companyâ&#x20AC;&#x2122;s 25th Anniversary on 24 January with a gala dinner at the prestigious Four Seasons Hotel in Limassol at which the President of the Republic,. Nicos Anastasiades, was the Guest of Honour. VIP guests included former President George Vassiliou, Finance Minister Harris Georgiades, Defence Minister Photis Photiou, the Chairwoman of CySEC, Demetra Kalogirou, several Members of the House of Representatives, Ambassadors, CEOs, Managing Directors and Associates. Over the years, Windsor has received numerous awards for its innovative products, services, partnership programs and customer support. At the beginning of 2013, Windsor was ranked as one of the top 10 CIFs based on capital reserves. Today, Windsor Brokers Ltd. employs over 120 people in Cyprus and abroad and is a leading provider of financial services, catering to both retail and corporate clients from over 80 countries worldwide.

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opinion

Taxes: A Statutory or Moral Obligation? Tax consciousness requires the payment of taxes in accordance with moral rules

he concept of “tax consciousness” is a very popular topic not only in academia but also during turbulent economic times or times of prolonged economic recession like the one we are globally going through. In its most simple form, tax consciousness is the act of voluntary and full tax compliance with all obligations arising as a result of one’s domicile, temporary or permanent residence, and income arising from sources within a specific country. It should not be confused with the concept of tax compliance which is defined as the degree to which a taxpayer complies (or fails to comply) with the tax rules of his/her country, by declaring income, filing a tax return, and paying the tax due in a timely manner. Although tax compliance is satisfied through arranging one’s affairs in a manner which legally permits the payment of the least amount of taxes, tax consciousness requires the payment of taxes not only in accordance with statutory rules of law but also in accordance with moral rules. And while tax compliance does not require the existence of tax consciousness, its existence always translates into high levels of tax compliance. Tax consciousness is the mirror that reflects the relationship of trust that exists between the citizens of a country and the political system and, by extension, its judiciary, legislative and executive authorities. According to studies, this relationship is inextricably linked with the opinion (positive or negative) that citizens have of the political (and State) system of their country. The more positive the image emitted by the system, the higher the level of public confidence in it. As a consequence, the presence in these countries of high levels of tax consciousness converts with mathematical accuracy into higher levels of tax compliance. Traditionally, the Nordic countries (most notably Denmark, Norway and Sweden) consistently rank in the top spots when it comes to tax compliance, despite the fact that they impose effective tax rates that are among the highest in the world. It is worth mentioning here that the citizens of Nordic countries, also consistently rank among the happiest in the world. info: Costas Markides is a Member of the Board of KPMG.

28 Gold the international investment, finance & professional services

Taxpayers need to feel that the tax system is fair

By Costas Markides

I am not inferring that high levels of taxation trigger euphoria and happiness which in some inexplicable reason translates into high levels of tax compliance! Rather that if taxpayers perceive that they are dealing with a fair tax system, one which respects their hard-earned money and prudently administers it with the aim of improving the overall standard of living and quality of life of its citizens (e.g. by providing them with access to affordable or free quality education, high level healthcare facilities, an adequate and well-maintained infrastructure such as highways, airports, theatres and museums), then high levels of tax compliance will be observed since taxpayers are left with a gratifying sense of giving back to the society in which they live and work. Taxpayers also need to feel that the tax system is fair, that they pay the same level of taxes as anyone else in the same category and less than those whom they perceive as wealthier. A tax system that portrays balance will enjoy substantially higher levels of tax consciousness, which transform into high levels of voluntary compliance, lower administrative costs and increased efficiency in tax collection. This, in turn, is converted into increased public revenues and available reserves that can be invested back into the community. It is therefore not surprising that mismanagement in public administration, the improper use and embezzlement of funds, a lack of transparency in decision-making, reckless spending of public resources, impunity and tolerance of corruption, and a loose and selective application of laws, are the basic characteristics of countries where persistently low rates of tax consciousness are observed and, consequently, low tax compliance rates are recorded. Studies have also shown that, in such countries, there is a direct connection between the level and quality of services that citizens perceive they receive from the State and their level of tax consciousness. Citizens of these countries feel that paying taxes will not provide them with anything in return and they will still need to take care of themselves when it comes to securing education for their children, access to healthcare for them or their elders, a good quality of life and a sense of security about what the future holds.

‘Life begins

when you leave your comfort zone’ Peter Greenberg outlines the challenges facing the Cyprus tourism industry By John Vickers

ultiple Emmywinning investigative reporter and producer Peter Greenberg is America’s most recognized, honoured and respected front-line travel news journalist. Known in the industry as “The Travel Detective,” he is the travel editor for CBS News and was named by Travel Weekly as “one of the most influential people in travel”. He was in Nicosia last month for a one-day conference organised by Hermes Airports and PwC entitled “Air Connectivity Development for Cyprus through Change, Cooperation and Innovation”. During a break in the proceedings he spoke exclusively to Gold. Most people probably think that Peter Greenberg has the best job in the world: he’s visited over 150 countries, he clocks up

420,000 miles a year and he is incredibly famous. And while he has no complaints about his life, he is clear about one thing: it is not one long vacation. “People make the classic error of coming up to me and asking why I made the change from journalism to travel and I say ‘What are you talking about?’!” he tells me when we get together in a quiet corner of the Nicosia International Conference Centre. “The truth is that, sadly, most travel journalism is promotional,” he goes on. “It’s about Lovely London and Beautiful Bermuda and the size zero woman on the beach with her ‘Ken and Barbie’ matching boyfriend. Now, to me the audience doesn’t need me to tell them that the sun sets nicely in the Bahamas. They can figure that one out for themselves. What they want me to tell them while the sun is setting nicely in the Bahamas – and the airline has lost their bag and the hotel has no record of a

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reservation and the cab driver took them for a 40-mile drive around the town when it should have been two – is all the information about the process of travel so they know the questions to ask and they don’t become victims. My mandate as a journalist is to understand the process, and then I can more adequately value the product and that’s what I write about all the time.” So, by his definition, travel journalism is no different from any other kind, and he certainly knows about that, having started as a writer for his college newspaper as a student at the University of Wisconsin at a time when the anti-Vietnam War movement in the United states was at its height. “My campus in Madison, Wisconsin was actually the most active and violent anti-war campus in the world,” he tells me. “Imagine a campus which had a fully armed National Guard with tear gas there every single day for years. Before I knew it we

travel & tourism

That slogan ‘Cyprus in your heart’ makes me think I’ve been stabbed

You can’t depend on people understanding where you are in the world.

were Ground Zero for the media and not only was I doing front page stories for our college paper, I got very lucky and I was hired as a stringer for Newsweek at 18.” By the time Greenberg was 20 he was a full correspondent and had already written four or five cover stories for Newsweek, something which he says was “unheard of but I happened to be in the right place at the right time.” At 21 he was sent to Los Angeles where he became the magazine’s West Coast correspondent, covering everything. “I was always the guy with a suitcase in the trunk of my car trying to be the first at the scene of something,” he recalls, “and it dawned on me very early in my career that nobody was covering travel as news; it was just being covered as a vacation or a holiday subject. So I used my access as a journalist to get thoroughly immersed in the process: I trained in aircraft simulators, I became a Coastguard captain so I

could understand cruise ships, I became pretty well-versed in aviation safety and accident investigations and in the processes of flying, navigation, the train network and so on.” Greenberg developed travel as his “individual beat” while reporting on major stories such as Watergate, Patty Hearst, Howard Hughes and more. This led to him writing a weekly column for some 80 newspapers in America and it was an investigative column. “It didn’t talk about Lovely London and Beautiful Bermuda,” he tells me, “but about which cruise ships were floating fire traps, which airlines had the worst maintenance, which hotels were the most likely to be burgled. That led to television and I’ve been on television for 35 years, starting at ABC, then 14 years at NBC and for the last 5 years on CBS.” Travelling for about 300 days a year, the man Americans know as “The Travel Detective” lives in 6 places so it’s perhaps no wonder that people think he is on vacation all the time. “My friends have actually been in shock over the past couple of weeks,” he reveals, “because for the first time in 22 years I took a 7-day vacation. I went to the Maldives where I snorkelled, I fished, I ate pretty well and I read. I took six books with me and I managed to read four of them: The Brothers by Steven Kinser about Alan and John Foster Dulles, one called Conversations with Ernest Hemingway, Henry Bushkin’s Johnny Carson, a biography of the famous American TV talk show host, and The Presidents Club by Nancy Gibbs and Michael Duffy about how the ex-presidents of the United States talk to together all the time but we don’t know about it. He obviously doesn’t care for fiction: “I haven’t read a book of fiction since I was forced to do it in high school!” Greenberg has visited Cyprus on something like 15 occasions, starting in the early ‘70s (“when Nicosia was full of spies”) and although his recent visit was his first time back in 10-15 years, he says that he stays in touch with what’s going on. “I get 16 newspapers and 35 magazines a day and I have a Cyprus file this big [shows with his hands]. I’m actually very old-school. I read papers. It’s a real file and it’s really this big!” So what is the challenge for Cyprus? As for any destination, says Greenberg, it is to work out “how you create, how you finesse, how you perfect, how you nuance and how you reinvent… without doing something stupid.” In Cyprus, he says, our natural resources – beaches, history, churches and monasteries,

culture, food – are great but what we don’t have is great visibility. And we’ve been chasing after (or have been chased by) the same maturing market for years. “What Cyprus needs to do is realise that, regarding connectivity in the global village, it is perfectly positioned as a destination that is four hours east or west of anywhere people want to be and that they need not to look at the island as a singular destination. It’s the mistake that almost every destination makes. They want to promote themselves as the singular destination. Get rid of that! Give it up! That train left the station years ago.” The trick, according to Peter Greenberg, is this: “What you need to do is say to people, ‘If you’re going to Athens, stop on by. If you’re going to Abu Dhabi, stop on by.’ Just look at the map. The three fastest growing airlines in the world – Emirates, Etihad and Qatar Airways – have all picked Larnaca. Why? They have a map and they have figured it out but the people in Cyprus haven’t. Who is going to be flying here? I have nothing against British, German or Dutch holidaymakers. They have been the tourist base so don’t discard it but don’t depend on it either. Realise that for the first time in modern history, people from Azerbaijan are flying, people from Korea are flying, and people from China are flying. These are not low-yield customers. These are guys with money.” So Cyprus needs to widen its market to these people but what do they want? Greenberg says that they are not simply looking for a different destination. “They’re looking for a different experience, they’re looking for bragging rights so that they can tell their friends, ‘While you were sitting at the same hotel pool doing the same things as you did five years ago, I got a chance to do this and it happened to be in Cyprus.’ You can’t depend on people understanding where you are in the world. You need to focus on what you are offering them in terms of an experience because that’s going to trump everything.” An issue that has been debated in Cyprus for years is what target audience Cyprus should be trying to attract. High-end or mass package deal? Peter Long of TUI told Gold last month that “All tourism is good tourism”. Peter Greenberg agrees. “He’s right. You have to have a mix. But every tourist board falls into the same trap: they get hung up on numbers but they don’t interpret them properly: ‘The average visitor stays this number of days, spends this amount of money, and our numbers went up last year.’

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travel & tourism

I don’t care that your numbers went up. I would much rather have the numbers go down but the average spend and the quality of the experience go up because everybody benefits from that. It’s not a question of filling hotel rooms.” He seems to be suggesting that Cyprus should indeed be trying to attract the higher end of the market, I venture to say and he agrees. “You shouldn’t ignore them because you have the product. You can’t just chase the charter flights and you can’t just chase the mature base that you already have. Cyprus needs to realise that the world is changing rapidly. Those airlines I mentioned are adding a new route every week. That would have been unthinkable at one time. And they’re sustaining it, which would also have been unthinkable. How are they doing it? By not depending on the traditional market base. They are getting traffic they never even knew existed and it is traffic that that has the wherewithal, the money and the desire to experience something new. Ta-Dah!” Greenberg believes that Cyprus has not done a good job of presenting itself. On the slogan that the Cyprus Tourism Organisation has been using (“Cyprus in your heart”), he told the Nicosia conference that “it makes me think I’ve been stabbed! It doesn’t resonate with me. It doesn’t make me want to do anything.” What people want, according to “The Travel Detective”, is a new experience and they don’t really care where they get it. “You want someone to say, ‘I can go to Cyprus and learn how to cook’, or ‘I can go to Cyprus and have a water experience like nowhere else’, or ‘I can go to Cyprus and go skiing in the morning and swimming in the afternoon’”, he says. “It’s all about experience. What Cyprus needs to do – as many destinations do – is to stop marketing itself as a singular destination. It does not work. What you want to be saying to people is, ‘While you’re in Athens, come over and spend two days in Cyprus.’” He gives the example of the fastest-growing airline in the world today – Turkish Airlines – which decided that it would fly to more destinations than any other airline in the world. “You have to go through Istanbul to get there. So you get to discover Istanbul on the way to Kiev. How brilliant is that? Now, you don’t have the route system yet and you don’t have the airline base in Cyprus but you have other airlines with fifth freedom rights that can do it for you. Cyprus needs to seize that opportunity and change its marketing from promoting to presenting, and from presenting the country as THE destination to presenting it as the

surprise on the way to somewhere else or from somewhere else. Let people discover it and go ‘Wow!’” There are plenty of places, he says, that have discovered this and are now reaping the rewards. He cites the airlines of the Gulf States and their home bases: “Close to 78% of the people who fly to Dubai aren’t going there but going through there. That has been their shortterm market strategy. Their long-term strategy is to build the infrastructure so that people stay a couple of days once they are there. The people who are coming to Cyprus on Emirates are not people who live in Dubai. They may live in Vienna or who knows where. The Gulf airlines and Turkish Airlines have got it right in looking at it in terms of the super-hubs. But let’s go back in history and look at Jordan. Jordan was in trouble because of all the regional difficulties. It couldn’t market itself and it did something very smart: it marketed Israel! It said, ‘If you’re going to Israel, come through Jordan. It’s cheaper and you can see Jordan on the way back.’ The Israelis went nuts! They were being underpriced and people loved the fact that they were getting two for the price of one. If you look at the map you’ll see that a number of destinations are doing that because they don’t have the budget to market themselves against the big guys and they are dealing with a fear factor or geographical ignorance factor that doesn’t help them to market themselves.” In virtually everything you read about Cyprus, you will come across the statement that the island lies at the crossroads of three continents and is the gateway to Europe, Africa and the Middle East and yet they don’t use it for tourism because, says Greenberg, “their ‘marketing plan’ doesn’t embrace that. It’s crazy.” Another concept that keeps coming up – and being largely ignored – is that of extending the tourist season into the winter months. Can it really be done? Peter Greenberg believes that it’s not half as difficult as people think. “It’s easy,” he says, “if you don’t continue to chase your usual base. They are summer holidaymakers. They’re not going to come in February. But why wouldn’t you want to go to a place that’s hospitable, where the weather is not insufferable, where you’ll have a great experience, with great prices, great food, great culture, and not have to stand in line? You need to give people clear and compelling reasons for wanting to go and visit a place. If you do that, they will show up. More and more people are looking for that special experience and they will pay what it costs. The off season, to me, is when people should want to come. I’m the biggest fan of it. It’s up to the people here to

32 Gold the international investment, finance & professional services magazine of cyprus

Cyprus needs to realise that the world is changing rapidly identify, target, enhance and communicate what those individually fabulous experiences are. Then you can’t lose.” During the Nicosia conference, Greenberg challenged the audience to tell him one thing that can be done in Cyprus and nowhere else in the world or, at least, something that can’t be done better anywhere else in the world. “They didn’t pass the test,” he says. “It’s not about events or festivals or religious holidays. It’s about something that is going to drive people here because they can’t wait to get oneup on their friends.” American visitors have not discovered Cyprus but, Peter Greenberg notes, “They go to Athens in big numbers, they go to Istanbul in big numbers and they go to Paris in big numbers but nobody’s given them the idea to connect the dots and give them the ‘extra added surprise’ of Cyprus as part of their vacation to the places that they do know about.” He is quite scathing about his compatriots, “whose definition of an adventure trip is to go to any foreign country, stay in a American branded hotel and order a cheeseburger!” but he acknowledges that things have started to change “because the mean age of serious travellers has gone down and more and more people are getting passports. Life begins when you leave your comfort zone. That wouldn’t be a bad slogan for Cyprus...” Are there still places that this much-travelled journalist has never been to? Indeed there are. “I’ve been to about 151 countries, which is about 150 more than most Americans!” he says, “I will probably leave this planet without having visited all of the ones on the United Nations list of around 200 and that’s OK. I travel 420,000 miles a year, I get opportunities like this to sit here in Cyprus and talk to you so I have no complaints!” A couple of hours after we talked, Peter Greenberg was on his way to Larnaca Airport. From there it was London, Los Angeles, filming in northern California, Las Vegas, New York for CBS, then Bangkok, Bermuda, Lyon, Avignon and Lausanne. And that was his schedule for only two weeks in January 2014. Definitely no-one’s idea of being on permanent vacation.

FINAL SHIPPING AD GOLD NEW.indd 1

07/02/2014 2:33 ��

THE

cyprus-uk

TIMES TheY ARE

A-CHANGIN’ Almost 54 years after Cyprus gained independence from Great Britain, a landmark agreement was reached last month on substantial changes to the rights of Cypriots residing within the British Sovereign Base areas. Moreover, growing cooperation between Cyprus and the UK in a number of sectors is slowly bringing about a new understanding between the governments and the two countries. Matthew Kidd, the present British High Commissioner, has had a lot to do with these developments. In his final interview with Gold before leaves Nicosia in April, he talks about the events of last March, the growing ties between Cyprus and the UK and why he remains optimistic about the island’s future. By John Vickers. Photograph by Jo Michaelides

Gold: The year has begun on a very positive note with President Anastasiades’ visit to London and the agreement reached on properties within the Sovereign Base Areas. Would you agree that important new steps have been taken between Cyprus and the UK? Matthew Kidd: Yes, I would, although I don’t think they represent a sudden change of direction. They reflect a gradual change in the relationship and the understanding on both sides of what it can do for both

of us, and this is something that has certainly been going on for most of the time that I’ve been here and maybe for longer. I hope that in the time I have left here there are still further things that we can do, pushing in the same direction. On the specific agreement regarding the Sovereign Base Areas, I’m glad that it happened while I was here to see it. Gold: The last two years were, in many ways, bad ones for Cyprus. Did the Eu-

rogroup’s decision in March come as a surprise to you? M.K.: Looking back at the story, in which March brought the denouement, I would say that we’d all seen it coming for quite a long time. We’d seen the signs in terms of pressure on the banking system, pressure on public finances, downgrades, etc. We could see that the crisis was on its way and once the Troika had started to discuss what a Memorandum programme might look like with the previous government,

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cyprus-uk

we could see the kind of thing that Cyprus would need to do and think about. The most disagreeable surprise, when we finally got to March, was the bail-in part, though even that had been part of the discussion for a few months. There had been hints – from some of the Troika players at least – that this was the right way to go, although there had been other hints from elsewhere that maybe it wouldn’t be a sensible approach. Not surprisingly, here in Cyprus the temptation was to believe those who were saying the nicer thing. In the end, it didn’t come as a complete bolt out of the blue but it was a shock nevertheless. Gold: Could those responsible have prepared people in a better way to accept what happened? M.K.: I think there’s something to be said for the argument that the way the Troika did their part of explaining the nature of the deal, and why it was the right deal, was not as effective as it could have been. The Government had to explain – in every difficult circumstances – why they had had to accept it but it was very hard for them to make the case that the Memorandum of Understanding, including the bail-in and the resolution of one of the country’s two main banks, was the right way to start the process of recovery as quickly as possible. One of the positive things that I would take from the experience of last year is just how sensible public reaction here was. Even that first weekend, when media organisations around Europe were getting ready to produce stories about riots, crises, bank queues and so on, the reporters drove around town and it just wasn’t happening. And throughout those weeks and months of the most serious and critical pressure, the readiness of public opinion to stay calm and to listen carefully to what they were being told – and to make rational responses – was very impressive. In terms of Cyprus’ ability to rebound from the crisis, that is a really important asset which I hope can be preserved and built on. Gold: Did you suspect that Cyprus might be forced to leave the eurozone? M.K.: Apart from the fact that the eurozone structure does not provide for people to leave it, there certainly was some discussion here about whether that would be a sensible thing to do if a way could be found. However, I suspect that, in today’s global economic circumstances, having a currency of your own supporting a small economy leaves you awfully vulnerable. It’s a rough old world out there and it’s quite

difficult to see where else the assistance which Cyprus was able to get from its eurozone partners could have come from if it had not been a part of that group but needed outside help due to pressure on its banking system. Gold: The UK experienced its own banking crisis a few years before Cyprus. Do you think that lessons could have been learnt from how the British government dealt with problems such as Northern Rock? M.K.: When the crisis arose in Cyprus, we were able to provide some expertise derived from our own experience in how to handle things exactly like that. We had a team out from the Treasury, including people who had worked on Northern Rock and on Bradford & Bingley, specifically to help with the banks’ communication plan for explaining to customers what they would need to know. More broadly, the work that has been going on over the last 2-3 years across Europe to better understand stresses on banking systems and how to respond to them has also drawn on UK experience as well as that of elsewhere. A further point, which is bilaterally relevant, is that we are in perhaps a better position than others to help with some of the pressures on legal systems and court procedures that arise when you have to do that sort of ‘cleaning up’ operation, exactly because we both start from the common law system, so legal recourses that we’ve developed can be more easily translated and transferred to the legal system here. Some of that is happening, even in the specific detail of Cyprus having decided last year to set up its own Financial Ombudsman. He’s been to London to look at how the parallel operation in the UK works, precisely because it’s easy to transfer experience in the UK back to Cyprus Gold: How optimistic are you that Cyprus will emerge from this process better and stronger? M.K.: I’m quite optimistic. One reason is the public commitment to doing what needs to be done in order to get through it and get past it, which seems to me to be strong and surprisingly resilient, given some of the stresses that people are going through right now. Another point is that, in this kind of situation, a smaller economy probably has an inherent advantage in the sense that any measures taken can start to have a faster and more observable positive impact, so that can help build confidence and add to the momentum. Thirdly – and this is perhaps the fundamental point – Cyprus still has a number of significant advan-

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One of the

effects of the

economic crisis last year has been to start a process of reflection about

the value

of a settlement

tages, in terms of things like an educated workforce, openness to the world, its tax regime and legal system, which remain attractive to investors and companies looking to do their some of their business here. A number of things that the Government of Cyprus is now trying to do are designed to build on that, in order to help the recovery start as soon as possible, and this is very sensible. Gold: Over the past four years, you’ve focused a great deal on Cyprus-UK trade relations. How would you describe their progress during your time as High Commissioner? M.K.: When I arrived, Cyprus was a stable and successful export market for UK companies, many of them long-established, and overall Cyprus was taking more UK goods and services than the size of its economy might have justified. We were, in a way, over-performing. The last year or two have, not surprisingly, seen some stress to that but now we’re also seeing that new industrial sectors in the UK are starting to look at Cyprus as somewhere worth taking an interest in. One is the energy sector, which is going to create a range of opportunities, and British companies with expertise in many of the support functions that will be needed are now looking at Cyprus as a place to come. A second related area concerns the effort Cyprus is making to establish itself as a regional centre for certain energy functions and which, because of developments in the Middle East, are putting this ambition into relief. This is also something that British companies will take an interest in. And thirdly, there are a number of other sectors – health and

education, for instance – where Cyprus is already trying to diversify its base and, in some of them, UK companies have a lot to offer. One specific example is the development of links – courses, teachers or, indeed, whole campuses – with British universities and I think there’s going to be more of that. Gold: Can a trade relationship between a large and a small country realistically be more than a one-way process? M.K.: It has to work in two directions, though not necessarily in the same way. To take the education sector, if the UK wants to attract Cypriots to think of it as a place to send their children to study, for instance, we won’t achieve that simply by exporting a lot of goods to Cyprus and appearing to view the country as just another export market. There has to be a broader engagement in order for it work both ways, one that should both support the effort to attract students but also, support the effort to persuade Cypriot importers to look at British goods. The broader you can make the relationship, the more likely it is to work in both ways. One extra angle to that is that, in terms of the EU’s efforts develop its trading links with the rest of the world, both Cyprus and the UK are on the same side of the story so it’s not a question of communication between the two but between this part of the world and the rest, and that involves the UK and Cyprus having pretty much the same perspective. Gold: All of your predecessors since 1974 have expressed their regret that they weren’t able to see a solution to the Cyprus issue. I’m sure you will say the same thing but, 40 years after the coup and the invasion, do you believe that a settlement acceptable to both communities can still be found? M.K.: I do believe that and I also think that one of the effects of the economic crisis last year has been to start a process of reflection about the value of a settlement and making the effort to achieve it. I think this is slightly changing the climate within which the process is being pursued and in a helpful way. I have been struck in recent months by the way various ministers and the President himself have been making the point that the economic difficulties constitute an additional reason for looking for a settlement and that seems to me to be quite an important change in public expectation and understanding, which I hope will help get the process moving forward more quickly.

Gold: Can Cypriot oil and gas serve as a catalyst for a settlement? M.K.: I hope it can. It is certainly a factor which is important enough to all the players involved to prompt some fresh thinking about the incentives and reasons for seeking a solution. Of course, there is quite a big gap between saying that and actually having a process by which the energy factor is specifically leading the two sides towards a solution. There is a really difficult set of strategic choices for the players to engage with, all the more so because of the political difficulties, so yes, I do think that it can be a positive factor but I also suspect that the converse is true: if the opportunity to make it a positive factor is not seized, then it risks becoming an additional problem. Gold: How thick-skinned does the British High Commissioner to Cyprus have to be? Do you read all the negative press that you get from certain sections of the local media? M.K.: Sometimes I think that there isn’t enough time in the day to read all the negative coverage! And there are times when I think I’m not thick-skinned enough for it but it’s in the nature of the job. I keep reminding myself that there are views of the UK here and perspectives on our involvement here over the years which are not all rosy, to put it gently. Part of the efforts of the High Commission is to try and change some of those underlying attitudes but you can’t do that if you don’t keep in touch with what they are. So, yes, I do read at least some of it and sometimes I feel bruised as a result. That said, I do think

One of the

positive things

that I would take from the

experience of last year is just how

sensible public reaction here was

we’re having some impact in changing some of those traditional views of us and we will need to keep working on that and explain why it is that, in 2014, the relationship between us is changing and it will be better if it does change. Gold: You will be leaving Cyprus in three months’ time. Are you ready to appraise your time here or is there still work to be done? M.K.: There are things that I am still hoping to change, achieve and move forward during the remainder of my time here so I’m not, as it were, “settling the bills” yet. One area of engagement that I hope we’ll be taking forward with Cyprus in the next few months concerns the digital agenda. It seems to me to be a key enabler of economic growth in the present circumstances and an area where the economy in a country like Cyprus is quite well-placed to benefit from it. By “digital agenda” I’m referring to several things: an enabling legislative framework agenda, some of which is EU-wide, some of which is national; there’s also an e-government aspect to it, giving the economy the relief of being able to do more of its business with its citizens electronically rather than having to employ people to do it. There are obvious direct commercial opportunities, too, for both the UK and Cyprus. It’s an area we’ve started talking to the Government about and I hope that, during the time I’m still here, we’ll find ourselves bringing at least some of it to fruition. It’s a good example of an area that spans the public and private sectors with opportunities for Cyprus specifically and for collaboration between us as well as for both of us within the broader EU framework. Essentially it’s all about moving a big generational social and economic change forward to benefit Cyprus, the UK and the EU. Gold: And finally, how have the last four years been for you from a more personal point of view? M.K.: It’s the first time that I’ve come back to a place where I’ve served before – I started my career here in the ‘80s – and, in a way that I wasn’t quite expecting, it has been satisfying to feel that the experience I developed about Cyprus then has come back to be useful a generation later. It’s been fulfilling to spend another period trying to help resolve the problem here with the extra experience in the back of my mind of how things were then and how they have moved on. I hope that I have learnt something about how to project and explain sometimes difficult messages in ways that people will engage positively with but, as I said, it’s not over yet!

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Going the Extra Mile

Maintaining the Russian connection is crucial but far from easy By JohnVickers, Photograph by Jo Michaelides

or Alexis Tsielepis, Director and Head of Taxation at Costas Tsielepis & Co Ltd, Chartered Accountants, the Cyprus crisis last March set off unprecedented client turmoil that required careful, timely and pre-emptive handling. The Tsielepis Group has been offering tax, business consulting 38 Gold the international investment, finance & professional services magazine of cyprus

and auditing services since 1978 and now serves the business interests of clients from all over the world and especially Russia. The year that passed tested the company, its people and its operations to the core. The result: Not a single client was lost to the events of 2013.

profile

The credibility of our country and our economy is slowly being restored the international investment, finance & professional services magazine of cyprus

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profile

We cannot rely anymore solely on the strength of our double tax treaty with the Russian Federation In his Limassol seafront office, Alexis Tsielepis, kept one eye on his interviewer and the other on his brushed aluminum multi-screen set up. With a secure video conference call facility in standby mode on one screen and his mailbox on the other, he set his smartphone to a single chirp and office telephone on low. “You have my undivided attention,” he said, “unless they decide to tax profits from the sale of shares.” Tax jokes are not his only speciality. Besides being a qualified Chartered Accountant, Tsielepis is an accomplished tax specialist who has advised numerous multi-jurisdictional teams of professionals on cross-border mergers, acquisitions and reorganisations, and who possesses a solid understanding of double tax treaties, VAT Directives and Trust legislation. He also runs the VAT-dedicated company Chelco VAT Ltd. He took over the Taxation Department of Costas Tsielepis & Co. 10 years ago and he admits that, since then, nothing had prepared him for the crisis management to which he and his colleagues were obliged to resort over the course of the past year. “Our clients, especially Russian ones, are demanding, to say the least,” he said, adding: “They expect operational excellence, topnotch services and confidentiality. They also expect their service provider to keep abreast of not just the latest changes to tax legislation locally and internationally, but also of the deliberations occurring at the top level of decision-makers, of what is to come.” And that’s not all. “All that is inconsequential,” he went on, “unless you earn their trust. Once you enter their circle of trust, you become their partner, their confidant, their friend. And the ensuing relationship lasts a lifetime, for better or for worse.” The March 2013 crisis played a catalytic role in what Tsielepis described as “separating the wheat from the chaff.” “I have always believed that in-depth

relationships can withstand the very worst of times, at least in theory,” he said. In 2013, the theory was tested in practice. “Last year tested the nerves and faith of foreign investors in Cyprus,” Tsielepis told Gold. “Had we allowed our clients to lose their faith in us as well, that would have been the end. The events of last March caused our clients great concern; communication between us was literally 24/7. They were asking for information, predictions, assessments and even for accountability. They expected guidance, advice and solutions.” Tsielepis elaborated that while a number of clients had looked into possible exit routes at the early stages of the crisis, in the end not a single one took them. He and his associates realized early on that the only way to tackle the crisis successfully was to be proactive. “We decided not to hide behind the wall, but instead stand on it,” he said, adding that over the phone and during flash trips to Russia and elsewhere, the constant flow of questions that he was expected to answer was more or less unchanging: What happened? Why? How is the situation in Cyprus regarding taxation? Will there be further amendments to the tax legislation? How is the situation in Cyprus in regard to the Cyprus

Company? What is the future for Cyprus and its business and corporate regime? What is the future of the local banking system and when will we be able to put our deposits to work? Alexis Tsielepis said that in their replies, he and his staff remained truthful, pragmatic and stated the facts. “We told them that Cyprus was engulfed in the unprecedented financial crisis that was plaguing Europe and the world and that the European Union had been invited to offer assistance – which admittedly came in the most aggressive and unfair wrapping,” he said. His assessment of the Troika’s conditions in return for assistance is that it was not ultimately about the island’s natural gas resources, or about crippling its international business sector (“although certainly some individuals within the Troika team appear to be following an agenda of securing their national interests”) but rather that the Cyprus financial crisis had coincided with that of much larger economies such as those of Spain, Portugal and perhaps Italy, which were also gearing up to request money from Europe, mainly to safeguard their banks. Europe’s largest lender, Germany, was on the brink of national elections, and voters there were not willing to rescue any more economies with their ‘hard-earned’ money. The result was to push for EU banking reform legislation, which included the banks resorting to their own creditors for money before requesting financial support from their national governments. “Cyprus was the ideal guinea pig,” Tsielepis said. Following the imposition of the bail-in, which saw Cypriots and foreigners lose billions overnight, this imposed experiment

Changing the IRD – An Expert’s View “The Inland Revenue Department (IRD) needs to evolve, break free from past practices and become more commercially-minded. I was recently involved in discussions with the Limassol District Tax Office over tax assessments going back several years. The fact that these assessments even existed was solely the fault of the tax office, which persists with its policy of issuing assessments dating back six years, in order to keep the door open on a particular tax

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year – a practice known as ‘protective assessments’. At some point during the discussions, the subject matter was no longer the interpretation of the legislation but the amount of tax to be paid instead. Although the concept of negotiating the amount of tax is nothing new, what surprised me was the raw focus on ‘amounts to be paid’, which resembled more a Middle Eastern bazaar rather than a progressive tax office in a leading business

jurisdiction like Cyprus. Things will not change overnight. Ironically, I had not seen a true first step in the right direction before the Troika intervened. Now there are structural changes in the pipeline which could lay the foundations of a better Department. However, if the same people continue to dictate what they have traditionally practised, the transformation will ultimately be infertile and of no real consequence.”

now needed to work, he said, adding that “we are now seeing steps taken by the Troika to support the two main pillars of the Cyprus economy, those being the international business sector and the tourist industry.” Concerned clients of the Tsielepis Group have been informed that the EU’s austerity measures that are now in place and ongoing efforts to tidy up the island’s finances have bypassed the country’s fiduciary services industry and left the island’s corporate regime virtually unscathed. Apart from an increase of the island’s flat corporate tax rate (from 10% to 12.5%, which means that it is still one of the lowest in Europe), the island has managed to retain its significant tax advantages that accrue to companies that choose to structure their holdings via a Cyprus corporate vehicle. Cyprus has also managed to safeguard its impressive Double Tax Treaty (DTT) network around the world and access to the provisions of the relevant EU directives. It maintains a very competitive tax regime for dividends, gain from the sale of shares, margins on back-toback loans and an intellectual property box as well as practically no withholding taxes. In addition, Tsielepis said, Cyprus has maintained all the non-tax elements that make it so attractive, such as its political and geographical position, excellent telecommunications, a qualified workforce, high standard of living, safety and – for Russians in particular – cultural and religious ties. “As far as the banking system is concerned,” he continued, “we offered our clients alternative solutions that either involved banking institutions abroad or healthy banks based in Cyprus. The fact that Bank of Cyprus was fully recapitalized and exited the resolution and that Hellenic Bank was fully recapitalized using fresh private funds ahead of the proposed deadline, were important first steps.” Asked what will happen when bank restrictions are lifted and foreign investors and depositors are free to withdraw their money, Tsielepis said: “We shall certainly witness an outflow of funds, which is logical given the situation. Before the restrictions are lifted, though, we must utilize the time available to secure the full support of the European Central Bank by continuing to implement the necessary changes to the Cyprus banking system. “We are in uncharted waters but if for example, the ECB guarantees the Bank of Cyprus’ deposits, this would significantly restore confidence,” he added. On the subject of investment opportunities

offered by Cyprus, Alexis Tsielepis noted the recent €20m investment of fresh money into the Le Meridien Hotel in Limassol by one of the Group’s clients, adding that the particular move and ensuing others further enhanced the attractiveness of Cyprus as an international centre for business and investment to foreign investors and especially Russians. “The credibility of our country and our economy is slowly being restored,” he added, repeating what he had said when the Le Meridien deal was announced: “Our clients kept their faith in Cyprus despite it all. They are here to stay.” He stressed that “these investments contradict PIMCO’s pessimistic estimates of the value of immovable property in Cyprus and the unfavourable predictions of rating agency Fitch regarding the island’s prospects for economic recovery,” adding that costal properties in particular have maintained their value, while those luxury hotels that work properly and

There are several other factors that we need to address.” He brought up the issue of exchange of information, which seems to be the “Achilles’ heel” of Cyprus’ relationship with foreign tax administrations at present, including Russia. His assessment is that in the short to medium term, businesses using Cyprus’ attractive tax system will need to focus more on transparency and substance. “In our discussions with our clients we focus mainly on restructuring their businesses in order to be prepared – meaning competitive – for the future,” he said, adding that the argument did not only apply to Russia but to most other jurisdictions with which Cyprus companies transact. “Equally importantly,” Tsielepis continued, “we need to look at the challenges closer to home. Recent amendments to our domestic tax legislation have, in my opinion, been inappropriate and not carefully thought out. There

Before banking restrictions are lifted, we must utilize the time available to secure the full support of the European Central Bank methodically have managed to withstand the financial crisis. Tsielepis also predicts that the flow of tourists into Limassol – and Cyprus in general – will further intensify with the recent liberalisation of flights to and from Russia. On what the future holds, he said: “Taking stock of where we stand, it is clear that the environment of international taxation, in which Cyprus is competing, has become increasingly dynamic and very challenging. In order to stay on top, Cyprus will need to address both the challenges coming from overseas, as well as those from within.” He noted that recent amendments to the Russian Tax Code, as well as ongoing discussions within the Russian Ministry of Finance relating to further proposed amendments, required careful consideration, especially by those who advise persons or companies with interests in Russia. He went on: “We simply cannot rely anymore solely on the strength of our double tax treaty with the Russian Federation, which is perhaps the most competitive that Russia has.

is a lack of public discussion about proposed amendments, many of which have made our tax legislation less competitive. The Inland Revenue Department is focusing so hard on trying to catch those who are evading tax that it is not considering the adverse commercial impact and implications of various pieces of new legislation that it is championing, bearing in mind that the lion’s share of its income derives from the International Business Sector and not the local private sector or the selfemployed.” He added that, “As an organisation, what we are doing now is diversifying our services. We are reinventing our corporate identity, rebranding our corporate presence and expanding our operations to even more jurisdictions. We are also investing in our own people and are forming strategic alliances with professional associates.” He added: “We are gearing up to go the extra mile for our clients. There are no big crowds, no strangers and no delays on the extra mile. We like going there, and our clients like it too.”

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banking Oracle’s three-word key to success

Spanish Lessons

How Spain restructured its banks and financial sector

Antonio Carrascosa, General Director of Spain’s Fund for Orderly Bank Restructuring (FROB) and previously the Director-General for Economic Policy at Spain’s Ministry of Economic Affairs and Competitiveness, gave a lecture in Nicosia last month on Spain: the restructuring

of the financial sector at the invitation of the CyprusSpain Business Association (which operates under the auspices of the Cyprus Chamber of Commerce & Industry) and the Economic and Commercial Office of the Embassy of Spain in Cyprus. During his brief stay

in Cyprus, Carrascosa spoke to Gold about the work of the FROB and the Asset Management company SAREB which was set up to manage and sell real estate-related assets of all the Spanish financial entities receiving public financial support. By John Vickers

Gold: The number of banks in Spain fell from 50 in 2009 to 15 in 2013. What has the effect of this reduction been on the banking sector itself but also on the overall economy and, in particular, consumers? Antonio Carrascosa: The Spanish authorities have taken a number of important measures to address the difficulties in the banking sector:

cleaning up banks’ balance sheets, increasing minimum capital requirements and significantly increasing the provisioning requirements for loans related to real estate development and foreclosed assets. This has led to a more efficient and solvent financial system, which will ultimately benefit the whole economy and customers in particular. As you say, at the be-

ginning of 2009 Spain had around 50 financial entities (not counting foreign branches or small cooperatives) and in 2013 this number was reduced to 15. The Resolution Plans of each entity with public support required a reduction in the number of offices and employees while the entities had to focus on their core activities and divest in the other areas.

42 Gold the international investment, finance & professional services magazine of cyprus

Gold: The FROB was created in 2009 to channel public financial support to financial entities but in 2012 it became a resolution authority. Why the change to its terms of reference? A.C.: The objective was twofold; on the one hand, in 2012 certain resolution instruments were introduced in Spain that had been in the resolution framework (such as the possibility of applying bail-in to junior debt, of creating an Asset Management Company or of imposing decisions to shareholders of entities in need of public support). The second objective was to ensure that there was an institution devoted specifically to the technical implementation of banking resolution. Gold: At least two of the problems facing Spain’s banking sector were repeated in Cyprus: (1) Over-expansion: in assets, branches and employees and (2) transparency and corporate governance problems. Do you think these were a bad but established part of the broader European banking system? A.C.: Those factors have probably been present in the crisis in several countries since they are indeed very common to financial crises. But generally, they have been combined with idiosyncratic difficulties specific to each country. In Spain, for example, it was a real estate bubble that triggered our crisis. Gold: You told the audience in Nicosia that, as part of the resolution process, you personally prefer the creation of a separate Asset Management Company, an option that has not been taken up by Bank of Cyprus, for example. What are the advantages of such a move? A.C.: In our case I believe that the creation of a separate Asset Management Company was the right move for three reasons: because of the total size of the assets related to real estate, because the problem was common to several banks and because the problematic loans were mostly related to that sector. But each country has to look for the solutions that suit it best. Gold: Can you tell us more about SAREB and how it has been designed to efficiently segregate and manage the orderly disposal of assets related to the Real Estate sector? A.C.: SAREB [Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria (Company for the Management of Assets proceeding from Restructuring of the Banking System)] has the real estate-related assets of all the financial entities that have received financial public support. In all, assets for an

original book value of €106 billion have been transferred for €50.7 billion, implying a haircut of 52%. Now, the overarching objective of SAREB is to manage and divest in an orderly manner the portfolio of real estate and assets received within a timeframe of no more than 15 years while optimising levels of recovery and value preservation, preventing negative impacts on the Spanish economy, real estate market and banking sector, minimising costs and the burden on taxpayers, fully repaying its liabilities and utilising capital efficiently. The capital of SAREB is 45% public and 55% private (mostly Spanish banks and insurers, but there some international banks as shareholders as well). SAREBs operating model is flexible in order to ensure that: it meets changing asset management requirements over time; it minimises fixed costs and it establishes relations with the best service providers. SAREB uses all the means at its disposal to achieve the target divestment levels, from the consensual restructuring of loans to the foreclosure and sale of assets, either on a wholesale or retail basis. The execution of the divestment plan is based on diligent asset and risk management, the use of all appropriate distribution channels and monitoring macroeconomic and microeconomic movements closely so that SAREB can take advantage of market conditions without causing an adverse impact, careful business planning at portfolio, sub-portfolio and individual asset levels, aligning the interests of shareholders, SAREB, its employees and service providers, avoiding potential conflict of interest and operating to the highest professional and ethical standards. Gold: How would you deal with the problem of Non-Performing Loans, which the two main Cypriot banks are now facing? A.C.: Country-specific issues should be dealt with according to national circumstances. It’s obvious that a contracting economy constitutes a difficult environment for banking. Gold: In your presentation in Cyprus, you said that one of the lessons learned from the Spanish experience is that “Prevention is more efficient than resolution”. This is doubtless true but doesn’t it require political will which, for many reasons, is not always forthcoming? A.C.: Yes, in fact nowadays that is where all financial entities are focusing their efforts. Even the more solid banks that had no problems in the past are analyzing all their structures, business models and geographies in order to avoid future possible difficulties. By developing

In Spain,

bail-in was applied to equity and

junior debt efficient resolution frameworks and by monitoring the “resolvability” of financial entities in the event of a crisis, the authorities must be prepared to act. Gold: As you know, Cyprus became the first eurozone company to suffer the effects of the bail-in process, which saw depositors in the two main banks losing millions of euros. Was it ever considered an option in Spain? A.C.: In Spain, bail-in was applied to equity and junior debt. As for deposits up to €100,000, they are covered by the Deposit Guarantee Fund. Gold: With hindsight, do you think that Cyprus have avoided the bail-in if the authorities had acted sooner? A.C.: Acting promptly is, of course, always more efficient but I cannot judge the Cyprus circumstances. My expertise lies in the Spanish case. Gold: Following the bailouts of several eurozone countries and financial assistance to their banking sectors, do you believe that lessons have been learned and that a framework is now in place for dealing more efficiently with such situations in the future? A.C.: For sure, the experience has enabled us to learn a lot of lessons. First of all the importance of making a quick and compete analysis of the situation, identifying the need for liquidity and solvency. It is also very important that such needs should be established by independent consultancy companies. All measures must be taken in a timely fashion and comply with the regulatory framework designed in advance.

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Gold 43

Making

investment

Theodoros Aristodemou, Chairman and Managing Director of Aristo Developers, is also Chairman of the Association for Large Development Projects. He tells Gold about the aims of the Association, his own substantial contribution to the development of the real estate sector and, in particular, that of Paphos, and the need for effective public and private sector collaboration in order to ensure that Cyprus emerges stronger from the financial crisis.

A Real Estate, tourism and the development of Paphos

Difference

44 Gold the international investment, finance & professional services magazine of cyprus

By Chloe Panayides

old: What are the main objectives driving the recent ‘resurrection’ of the Association for Large Development Projects? Theodoros Aristodemou: The Association was originally founded 7-8 years ago when steps were being taken to develop a number of golf courses in Cyprus. It subsequently became inactive but in 2013, with the financial crisis intensifying, we felt – as did the Government – that the real estate sector is the key to restarting the economy. Since the Association already existed, it seemed pertinent to ‘resurrect’ it, so it was incorporated into the Cyprus Chamber of Commerce and Industry (CCCI) and has its offices in the CCCI building. The Association’s members are companies involved in the development of major projects of a certain size and magnitude. The goal of the association is to bring the people behind these large projects into contact with the relevant Government bodies, ministers and, of course, the President, so that the problems of the past regarding red tape and procedural delays – such as the granting of licences – are resolved. Our goal is to ensure that these projects, which can truly help in the development of Cyprus – something that is particularly pressing in the light of the current economic situation – encounter as few hurdles as possible. Gold: Could you give some examples of the projects being undertaken by your members? A.T.: We have a number of projects in the pipeline that belong to our members, covering various areas of activity: golf courses, sports centres, educational institutions, health centres, marinas and more. They are all important in promoting Cyprus and our sole concern is to support them as much as possible. The marinas, for example, are paramount to Cyprus’ overall development. For an island, it’s an area of interest on which we should focus our efforts. To encourage marine-related tourism – from cruises to private sailing – we need to ensure that large, efficient public marinas and smaller, more intimate private ones are available. This is a vision that we, as an Association, share with the state.

A single strain of tourism based on hotels and sun will only get us so far Individually, we are mere links; united, we are the chain that can bind us to success Gold: Do you also aspire to provide an overriding strategy for your members to follow? A.T.: Certainly. The Association aspires to assist individual members in their quests to

develop projects which coincide with Cyprus’ overall strategy. We try to locate various industries that are ideal to be developed within Cyprus and support the facilitation of these projects to come to fruition. Sports

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Gold 45

investment

tourism, for example, is a great opportunity for Cyprus. The climate is perfect for foreign sports teams to carry out their winter training here, provided that the right foundation and infrastructure is developed. Moreover, health tourism can certainly be supported by Cyprus’ climate and clean air. Essentially we want to build the right projects that will attract the right people. Gold: How will you do that? A.T.: Firstly, by working with the Government, as stated previously; secondly, by giving advice based on our collective experiences; and, thirdly, by promoting our members’ projects abroad to foreign investors, building relationships and making contacts accordingly. We are trying to create a multifaceted dimension with regard to activities considered ideal for Cyprus. Traditionally, the island has been known for its sun and sea, and whilst we have no intention of dismissing this well-established

mere links; united, we are the chain that can bind us to success. If we all endeavour together – those, for example, with experience and knowledge sharing their strengths – and this is combined correctly with state and additional stakeholders, and there is hard work – I stress this as, without hard work, nothing can be achieved – then we may overcome this otherwise crippling crisis. We are still going to face difficult times but I am hopeful that Cyprus can confront them and will soon finding itself on the road to growth and recovery. Gold: It has been suggested that Cyprus needs “new ideas to solve old problems”. How could this apply to the real estate market? A.T.: We always welcome all new ideas. Indeed, I feel that the Association’s idea of promoting different industries constitutes a move away from traditional methods. I believe that we must never outwardly

and on maintaining relationships – with past, present and future clients, employees, contractors, and more – ensuring cooperation with all parties involved in Aristo’s day-to-day activities. This has certainly been the cornerstone of my philosophy in developing the company. The creation of harmonious relationships is vital: without clients you can’t make sales and you can’t grow; without happy employees you will find conflict in moving forward instead of confluence; and without ensuring that various other stakeholders – contractors, for example – have a camaraderie and are unified in their efforts together, then you will have difficulty maintaining balance. Furthermore, I believe that nothing can be achieved without planning, having a strategy, and working tirelessly. These are compulsory qualities, alongside honesty and integrity in relationships. Those you work with must feel that they are not being treated unjustly in any way and that

Nothing can be achieved without planning area of tourism, we want to develop other areas of investment and revenue. A single strain of tourism based on hotels and sun will only get us so far. However, with a good foundation – that is, a multifaceted one – we can create a more permanent and prosperous situation for Cyprus. Gold: What is the Association’s outlook for 2014? And what needs to be done by both the public and private sectors to support the economic recovery? A.T.: Undoubtedly, the current situation is not an easy one to navigate. We would like to maintain our hope that, through the previously mentioned multifaceted efforts from both private and public stakeholders, we will be able to move forward. We believe that there must be a strategy of unity, contributing to harmonious relationships between employers and employees. We all have a part to play. Individually, we are

or prematurely reject or dismiss new ideas brought forth for consideration. We must study every idea, and see if it fits for Cyprus. Every country must be considered individually. In the case of Cyprus, the island has many innate, inherent assets, which we should try to promote, thereby optimising the country’s potential. If a new idea allows us to do this, then of course it should be given due consideration.

there is reason and balance behind all your decisions. If someone can lead with all this in mind, I believe that whatever problems or hurdles arise, the organisation can survive them and, indeed, thrive.

Gold: Speaking of “problems arising,” is it fair to say that Cyprus has been guilty of showing complacency during previous ‘good’ times, which allowed problems to seep in and develop? T.A.: It’s a fact that, in Cyprus, our way Gold: Aristo Developers has been in operation since 1982. How have you en- of thinking – and the relaxed pace of life and our carefree attitude – can mean that sured its competitiveness for more than 30 years? Is there an underlying philoso- this complacency may lay dormant. It is our responsibility to ensure that it doesn’t phy that you adhere to? awaken. If we reach a certain point that A.T.: I took Aristo from its very first steps we consider ‘success’ and we allow comand nurtured it to bring it to where it is placency to set in, we should know that a now. I hope it is considered an important company in the Cyprus real estate sector. My dangerous path lies ahead. Just as growth philosophy has been dependent on the com- may flourish through hard work, there can pany placing great emphasis on the building also be a downward spiral towards failure

46 Gold the international investment, finance & professional services magazine of cyprus

– with very little work at all. This point is precisely where absolute care and attention should be paid, particularly by those responsible for running companies. Gold: The opening of King’s Avenue Mall is a landmark event in Paphos’ timeline. How did this project develop? How do you envisage the mall contributing to the future of Paphos’ development? T.A.: For many years, I had certain projects – which didn’t yet exist – in mind which I viewed as being important and capable of contributing to Cyprus’ growth: Such projects included golf courses, which I helped to innovate in Cyprus, private education, to which I contributed via my founding of the International School of Paphos, and the Waterpark in Paphos, which was the first of its kind here. In addition to the building of houses, I concentrated on bringing certain projects to fruition that contributed to the infrastructure of the town. Part of my thinking was the idea

abandon our efforts, leaving it unfinished. Furthermore, because our aim was to not only to complete the project but to ensure that it stands out through excellence, we chose not to cut corners but to properly see it through to the end. Otherwise, it would never have had its final look and structure which, I feel, are impressive inside and out. Now that it’s finished, it has increased what Paphos has to offer, bringing a new dimension that was previously absent, encouraging people to visit from Polis and the district but also from other districts. The tourism industry has responded very positively and I hope that the mall will contribute to attracting even more visitors to Paphos. Gold: What do you think about the possibility of Paphos becoming a centre of services for foreign businesses and investors, akin to Nicosia and Limassol?

and its interest in investing in the island is viewed by some as a huge surprise, something totally unexpected. I must stress that we, as a company, have been developing this relationship for more than 20 years, bringing clients in from Hong Kong, for example, since as far back as then. We assessed the market long ago and brought clients to Cyprus who are still living here today. Cyprus has many advantages – its geographical location, its climate, its close proximity to many destinations, its hospitable people, its fine facilities – that combine to attract people from various countries, further to our traditional, core market of the UK. We began by bringing people from Hong Kong, then from Russia, now from China. I don’t rule out the possibility of bringing clients in from other locations, most notably from the Middle East and India. We already have collaborations in place with various locales, such as Iran. Cyprus has

having a strategy, and working tirelessly – in existence for many years – that shopping malls could be built all over Cyprus, and, of course, where my particular interest lies, in Paphos. Many years ago I travelled to numerous countries where I inspected and even photographed similar projects in my quest to develop my vision of building something comparable in Paphos. Of course, finding the ideal location was paramount. When the space upon which King’s Avenue Mall currently sits became available for sale, I showed interest with other partners – due to the high cost of the land – and we managed to buy it, always with the intention of building the mall upon the site. Quite a few years passed, during which we honed our ideas and developed the design and construction finally began at a time which, unfortunately, coincided with Cyprus’ economic problems becoming particularly pronounced. We had to face many challenges to complete the project. It was a high-cost venture but I was committed: I did not want to

T.A.: Paphos can certainly support it. It is something close to my heart, that personally affects me, since, via Aristo Developers, I come into close contact with many international clients, and I hear time and time again that Paphos needs to be able to offer something more than sun and sea. Now, with the Kings Avenue Mall, the numerous golf courses, and a good English-language private school, the foundation has been laid for this development. If we manage to develop private and public marinas, health centres, sports centres and more, you can imagine what possibilities lie in store. Paphos can certainly evolve into a very attractive town for international company personnel.

strengths to attract clients from various markets but a systematic effort is required and, of course, the right amenities necessary for each market we target must be in place. No-one believed a few years ago that people from China would come to live in Cyprus. But it happened and, what’s more, there is now even greater interest and it is intensifying. This is why I am not pessimistic about Cyprus’ economic future. There are many active professionals in Cyprus who, with the right assistance and guidance from all stakeholders, including the State, can develop ideal conditions for the future, even in these difficult times.

Gold: How is Aristo building relationships with international markets, such as China? Are there any other growth markets for Cyprus that you expect to develop? T.A.: The growing relationship with China

Gold: Finally, what do you hope your next project will be? T.A.: I am interested in pursuing projects related with sports tourism and health tourism so we’ll see what happens!

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opinion

Make or Break Time Anti-money laundering and transparency regulations are the key to Cyprus’ attempts to regenerate the economy

rom the start of this new, economically tough year, it is wise to prepare our agenda with the most important tasks we have to perform and prioritise them. We need to carefully evaluate the current state of affairs and identify both risks and opportunities. Figures reveal that the country’s economy is heavily dependent upon the service industry (professional services sector) and more specifically on foreign interest companies. About half of Cyprus’ GDP – and the majority of corporate tax collected – derives from these same companies. This denotes how important this sector is to the economy and indicates the risks of losing such business. Other sectors of the economy, such as tourism and shipping, also contribute substantially to the country’s GDP but they cannot feed the country nor carry the weight of the economy on their shoulders by themselves. On the other hand, there is no other “heavy” industry to generate income for the country. Thus, the professional services sector must be placed at the top of the Government’s agenda. Moreover, the Government should develop mechanisms to protect and promote this sector, something that all those of us who participate in it must do too. Cyprus was recently severely attacked – unfairly in my view – over its anti-money laundering and transparency activities. We all remember the various comments by officials and references in the international media. Additional investigations were then performed by Moneyval and Deloitte. Very recently, Cyprus was again assessed by Moneyval. The Troika is reviewing progress on the Memorandum of Understanding every quarter and has developed a specific anti-money laundering action plan. We are under thorough scrutiny and we need to be demonstrating constantly that we are not the “corrupt beast” that many were wickedly arguing. The results of the assessments and investigations did not confirm the allegations; on the contrary, it became apparent that the country’s overall rating was much better than that of many large European countries. Yet, it is Cyprus that is in the midst of an economic crisis; Cyprus is the country that requested financial assistance; hence we are the ones who have to prove that we are not elephants!

Confidence is built by actions, not wishes or declarations

By Kyriakos Iordanou

Our task is to safeguard the professional services industry and the international business that has been developed over the years through hard work and at great cost. We need to continue to be an attractive destination and an international business network hub. Any repetition of allegations of money laundering activities and practices in Cyprus will be devastating for the country. We will not be given a third chance. Any trust or credit attributed to Cyprus will vanish. Hence, it is our duty towards our country and our profession to safeguard the international business and services sector in Cyprus. Indeed, there is no alternative. Economic growth will return primarily via this route. It is thus imperative to concentrate and focus on our anti-money laundering practices and keep up with all transparency requirements. All professionals must demonstrate proper ‘know your client’ procedures, adequate documentation and customer due diligence. All the competent authorities must ensure that their members adhere to best practices and follow directives and regulations consistently. MOKAS has a very difficult task and we all have to provide the best possible assistance. There will plenty of opportunities as soon as the cloud of doubt over Cyprus dissipates. A solid reputation supported by the equivalent procedures and practices will keep away the danger of blacklisting and will lead to new foreign direct investments and business in Cyprus. Compliance with anti-money laundering and transparency regulations will, in my opinion, be the ‘make or break’ of our country’s attempts to regenerate the economy. Anything that might jeopardise the reputation of Cyprus will have a huge negative impact. We must not allow such risk. We have to be prudent and compliant. And we will take things step by step. Confidence is built by actions, not wishes or declarations. As Cyprus is currently the focus of everybody’s attention (e.g. the Troika, OECD, IMF, EU, etc.), there is no option but to act professionally and prudently. International business is our most precious asset, so there is no excuse for doing less than our best to preserve and safeguard it. We hold the “go – no go” key and this is nothing less than our conformity, commitment and compliance to the highest standards in anti-money laundering and transparency practices.

info: Kyriakos Iordanou is the General Manager of the Institute of Certified Public Accountants of Cyprus (ICPAC). 48 Gold the international investment, finance & professional services magazine of cyprus

SPECIAL SUPPLEMENT

CYPRUS SHIPPING DIRECTORY

2014

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As a key contributor to the economy, the Cyprus shipping industry is arguably even more important in 2014 than at any other time in its 40year history. This thriving sector, comprising not only ship owning, ship management and chartering companies but also a broad range of firms specializing in shipping-related activities, from spare parts and marine security to marine insurance and ICT, has managed to survive both the global and local financial crises. On the following pages, key players in the broader sector present their activities.

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SPECIAL SUPPLEMENT

BERNHARD SCHULTE SHIPMANAGEMENT (CYPRUS) LTD

Arthur McWhinnie

ernhard Schulte Shipmanagement (BSM), being a global leader in quality Shipmanagement, offers a wide range of shipping services to its clients which include the core elements of Crew and Full Management as well as a range of Value Added Services such as Radio Accounting Services, Marine Insurances, Corporate Planning & Manage-

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ment, Travelling and Commercial Management. The BSM infrastructure of Service and Crew Delivery Centres, in over 25 countries around the globe, maintains the highest degree of operational and safety integrity over a managed fleet of more than 600 ships worldwide and over 17,000 employees on board and ashore. Bernhard Schulte Shipmanagement (Cyprus) Ltd., (BSM Cyprus), a member of the Bernhard Schulte Shipmanagement Group (BSM Group), has shipmanagement experience dating back as far as 1883 and has been involved in third party Shipmanagement since its early activities in the 1970s. Previously known as Hanseatic Shipping Co., BSM Cyprus was the first active Shipmanagement Company incorporated on the island. Our specialists’ years of shippingsector experience both onboard and onshore, backed up by Bernhard Schulte Shipmanagement’s rigorous ongoing training and best practice exchange networks, means you can count on us to deliver the very best advice on your specific issue, in the shortest possible time. Our management experience includes Management of various types of vessels, container vessels, conventional bulkers, gravity-fed self-unloading bulk carriers, Panamax, post-Panamax, Handy-size, RORO, pure car carriers, crude, chemical, LNG, or LPG tankers, to heavy-lift vessels, semi-submersibles and FPSOs – our on board and onshore specialists are highly experienced in managing vessels and fleets of every type and age. BSM (Cyprus) Ltd provides tailored

services to meet the unique circumstances of each client. The package available to clients is through a global template which is thereafter customized in accordance with each client’s needs and requirements. Whether the client is a private owned company, a stock listed company or an individual the package can be tailor made to the unique requirements of the client. At BSM (Cyprus) Ltd., we offer a series of e-services to our clients and continue to develop our systems to exceed our clients’ expectations, being committed in providing such advantages. Developing the right system is a critical task requiring expertise, time and capital investment. We have set a high standard of quality and excellence in all of our endeavours both ashore and at sea. Bernhard Schulte Shipmanagement (Cyprus) Ltd has a long history of strong work ethic, dedication and tradition. We are committed to adapting to technology and financial progressions in the market and this makes us highly flexible and able to adjust to the needs of our ship owners and clients. BSM (Cyprus) ‘motto – “there are no closed doors to an open mind” – provides us with a direction in developing partnership solutions in a demanding industry.

CONTACT DETAILS

Office Address: Hanseatic House, 111, Spyrou Araouzou St., 3036 Limassol, Cyprus Postal Address: P.O. Box 50127, CY 3601 Limassol, Cyprus Tel: (+357) 25846400 Fax: (+357) 25745245 Website: www.bs-shipmanagement.com

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www.bs-shipmanagement.com

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SPECIAL SUPPLEMENT

COSTAS INDIANOS & CO OUR FIRM

Costas Indianos & Co Advocates & Legal Consultants was established in 1924. Over the years, the firm has acquired a local and international client base comprising of ship-owners and ship owning companies, businessmen, international corporations, commercial banks, municipalities, consulting firms, real estate investors, etc. Our law firm provides custom-made shipping services with a focus on quality, professionalism and time efficiency. We maintain a wide network of longterm business cooperation with firms across the EU, Russia and further. Our law firm is a member of the International Tax Planning Association (ITPA) and the Legal 500.

SHIPPING SERVICES

Our Firm offers the following shipping services: • Cyprus Shipping Companies & Cyprus Flag • Provisional, Permanent & Parallel Registration • Mortgage of Vessels & Refinancing • Sale, Purchase, Reflagging & Deletion of Vessels • Merchant Shipping Tonnage Tax Legislation 44(I) 2010 • Vessel & Crew administration

WHY CYPRUS? A SOVEREIGN FLAG – AN INTERNATIONAL MARITIME CENTRE • Member of the European Union • Democratic country with a free market economy • Strategic location at the crossroads of three countries

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• Favourable tax regime for ship management • Low set-up and operating costs for companies • Excellent telecommunications and easy access by air and sea • Highly qualified managerial, clerical and technical staff available

MERCHANT TONNAGE SHIPPING TONNAGE TAX LEGISLATION 44(I) 2010 • Modern and efficient legal services based on English practices • No exchange controls and freedom of movement of foreign currency • Double Tax Treaties with 50 countries • No tax profits from the operation of management of a Cypriot registered vessel or on dividends received from a ship owning company • No capital gains tax on the sale or transfer of a Cypriot-registered vessel or the shares of the ship owning company • No estate duty on the inheritance of shares in a ship owning company • No income tax on the emoluments of officers and crew • No stamp duty on ship mortgage deeds or other security documents • Signatory to numerous international maritime conventions • Bilateral agreements with 29 countries, through which Cyprus ships receive either national or favoured nation treatment in the ports of other countries • Competitive ship registration costs and annual tonnage taxes • Full protection for financiers and mortgages

Cyprus is a major ship management centre worldwide, and its Shipping Registry ranks among the Top 10 international fleets. The Merchant Shipping Tonnage Tax Legislation 44(I) 2010 provides full tax exemption to ship owners, charterers and ship managers. Cyprus has adopted a maritime safety policy, which focuses on the effective control of ships and the improvement of the quality of the country’s merchant fleet. Tonnage Tax The new tonnage tax system for Cyprus merchant shipping was approved by the European Commission on 24th March 2010 (case N. 37/2010), as compatible with the requirements of the EU acquis, in accordance with the relevant guidelines on State Aid to Maritime Transport. The Merchant Shipping (Fees & Taxing Provisions) Law was enacted in May 2010 and introduces a new tonnage tax system in Cyprus, applicable as from the fiscal year 2010. This simplified tonnage tax system has been approved for the first time for an EU Member State with an open registry, thus available to the world shipping business community.

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Scope of Tonnage Tax It extends the favourable benefits applicable to owners of Cyprus flag vessels and ship managers to owners of foreign flag vessels and charterers. It also extends the tax benefits that previously only covered profits from the operation of vessels in shipping activities, to cover profits from the sale of vessels, interest earned on funds used other than for investment purposes and dividends paid directly or indirectly from shipping related profit. The new tonnage tax system contains most of the favourable features found in tonnage tax systems in other EU countries, and more. The regime, therefore, provides Cyprus with a competitive advantage and is expected to significantly

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contribute to the improvement of the already strong position of the country in the shipping world.

INTERNATIONAL SHIPPING CONVENTIONS

Cyprus has ratified most relevant international maritime conventions currently in force. Cyprus is a member of the Council of the International Maritime Organization and an EU member state; Cyprus has modernized all its maritime legislation according to European standards and participates in the Community law-making process, as well as the Short Sea Shipping and Euromed initiatives. Cyprus is today on the white list of both the Paris MOU

& Tokyo MOU. The Cyprus Ship Registry is governed by the Merchant Shipping Law of Registration of Ships, Sales & Mortgages 1963-2005, of Fees & Taxing Provisions 1992-2007 and of Masters & Seamen 1963-2002.

CONTACT DETAILS

Office Address: Kermia House, 6th Floor, Offices 601-602, 4, Diagorou Street, 1097 Nicosia, Cyprus Postal Address: P.O.Box 21574, CY 1510 Nicosia, Cyprus Tel: (+357) 22675231 / (+357) 22665232 Fax: (+357) 22669678 e-mail: indianos@indianos.com.cy Skype: anthony.indianos

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Shipping in Cyprus Leading the way

he shipping crisis drags for a fifth year in succession. It appears to be the worst and longest crisis ever experienced in shipping. This creates enormous challenges and at the same time opportunities. The ability to offer top quality professional services to the shipping industry, requires in depth knowledge, extensive experience and specialised skills in a variety of functional and technical areas. Deloitte is uniquely positioned to serve the Shipping industry in Cyprus. We provide an optimal balance between local resources and international expertise of our global organisation, Deloitte Touche Tohmatsu Limited. Understanding the needs, expectations and business challenges of the shipping industry is paramount to ensuring that we provide high quality cost effective services to our clients. Deloitte is one of the leading advisory professional services organisations for the shipping industry in Cyprus. Our clients, of which we are extremely proud, include the world’s largest international shipmanagement and shipping companies operating through Cyprus as well as leading shipping lines, cruises, ferries, ports and port authorities. Our Services in Shipping We offer our clients a broad range of traditional audit, tax, consulting and financial advisory services. We also offer attestations for the operating effectiveness of systems, a critical certification required by ship managers to be furnished to their customers as evidence of the ship manager’s service organization credibility. In addition our financial advisory can assist clients in the development of cash forecast models for their business plans which is something very critical for the shipping industry today. . Why Choose Deloitte? There are a number of factors, which differentiate Deloitte from the competition. We are one of the biggest contributors to the success of Cyprus in becoming a truly international and shipping centre. Our unique difference is that we the only professional services firm that has all the competencies, audit, tax, consulting, financial advisory integrated to understand the issues that our clients face and serve them best with their business needs.

Some of our major shipping clients in Cyprus are listed below in alphabetical order: Bernhard Schulte, Bernhard Schulte Shipmanagement, C. F. Ahrenkiel Shipmanagement (Cyprus), Columbia Shipmanagement, Cyprus Shipping Chamber, Essar, InterManager, Intership Navigation, Lemissoler Shipping Group PCL, Marin Shipmanagement, Mastermind Shipmanagement, Oceanwide, Reederei Nord, Schoeller Holdings, Songa Offshore, Synergy, V.Ships. Unavoidably our shipping clients that are operating from Cyprus using the infrastructure to its full extent have also been tangibly hit by the agreement reached with the Troika. None however have indicated that they will discontinue their presence or otherwise shrink their business conducted through Cyprus. These clients have been and still are so loyal to Cyprus and we thank them for the trust and conﬁdence that they continue to show in us and to Cyprus in general. The Future of Cyprus Shipping Our assessment is that despite the challenges faced by the Cyprus economy and particular problems caused in the banking system, the operational and taxation infrastructure are unaffected. The shipping industry has therefore a huge potential for further growth as a quality and competitive shipping center. Cyprus continues to be without a doubt one of the most attractive shipping and shipmanagement centres in the world. Amongst other advantages, the tonnage tax system which has incorporated the favorable features found in the tonnage tax systems of other member states is the latest that has been approved by the European Commission. It covers therefore activities not qualifying under the tonnage tax systems of other Member States as yet and/or not covered entirely in any other system while at the same time provides shipping companies not only with a very competitive tax burden but also with certainty as to their future tax position. Contact us to obtain a free copy of our recently produced shipping brochure, entitled, “Shipping in Cyprus”.

Our top priority has always been to maintain and protect our core values of integrity, objectivity, independence and technical excellence. The client is always at the centre of everything we do, and every client regardless of its size and location, receives the best our ﬁrm has to offer. Our Shipping Clients in Cyprus Our leading position in Shipping is reﬂected by our clientele in this sector, which includes some of the largest Shipping and Shipmanagement companies in the world.

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Your trusted advisors in shipping Helping you navigate through turbulent times

Our services in shipping include: • Audit & Accounting • ISAE 3402 Attestations • Tax • Consulting • Human Capital Advisory Services • Corporate Finance Advisory • Enterprise Performance Management (EPM) Solutions • Financial Modelling Services • Valuation Services

For more information about Deloitte’s Services in Shipping you may contact: Christis M. Christoforou Chief Executive Officer Telephone: +357 22360300 E-mail:cchristoforou@deloitte.com

Costas Georghadjis Partner - Head of Audit Services Shipping Industry expert Telephone: +357 25868686 E-mail: cgeorghadjis@deloitte.com

Antonis Taliotis Partner - Tax Services Shipping Industry expert Telephone: +357 25868686 E-mail: ataliotis@deloitte.com

For further information, visit our website at www.deloitte.com/cy

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SPECIAL SUPPLEMENT

HELLENIC BANK ne of the leading financial institutions in Cyprus providing International Businesses, the Shipping Sector and Financial Institutions with a wide spectrum of products and services.

OUR MISSION

We build strong personal and professional relationships with our customers. • We invest in our people. • We evolve dynamically, keeping up with the challenges of our time.

GUIDING PRINCIPLES

The diversity of our client base and our shared experiences provide us with a thorough understanding of what is important to you, our customers. It is the driving force which sparks our creativity and bolsters our innovative spirit. Our core values, our staff and our deep sense of corporate responsibility together with our cutting edge technology systems form the foundation of who we are; a customer centric, leading financial institution.

HELLENIC BANK SHIPPING BUSINESS CENTRE

The shipping sector was successfully served by Hellenic Bank for many years before the inception of the International Business Centres. Since then, a sizeable portfolio of reputable customers from the shipping industry has been developed. The customer portfolio consists of

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some of the most well-known companies in the business with activities ranging from ship owning, ship management, chartering, bunkering, marine insurance and others. Hellenic Bank Shipping Business Centre is the first of its kind in Cyprus and is, dedicated to exclusively serve the shipping business community worldwide, capitalizing on the long standing tradition of the Bank’s affiliation with the shipping industry sector, All the know-how and expertise accumulated throughout the years is now under a single roof. Through the mixture of core and tailor made services combined with a highly experienced team of professionals, Hellenic Bank Shipping Business Centre aims to provide a new level of experience to this selected group of clients.

PRODUCTS & SERVICES

Hellenic Bank Shipping Business Centre offers a wide array of core services while at the same time, solutions can be tailored to meet the specific requirements of each and every client.

OUR CORE SERVICES INCLUDE:

• Current accounts in all freely convertible currencies. • Multicurrency accounts in major currencies. • Advanced internet banking services; personal and business on-line banking versions. • Global transaction services; international and local payments using advanced customized electronic payment

systems for handling payments to suppliers, insurance companies, utility payments, standing orders, local staff salary payments, as well as salary payments to seafarers. • Cash management services, working capital management, short term fixed and overnight deposits. • Spot foreign exchange deals in all major and minor currency pairs. • Forward contracts, option contracts and tailor made contracts; hedging positions in currencies and interest rates. • Corporate and personal debit & credit cards. • Credit facilities for working capital purposes; overdrafts, credit lines, loans, trade finance and other financing available from time to time in line with the credit policy of Hellenic Bank Group. • Trade finance and letter of guarantees services. • Escrow services. • Custodian services. • Insurance services. • Private banking services.

CONTACT DETAILS

Address: Corner Gladstonos & Evangelistrias 1 Str., Agathangelou Business Centre, 1ST floor, 3031 Limassol, Cyprus Tel: (+357) 25502700 Service Line: 8000 9999 Tel: (From Abroad): (+357) 22500500 Fax: (+357) 25345430 e-mail: sbc@hellenicbank.com Website: www.hellenicbank.com

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SPECIAL SUPPLEMENT

INTERSHIP NAVIGATION SETTING THE RIGHT COURSE: INTERSHIP’S FIRST 25 YEARS

Dieter Rohdenburg

ince its founding in 1988, Cyprus-based Intership Navigation has grown from a small management operation set up by the Hartmann Group of Germany into a

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major international shipowner and manager enjoying a ‘blue-chip’ reputation in its own right. The company currently has 81 ships under ownership or full management, the majority belonging to the Hartmann Group. Of these 14 are tankers and the rest dry, mostly bulk carriers ranging from 4,000dwt all the way up to 180,000dwt Capesizes, plus around 20 general cargo vessels. In addition, Intership partly manages an additional fleet of 104 ships on a crew management basis. The company also stands at the forefront of technical and commercial innovation, having ordered a significant number of newbuilds in recent years. These include prototypes for several series of ship that have proved highly popular both with charterers and other owners who have since ordered the same. As well as designing its own ships, Intership has been able to partner leading suppliers and technical bodies in introducing new equipment and systems that improve efficiency and reduce environmental impact. Intership has always strived to maintain close relations with its clients, charterers and industrial partners. Not only meeting customers’ expectations, but consistently exceeding them has been the target. Today Intership enjoys long-term relations with its partners, which have grown beyond the transport of cargo from A to B. Intership today offers tailor-made solutions, such as stockpile/inventory management and other logistical tasks. Intership continues to

develop new buildings in close liaison with its industrial partners, so that new ships meet the customers’ needs. In some cases, relations have grown beyond shipping, to the extent that Intership today manages a power plant in Jamaica for one of its shipping customers. Intership’s core fleet is made up of approximately 30 handy-size bulk carriers, all of which are box-shaped and equipped with cranes and grabs for self-loading and discharging. The bulkcarriers are successfully commercially managed by fully-owned United Bulk Carriers (UBC) in Pennsylvania, USA. An industry sector into which Intership has diversified in recent years is product tankers. After having successfully built up a fleet of modern handysize bulkers, the company first started turning its attention to the wet trades in the early years of last decade. In 2003 it ordered its first handy tankers, and subsequently established Donnelly Tanker Management in 2004. For the commercial management of this new fleet, Intership teamed up with another Limassol-based ship owner and manager to set up United Product Tankers (UPT) in 2004. Today UPT successfully commercially manages the entire Donnelly Tanker fleet. A key characteristic of Intership is the importance it places on the training and welfare of seafarers. In 1994 Intership Navigation established its own training centre in Manila, Philippines and in the same year saw the first batch of company cadets graduating after

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further competencies. ISNTC draws from the experience of several full-time instructors (ex-seagoing) and a large number of guest lecturers. Intership’s shore operations are run from a global network of offices centred on its headquarters in Limassol. The company has occupied its own office building since 1997, and in 2013 expanded by moving into even larger premises. The new Hartmann House comprises 5,700m2 of open-plan office space which is fully automated and equipped with the latest technology, providing an ideal base for the next chapter in Intership’s unfolding success story. Indeed, the company’s contribution to the national economy was recognised when it was presented with a CIPA (Cyprus Investment Promotion Agency) International Investment Award at a special ceremony held at the Presidential Palace in early September 2013. CEO Dieter Rohdenburg believes the company is well positioned for the future as the company turns 25 – full of confidence and ready to embark on its second quarter of a century. their shipboard familiarisation training. The Intership Navigation Training School, (ISNTC) has been certified by Germanischer Lloyd for compliance with ISO 9001. ISNTC conducts courses in compliance with the IMO requirements, particularly the codes of STCW, ISM and MLC. The training school is recognized by the Philippine authorities as a professional training institution and has obtained several Flagstate approvals for its courses.

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ISNTC operates sophisticated bridge and engine simulators and maintains an extensive range of deck and engine equipment for hands-on training, which includes a full scale mooring station and the only real ship’s crane available in the Philippines. Soon a fully operational engine room will allow real-time training for engineers and engine ratings. The school has the resources to upgrade seafarers of all ranks to achieve

CEO: Dieter Rohdenburg CFO: Evangelos Charalambous

CONTACT DETAILS

Office Address: 32 Miltonos Street, 3050 Limassol, Cyprus Postal Address: P.O. Box 70185, 4161 Limassol, Cyprus Tel: (+357) 25584000 Fax: (+357) 25585762 e-mail: mail@intership-cyprus.com Website: www.intership-cyprus. com

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SPECIAL SUPPLEMENT

MASS LTD. tain the higher possible standard of maritime security selection, abide by all the regulations of the International Maritime Organization (IMO), and is contracted through the BIMCO Guardcon Agreement. In January 2014, the company founded the MASS Maritime Security Academy with the aim of training highly-skilled Greek Cypriot nationals for the full qualifications necessary in order to be contracted in the Maritime Security Industry and serve Cyprus and other Flag vessels. MASS Academy graduates are highly sought-after by a wide variety of maritime security companies globally.

aritime Armed Security Services Ltd (MASS) is a fully licensed maritime security company under the Cyprus Department of Merchant Shipping (CY DMS). MASS is in compliance with all national and international regulations and specializes in maritime risk mitigation and anti-piracy services in the designated High Risk Areas throughout the Gulf of Aden, East and West African coastlines, Indian Ocean, Gulf of Oman and the Red Sea. The Company is a Level 1 Certified Member of the Security Association of the Maritime Industry (SAMI), ISO 9001 Compliant, Signatories of the

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International Code of Conduct for Private Security Companies (ICoC) and holds a comprehensive insurance package by Lloyds Markets of London. Our teams are handpicked for their military experience and that gained working in the Maritime Security Sector; they are fully qualified to meet IMO standards and are all fully accredited by the CY DMS. All our services are delivered in accordance with the International Shipping and Ports Security Code (ISPS) and the 4th edition of Best Management Practices (BMP4). We offer a cost-effective solution across a wide spectrum of maritime services and can be on task within 48 hours. The company’s client base is among the top rated Cyprus and Greek Ship Managers and Ship Owners who main-

“Piracy at sea has reached its lowest levels in six years with 264 attacks recorded worldwide in 2013, a 40% drop since Somali piracy peaked in 2011,” according to the International Chamber of Commerce (ICC) and the International Maritime Bureau (IMB). “The single biggest reason is the decrease in Somali piracy off the coast of East Africa, who has been deterred by a combination of factors; the key role of International Navies, the use of Private Maritime Security Teams, the hardening of vessels and the stabilizing influence of Somalia’s central government”. (IMB)

CONTACT DETAILS

Office Address: 5B, Jean Moreas Street, 1075, Nicosia, Cyprus Tel: (+357) 22754474 Fax: (+357) 22754474 Mobile: (+357) 96443044 e-mail: aph@massltd.eu Website: massltd.eu/

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SPECIAL SUPPLEMENT

MASTERMIND SHIPPING GROUP Mastermind Shipping Group commenced its operations back in 1999 with the construction of its first seagoing vessel. It was in Limassol where Mastermind Shipfinance Ltd was incorporated and since then has managed to successfully increase the owned fleet to twelve seagoing vessels. Two additional vessels are under third party full management.

MASTERMIND SHIPMANAGEMENT LTD

Captain Eugen-Henning Adami

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(MSM) was incorporated in 2010 and, simultaneously, it took over the responsibility for the full personnel and technical management of the whole of the MSM fleet. At the same time a specialized Cyprus-based workforce was hired, led by Captain Eugen-Henning Adami, to handle all the relevant tasks a professional Shipmanagement company should perform. MSM currently employs twenty-one (21) Cyprus-based personnel and four hundred (400) seafarers. MSM is particularly focused on adding value to the transport chain by managing the fleet and our new buildings to standards that exceed the ordinary duties of a technical manager. In Mastermind we do not feel ourselves working in the shipping business. We see ourselves working in the

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people business while we operate ships to serve our cargo clients. MSM’s VISION is to be the most reliable, secure and efficient shipping company by offering privileged and quality services, via the most talented employees and quality hi-tech vessels, consistent with the overall Group strategy which dictates that the following specific goals are always met: Increase our competitiveness by: m improved effectiveness and efficiency m minimization of costs m optimize profitability • Build new vessels and opening new shipping areas according to the needs of our customers • Provide service excellence via efficient, high-quality, reliable and secure services • Invest continuously in our people by developing their skills and providing them with an environment that is characterised by constant and open communication, transparency and equal opportunities for career advancement Compliance with quality standards, pursuing a zero-defect and error policy • Compliance with environmental legislation, pursuing a zero-spillage policy • Compliance with health & safety regulations, pursuing a zero-accident policy MSM’s MISSION is to continuously invest in our Human Capital for securing professional and high quality service to the best of our abilities and standards, while our strong sense of social and environmental responsibility is reflected in our business practices. MSM’s VALUES that underpin our day-to-day activities and operations are: • Integrity • Transparency • Professionalism • Customer Orientation • People Orientation • Continuous Development

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• Teamwork & Trust • Safety • Environmental & Social Responsibility • Quality • Reliability • Efficiency • Innovation • Accountability On the 17th September 2012, the Group moved to its new office premises, conveniently situated in eastern part of Limassol. Below we briefly present the Management Team of the MSM Group: • Captain Eugen-Henning Adami is the Managing Director and Founder of the Group. Captain Adami is a qualified Master of Mariner, with seagoing experience as well as being the Managing Director and Partner of Intership Navigation Co. Ltd from 1988-2010. • Marios Antoniou is the Director of the Group and responsible for the general supervision of all the Group’s activities. He is a holder of a Master’s Degree in Shipping, Trade and Finance from Cass Business School in London and has also an extensive experience in the last fourteen (14) years in the shipping sector from other positions. • Antonis Ioannou is the Group’s Chief Financial Officer, responsible for all its financial affairs. he is an Associate Chartered Accountant (ICEAW), who had qualified and previously worked with Deloitte Cyprus. Mr Ioannou is also a prospective member of the Institute of Chartered Shipbrokers (ICS). • Captain Zeljko Ivovic is the Group’s Fleet Director, responsible for the overall operation of the vessels. Captain Ivovic has extensive seagoing experience as a Master, while he sailed for over twenty five (25) years on multi-purpose vessels. • Andreas Potamitis is the Group’s Technical Manager with academic qualifications in Marine Engineering as well as

experience in sea travel and shipbuilding. The MSM fleet is diversified in different series of vessels: 33,000 dwt multipurpose bulk carriers; 6,500 dwt, 18,000 dwt and 26,000 dwt multipurpose heavy lift tween deck vessels, 4,500 dwt, 8,000 dwt multipurpose single deck mpp vessels, which are all trading worldwide. All MSM vessels already meet the environmental standards of the future and take due consideration of the Energy Efficiency Design Index (EEDI) as developed by the IMO. MSM prides itself in being very innovative and instrumental in developing its new ship designs with shipyards in Japan and China. MSM vessels are initially developed by the company’s founder and have found great attraction in the international ship-owing arena. The yards have succeeded in delivering more than 50 vessels from each of our designs to various shipowners worldwide. At the same time, a substantial training scheme has be implemented. To cover the different time zones as efficiently as possible and in order to have closest contact with the ships trading worldwide, MSM operates strategic ‘satellite’ technical offices and representations. MSM is dedicated to safety and quality while adding value to its clients. Always mindful of the protection of our environment, we are determined to safely “Navigate Ahead” to fullest satisfaction of our customers.

CONTACT DETAILS

Address: MSM House, 63, Christaki Kranou Street, CY 4042, Limassol, Cyprus Tel: (+357) 25256000 Fax: (+357) 25256007 e-mail: mail@mastermind-cyprus. com Website: www.mastermind-cyprus. com

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SPECIAL SUPPLEMENT

SALAMIS SHIPPING SERVICES LTD alamis Shipping Services Ltd, a member of the Salamis Organisation, is a wellestablished shipping company which was founded over 55 years ago, providing total transport and shipping solutions under one umbrella. At Salamis Shipping Services there is a hard-working team, known for its ability to identify and execute the most appropriate transportation solutions, tailored made for each customer’s needs and expectations. The flexible set-up of our Company with local offices across Cyprus, and in cooperation with Salamis Shipping S.A., the affiliate company in Piraeus Greece, we warranty fast and quality services. We provide parallel services as port operators and port agency for thirdparty vessels, such as cruise vessels, bulk carriers, container ships and tankers, calling Cyprus Ports and Anchorage.

SERVICES

• Port agency and Port operation We represent many Shipping Lines from different sectors, such as Cruise Liners, bulk carriers, RO/RO carriers and tankers. We have considerable advantage by using our own equipments for loading and discharging mostly RO/RO vessels. In addition, we can provide the following shipping services: • Stevedoring • Ship handling • Provisions supplies - Bonded stores • Fuel and engine oils supply

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• • • • • •

Technical services, repairs, generators Spare parts and consumables Cranes/fork lift operations Crew handling Container transshipment operations Surveys

• Cruise vessels and Yachts The most popular cruise liners worldwide trust us for providing port and tourist services. In addition we have a dedicated team for VIP handling in the yachting sector. • Cargo Handling, Ocean Shipments / Forwarding We handle multimodal door-to-door worldwide service for any kind and type of cargo. • Oil and Gas Logistics In the light of recent developments in the oil and gas industry in Cyprus, our company has invested in this field and in this respect we can provide storage facilities, supplies, tug boat services, crew handling, hotel accommodation and transportation, cargo handling, road transportation and special projects. • Air Freight We maintain perfect relations with the most reliable airlines which allocating to us the requested space to/from any destination. • TIR trailer road service CIR Ltd belongs wholly to Salamis Shipping Services Ltd and specialises in the road transportation of all types of cargo, reefer or dry. CIR Ltd is organised to offer reliable, safe and fast transportation of goods, aiming to keep

its customers satisfied to the maximum possible level. The company owns a considerable number of new Reefer and Tilt Trailers as well as flat platforms trading mainly to /from Cyprus, Israel, Greece and Central Europe. • Local Transport - Customs Clearing- warehouse Inland haulage in Cyprus is a vital part of our logistics package. With our own fleet of truck units and platform trailers, we can carry promptly any kind of cargo, machinery and containers to and from any place in Cyprus according to the customer’s requirements. Our highly specialized Customs Clearing Department offers all customs services, including warehousing and logistics, for dry and refrigerated cargoes. A direct link with the Cyprus Customs Office and the Cyprus Ports Authority enables online access to a complete and quick Customs Clearing Operation. • Marine Insurance We offer Marine insurance (All Risks, FPA, Class “C”, etc) for your cargo, offering the best and lowest-cost protection against any risk you intend to cover.

CONTACT DETAILS

Address: 124, Franklin Roosevelt Avenue., P.O. Box 55609, 3781 Limassol, Cyprus Tel: (+357) 25899999 Fax: (+357) 25563426 e-mail: shipping@salamis-shipping.com Website: www.salamis-shipping.com

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SPECIAL SUPPLEMENT

SUPERNOVA CONSULTING LTD upernova Consulting Ltd is the first SAP channel partner that has achieved gold SAP channel partner status in Cyprus and Greece, and it offers SAP Business All-in-One, SAP BusinessObjects and SAP Business One solutions. This is the highest level of recognition attainable within the SAP PartnerEdge™ program. Supernova was established by a team of Management & IT Consultants who envisioned how advances in technology can accelerate business performance with innovative business & IT solutions aligned to their strategy, business objectives and goals. Supernova’s team of certified management consultants, ERP consultants, IT consultants and qualified accountants – with local and international project experience – offers affordable, personalised, professional services and IT solutions to accelerate business performance. Supernova Consulting Ltd achievements include SAP gold partnership since 2008, SAP support certified PCOE (Partner Center of Expertise), a number of successful implementations in the shipping, high quality service offering and user satisfaction of SAP customers. Supernova Consulting offers today possibly the most complete and technologically advanced business software solutions for medium sized and large enterprises with extensive experience in the following industries: shipping, financial and professional services, wholesale and distribution, retail, pharmaceuticals etc. We have been servicing the shipping industry since 2009 counting a number major key players. High profile companies and international by nature have high expectations and require nothing but the best services offering and support they can get.

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OUR MISSION

Implementing innovative business & IT solutions for growing companies.

OUR VISION

To become the leading business applications consulting company in the wider region by delivering exceptional services and innovative business solutions exceeding our customers’ expectations. In today’s global environment, businesses of all sizes must be agile and stay ahead of competition while facing daily challenges of: • Managing Cash Flow • Reducing Costs • Increasing Profitability • Improving Operational Efficiency

WHAT WE DO

• We work with your team to understand your business and identify areas of further improvement • We bring a knowledge base vast in real life business experience, education and skills • We relate the right mix of knowledge, talent and skills to transform your business • We implement business strategy, processes, people, and technology together to help you achieve your company’s objectives Whether you are starting up a new business, adapting to new legal requirements, reorganizing or expanding your business, Supernova’s experienced professionals can help you make the right decisions for your business by giving you answers to critical for your business challenges.

EXPERTISE

With years of management consulting and business applications implementation experience combined with vertical industry know-how in international

and local projects, our team is dedicated in providing the highest quality of professional services and business solutions. Supernova’s experienced management and IT consultants have assisted a number of international and local companies in business process improvement, legal requirements compliance, ERP, CRM, Business Intelligence and ECM projects. Major companies in the wholesale & distribution, retail, professional services, shipping and engineering and construction, have trusted Supernova as a consulting and technology partner to accelerate business performance.

PRODUCTS AND SERVICES

• Technology: m SAP Business All-in-One (ERP) m SAP Business One (ERP) m SAP NetWeaver Business Intelligence (BI) m SAP BusinessObjects Business Intelligence m SAP Customer Relationship Management (CRM) m SAP Mobility solutions m PayrollOne m Enterprise Content Management • Consulting: m Business Application Consulting m Business Process Redesign m Systems Integration • Outsourcing: m Application Management m Application Development Services

CONTACT DETAILS

Address: 34, Arch. Makarios III Ave., Office 301, CY-3065 Limassol, Cyprus Tel: (+357) 25817880 Fax: (+357) 25817881 e-mail: info@supernova-consulting.com Website: www.supernova-consulting.com

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consulting I technology I outsourcing

With SAP@ solutions implemented by Supernova Consulting you can operate more efficiently, sell more effectively and respond more rapidly to market shifts. SAP • SAP • SAP • SAP • SAP • SAP •

Business All-in-One (ERP) Business One (ERP) Customer Relationship Management (CRM) BusinessObjects Business Intelligence NetWeaver Business Intelligence (BI) Mobility

Tel. +357 25 817 880, Fax. +357 25 817 881, 34 Arch. Makarios III Ave., Off 301, CY-3065 Limassol, Cyprus, info@supernova-consulting.com www.supernova-consulting.com @2014 Supernova Consulting Ltd. All rights reserved. @2014 SAP AG. All rights reserved. SAP@ Business All-in-One and SAP Business One and other SAP products mentioned herein are trademarks or registered trademarks of SAP AG in Germany and in several other countries.

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Children of the Revolution bitcoin

By Chloe Panayides. Photograph by Jo Michaelides

The debate surrounding Bitcoin rages on. Does it represent the way of the future or is it just a phase that will soon be forgotten? Talk has reached fever pitch and, consequently, it is increasingly becoming difficult to separate fact from fiction. Danny Brewster, CEO of Nicosia-based Neo and Bee, has some choice words for the doubters out there: Bitcoin has planted the seeds for the future; its momentum cannot be quelled; and it will revolutionise the financial system as we know it. 68 Gold the international investment, finance & professional services magazine of cyprus

Gold: Most people will know that Bitcoin is a “d igital currency” but precisely how does it work? Danny Brewster: Bitcoin has scale. So far, we’ve been usi limitless potential on a global ng the Internet to commu nicate. Now, we are tapping into the ability to freely transa ct via the Internet, without a thi rd party. Bitcoin is, in fac t, the biggest technological dev elopment since the Intern et. It is, first and foremost, a netwo rk: peer-to-peer, and mathema open sourced, decentralised, tically secured. The distrib uted asset ledger enables all usi ng it to agree without a thi rd party. The shared public databa se – the Blockchain – is, in essence, SWIFT (the Society for Wo rldwide Interbank Financ ial Telecommunication) for everyone, devoid of the exc lusivity of banking. The units used in tra (the dual naming of netwo nsactions are also called bitcoins rk and unit is perhaps the only mistake that the founder of Bitcoin made). Bitcoins constitute a digital currency, and are capped at 21 million units. Thus, the monetary value is wro ught from bitcoins’ utility and scarcity. Bitcoins cannot be counterfeited or dupli cated. Unlike conventional curren cies or precious metals, the y can be backed up, and severa l copies of them can be sec ured from physical theft or destructio n. ‘Miners’ in the network protect and confirm all transactio ns, which are final and irre versible. Importantly, there are no transaction fees, and no del ay: funds are cleared immediately wo rldwide. Gold: As with many new ventures, Bitcoin is still being viewed with caution and scepticism. Neo and Bee, conversely, obviously bel ieves passionately in its poten What is your response to those who view digital cur tial. as ‘dangerous’? rencies D.B.: Any financial instru ment is dangerous; any cur rency subject to hyperinflation is dangerous. Bitcoin, how ever, is not subject to this. My instin ctive feeling in response to a statement from the Central Bank of Cyprus concerning Bitcoi n not being regulated – and the refore out that we’ve seen how goo being dangerous – is to point d good it’s done the economy they are at regulating, and what ! If anything, we (here at Neo and Bee) welcome a regulator y framework within which to work,

Two years ago we had a choice of accepting the MoU or going bankrupt

Marina Theodorou xxxxxxxxx xxxxxxxxxx

Danny Brewster

bitcoin

our worth. Listening to as it would prove our transparency and ning to librarians trying people discrediting Bitcoin is like liste esents progress, and its repr to shut down the Internet. Bitcoin . potential is uncapped for example? How can Gold: What about fears of hacking, ed? imis the risks be min ing, but there has not D.B.: There are a lot of rumours of hack network’s inception the since s year 5 been a single incident in es working with Bitcoin, in which it has been hacked; business I see it is, if someone way the yes, but never the network. And compromised, been has that ency curr robs a bank, is it the le will take it. It peop t, or the bank? If you wave money abou secure the cally uivo uneq to y is the individual’s responsibilit such as we ces, servi llet e-wa in st inve or use, computers they themselves keep t mus le have on offer. To minimise risks, peop e here we’r t wha ’s that but tile, vola be informed. Bitcoin may the of use e mak to for. We can protect individuals wanting ue uniq Our safe. and easy Bitcoin technology, ensuring it’s ent curr lace, ketp mar the of mics dyna understanding of the as the individual trading developments and challenges, as well a singular position to in us puts , behaviour of this asset class tites. I, personally, appe risk all for ce advi offer investment became interested but previously worked in retail banking, lopment and day deve its wed follo in Bitcoin and carefully ately, including the trading. I got to know the market intim tile because it’s vola it’s shortfalls: it’s technical to use and as more people le stab e mor me beco will shallow (though it to make it more lved reso begin to use it), and that’s why I was . yone ever to able avail accessible, easier to use, and ons that you might like Gold: Are there some other percepti is a bubble or that it is oin Bitc that to clarify? For example not safe without regulation. ld have known by now. D.B.: If Bitcoin were a bubble: we wou gulated is unfounded, Likewise, the suggestion that it is unre ly secured. As seeing how the network is mathematical lation of businesses regu the ome welc previously mentioned, we it would be to our building infrastructure around Bitcoin; benefit. public record, so there Every transaction made via Bitcoin is and the suggestion that is no possibility of money laundering, al currency holds no digit her Bitcoin could be replaced by anot brings something that ency curr al digit a real threat, since only and right now oin, Bitc entirely new to the table could usurp ability for people the is this eve achi the only quality that would to transact between planets! sions to financial Gold: What are the long-term repercus lt of Bitcoin’s zero institutions as we know them as a resu of funds? ring clea te transaction fees and immedia r 50% of the world’s Ove n. lutio revo a ing D.B.: We’re undergo se people are The unt. population does not have a bank acco extortionate ged char are they and excluded from the system do they ons t opti fees for making simple transactions. Wha nsive, expe , slow are they : have? Bank wire and MoneyGram fees ce ittan rem al Glob its. prof on d and reflect systems base saction tran e thes how currently stand at $549 billion. Imagine r, wate er clean in here elsew fees could be better invested se are all causes more education, infrastructure, and more. The deserving of this money.

70 Gold the international investment, finance & professional services magazine of cyprus

The ECB should act to bring about the banking union and make sure people believe that it is serious about the idea. Gold: Why has Neo and Bee chosen Cyprus as its base to spread this message? D.B.: Its geographical location is ideal, its people are welcoming and hospitable and, more than anything, following the events of last March, no-one knows better than Cyprus what it means to be master of your own money. Bitcoin presents this very opportunity. For example, Neo and Bee’s safekeeping service of bitcoins disallows us from accessing a client’s account without their express consent. Gold: Could Neo and Bee’s operations encourage foreign investment in Cyprus? D.B.: Definitely. Venture capitalists are pouring money into Bitcoin start-ups, and they need a home. We can turn Cyprus into the Silicon Valley of the financial world. Who wouldn’t want that? We have people leaving their jobs at Boeing in the US to join us here. Imagine the potential. Gold: What are your thoughts on Swiss lawmakers’ proposal to recognise Bitcoin as a foreign currency? D.B.: They will have to. No one can turn Bitcoin off. It’s like trying to fight file sharing again. You would have to turn the Internet off entirely to be able to achieve that, and you simply can’t. More people are connected to the Internet worldwide than have running water. And there are growth areas that have yet to be exploited. Consider Sub-Saharan Africa. It has been the fastest-growing region in the world for mobile phone users in the past five years, with local providers predicting that the region’s mobile users will reach 346 million by 2017, opening up people even more to the Internet and the benefits that come with it. At some point, people won’t even have to use their local currencies. Gold: What would you say to those who believe Bitcoin is a craze of the ‘millenials’? D.B.: I know plenty of people belonging to the older generation who are wholeheartedly embracing Bitcoin. It does not represent a libertarian way of being anti-establishment: it’s a technology and it’s planting the seeds for the next generation. All you have to do is consider what the Western Union Telegraph Company said about the telephone when it was invented: “The telephone is inherently of no value to us.” We saw how that worked out! Neo and Bee is preparing to launch its operations as of February 24, 2014.

opinion

The Bitcoin Adventure, Part 2

Why it is still better than the euro disaster

coin The Bittu re n e Adv

but it y forward is the wad controlled by currency an A virtual be coordinated e world. to th s need banks all over central we have s last few week informauring the ” barded with been bom g Bitcoin, the “newe re are thos tion regardin ency. The way virtual curr that Bitcoin is the ical ve nal polit who belie exter by of transimpenetrable currency conventional means taking a ard, are forw safer than enterprises factors and al Cypriot umers by making fact, sever acting. In duce Bitcoin to consle means of payment. steps to intro ency an acceptab been fascinated by curr the virtual time, investors have to pay as a result ises nal At the samethat Bitcoin prom ng conventio into to rush the returns rate fluctuations amo ever, how of exchangeIt would be unwise, of payment without currencies. of a virtual means Bitcoin. the adoption plagued history of the world in Noto the d duce was a fact. knowing first intro recession Bitcoin was when the global Nakamoto and shi 2008 vember of used the alias Sato ematics and cryp der d in math ork where The foun be well-versea peer-to-peer netw decentralized seemed to a ed ugh creat thro He ucted by tography. were transmitted ons cond ns “mined” y transacti block chai order to verif could be essentiallyestablished system in to the currency er The pow . r publicly Bitcoins user’s compute ed trading a by selling 2010, Bitcoins start ox, the first Bit- a In from Mt.G n. Soon, network. be obtained d in Tokyo, Japa lishe and could ange estab vered. coin exch erability was disco failed to verify as ork major vuln 2010, the netw sent in blocks and created, e were In August “illegally” before thes y transactions billion Bitcoins were Mt. Gox eventuall a result 184 crash of the market.ons but it was now a leading to unverified transacti le. Nakamoto, erab reversed the system was vuln real name nor did the clear that actually revealed his disappeared just ces, r icious who neve public appearan very susp t even any e he mak crash, making this on a life of before the of the traders. ing took ilin the eyes ntime, Bitcoin trad network vulnerab g In the mea ived despite the Exploitin surv its founder. was valued its own and disappearance of market the Bitcoin that time another ity and the recession, . At the global ion in June 2011 aled when Mt. Gox at $206 mill the system was reve of ness weak

By Dr. s tino Constan bous Charalam

words had es and pass Bitcoin their 00 usernam that 60,0 lt, 600 users had admitted n d. As a resu been leake n overnight. d again whe are network faile balances stole 2013, the rent versions of softw in her, Furt two different running diffe k, creating hase was made. computers verify a bloc purc exploit the could not logs every time a user could the transaction logs meant that a with sactions These two carry out two tran weaknesses, Bitcoin ce e system and et despite thes have lost confiden ey.Y le same mon persisted as peop fact, Bitcoin users d trading has nal currencies. In Troika-impose the in conventio d to hear about a bank holiday ande g joye were over Cyprus. Declarin sits meant that mor in s depo to Bitcoin measure money from tually turn l confiscating dwide would even ey. Conventiona was a people worlof securing their mon er safe. Thisthe value ns long mea no a as ed deposits were history and caus t from currency to skyrocke in Bitcoin’s landmark the virtual currencyin a week. of of a unit April to $200 with twice in 2013 after 1 back pted $100 on e bounced er who acce the year in Bitcoin valuted a narcotics deal and later the FBI arresa means of payment a did not allow k of Chin Bitcoins as if People’s Ban al currency. even exist virtu when the would not urable. handle the banks to to say that Bitcoin more favo were safe nces It is the decenc circumsta once that the economiproven more than which could be es It has been ork has weakness extract or even proto tralized netw a cryptographer . In either case, the led. by exploited amount of Bitcoins investors disgrunt y ard, duce a large crash leaving man IS the way forw market will , a virtual currencyand controlled by er In my view be coordinated Without the prop s to d. but it need s all over the worl al currency is lvirtu the know central bank sures in place, a with ne lanyo security meabe susceptible to e so, in a decentra to rp; mor destined a compute k to ride edge to hack e will be quic ork. ized netw no doubt that som receive unusually high to an There is n, hoping never forget that is a wago the Bitcoinword to the wise: pay a high return returns. A which promises to investment times out of ten! ten risky one

Bitcoin re users we to overjoyed t hear abouthe Troika imposedes in measur Cyprus

Head omics and ssor of Econ is a Profeomis t.com. lambous antinosatChara .everyday-econ info: Dr. Const blog www economic

arch rtment of Rese of the Depa

n his recent opinion piece in Gold (Issue 34, January 14-February 13) entitled The Bitcoin Adventure, Dr. Constantinos Charalambous claims to support the use of a digital currency but only if it is supervised by central banks worldwide. This opinion misses the point of Bitcoin, whose innovation lies not in its digital property but in its decentralized nature. Bitcoin is a decentralized, peer-to-peer network that operates based on consensus. Transactions and blocks must be verified by a majority of the network before they are added to the blockchain, the network’s public ledger. Over the years, vulnerabilities have been exposed and dealt with effectively but not in the way described in Dr. Charalambous’s article. I would like to clarify some things mentioned. The “184 billion bitcoins” issue was not caused or solved by Mt. Gox. It was a network issue that was quickly spotted and solved. On August 15 2010, it was discovered that block 74638 contained a transaction that created over 184 billion bitcoins for two different addresses. This was possible because the code used for checking transactions before including them in a block did not account for outputs so large that they overflowed when summed. A new version was published within a few hours of the discovery. The blockchain had to be forked. Although many unpatched nodes continued to build on the “bad” blockchain, the “good” blockchain overtook it at a block height of 74691, as per the original Satoshi specification. The bad transaction was

Bitcoin’s innovation lies not in its digital property but in its decentralized nature.

e in Larnaca. ent at PA Colleg and Developm the interna

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Gold 35

By Michael Hill

erased when people continued using the longest chain. In June 2011, Mt. Gox was hacked and it is true that 60,000 usernames and passwords were compromised. Although the price of Bitcoin was affected by this theft, this was not a case of network vulnerability but clearly an issue of a private company’s vulnerability to virtual attacks, much as a bank robbery does not imply a weakness in the euro system but a weakness in the bank’s security. A new platform operating with a new technology will surely have some setbacks. Otherwise, what would the excuse be for the Target Corporation losing the credit card and personal data of a yet unconfirmed number of its customers (over 40 million customers verified at this time)? SWIFT was developed in over a decade because it was built by a closed circle of companies and banks. Bitcoin is blossoming because anyone – literally anyone – can suggest improvements to how it works. If those solutions prove useful and don’t hurt the interests of the majority of the network, that suggestion may be adopted. The March 2013 fork resulted from a faulty update that was quickly spotted and resolved without much fuss. In fact, most people only learned about it after it was resolved. Despite the decreasing number of vulnerabilities, Bitcoin continues to develop, not because people ignore them but because they assume personal responsibility: having the power to manage your own wealth means being solely responsible for it in turn. The same people who have seen their trust in hierarchical systems betrayed by the human condition have personally assumed the responsibility to be stakeholders of a system that works with them, not against them.

info: Michael Hill is a Copywriter and Digital Currency Analyst.

the international investment, finance & professional services

Gold 71

{February 14 – March 13, 2014}

ISSUE

+ BOOK REVIEWS MONEY: The Money Bubble By James Turk & James Rubino 77

{money}

74 Choosing the “Best” Long-Only Funds Some questions to ask that can help you decide. 75 Winners and Losers European Banking Sector Restructuring Continues. 76 EU-Wide Bank Stress Test What you need to know.

{business}

78 ENR Industry Falling Behind in Risk Management Capability Today’s energy and natural resources (ENR) organisations may be unprepared to meet the ever-growing array of risks now present in the market. 79 Europe’s Family Businesses Confident About the Future Results of the first Family Business Barometer 80 CEO Confidence in 2014 Rises Twice as many CEOs around the world

as last year believe the global economy will improve in the next 12 months.

BUSINESS: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies By Erik Brynjolfsson & Andrew Mcafee 81

ECONOMY: Making it Happen: Fred Goodwin, RBS and the Men Who Blew Up the British Economy By Iain Marti 83

{economy}

82 European MFI Numbers Continue to Fall Cyprus sees 74.8% decrease in 10 years

TAX & LEGAL: The Oxford Handbook of International Adjudication By Cesare Romano, Karen Alter 85 & Yuval Shany

83 Picking Up Speed Advanced economies heading towards growth in 2014 84 Amendments to Fiduciary Law Proposed Seven amendments have been put forward

{tax&legal}

84 Cyprus Law Firm of the Year For the second consecutive year Andreas Neocleous & Co LLC has been recognised as “Cyprus Law Firm of the Year” at the prestigious Citywealth International Financial Centre Awards. 85 New Cyprus Double Taxation Treaties Details of four new DTTs that came into on 1 January 2014.

LIFESTYLE: The Beatles - All These Years: Volume One: Tune In By Mark Lewisohn 89

{lifestyle}

86 Mirror, Mirror, on the Wall… Who Owns the Rarest of Them All? Investing in manuscripts. 90 A Day In The Life Marina Zevedeou

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES OF CYPRUS

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funds

{money}

Choosing

the “Best” Long-Only

Funds

Finding the best possible funds is a very subjective endeavour. There are companies like Morningstar that rate funds according to a star system (1-5 stars) in order to help investors decide. One would think that by choosing only 5-star funds, the investments will do well. If only it were so simple!

By Nicos Cotsapas

“L

ong-only” funds are those which benefit when the securities in which they are invested go up, and are “benchmarked” to a particular index (for example a UK Equity fund might be benchmarked to the FTSE-100 index). The main criterion in choosing a top longonly fund should be how well it is expected to perform against its benchmark. For better or worse, the only tangible information we have is its past performance, and therefore we are heavily dependent on analysing this. But there are other decisions to be made before that. In other words, if we are looking for a broad European Equity Fund, we need to first decide if we want a fund whose universe is the whole of Europe, Europe ex-UK or the eurozone. Then we must choose between one that invests in large, medium or small companies, or a blend of all three. By way of example, let us choose the whole of the “Europe Small Companies” universe, which is benchmarked to the MSCI Europe Small Cap Index. If we look to Morningstar for guidance (which is a good place to start), we will find 138 funds, of which 12 have five stars. Note that there are multiple classes of the same fund, which makes the universe seem larger than it is. Which is the best? Here are some questions to ask that can help you decide: 1. Has it risen more than its benchmark on the way up and fallen less on the way down? This is the holy grail of what a top fund should do, and it is extremely rare for a fund to consis-

tently achieve this. Yet, they do exist. 2. What is your time horizon? If you had a one-year horizon at the end of 2012 and had, for example, chosen the 5-star Threadneedle Fund you might have been surprised a year later to find out that the “ordinary” 3-star Invesco Fund did much better, returning 36%, or double Threadneedle’s 18% return. Of course, the reason that Threadneedle is 5-Star is because it outperformed the Index & Invesco over 6 years.

If you had invested in the Australian market, which returned 20% last year, as a euro investor you would have actually lost 1% 3. What class of fund are you buying? Make sure that you try and buy the lowest-cost class, and if possible (and if you have the means) the institutional class, with the lowest expense ratio, which can make a huge difference to total returns over the years. 4. What is the currency risk you are taking? In our European example, if you are a euro investor and have chosen a fund that is heavily allocated to the UK, Switzerland and Sweden, you face currency risk if the euro appreciates against these currencies. Do not underestimate such risks. For example, if you had invested in the Australian

market, which returned 20% last year, as a euro investor you would have actually lost 1%. 5. Has the fund’s track record been achieved with the same manager or management team? Often a manager leaves and, in cases where the fund is not managed by committee (which is often the case), the new manager might not reproduce the same results. 6. What is the fund’s size? If the fund is large, and as in the case above, it invests in the small company space, it might potentially face liquidity issues. It is important that a fund can exit its holdings quickly and without distorting the price. 7. Is there a bid/offer spread? Avoid any fund that charges more to buy than to sell. 8. Is an ETF (Exchange-Traded Fund) available that tracks the same index as the fund you want to buy? If so, is the index difficult to beat? Is the ETF liquid enough? If the answers to all three are “Yes” then opt for the ETF, which is a fund that is likely not to appear in the Morningstar ratings. 9. Has the fund been around for a reasonable amount of time (e.g. three years)? This will eliminate any “luck” in its performance versus the benchmark. Of course all of the above have a “rear-view mirror” factor, and the fine print (correctly) always reads “past performance is no guarantee of future returns”. Even betting on some “legends” of the fund industry like Bill Miller, Anthony Bolton and Bill Gross, you would have had significant disappointments along the way. So choosing the “best” is anything but easy...

info: Nicos Cotsapas is a partner of Cyprus-based Elgin AMC and Swiss-based Elgin Group LLC. Opinions expressed in this article are those of the author and do not constitute financial advice in any way. 74 Gold the international investment, finance & professional services magazine of cyprus

Winners

& Losers Bank (ECB) funding (Cypriot banks are no exception) with challenges on asset burden and collateral eligibility due to, for instance, rating downgrades, valuation effects on their collateral and an overall loss of market confidence. Rising levels of NPLs are placing pressure on banking systems, especially in Central and South Eastern Europe where NPL rates are higher, and the failure to move to sustainable capital structures and business models means that these might well go up further.

Funding remains a large challenge, especially for banks in the peripheral countries The table below illustrates the percentage of NPLs from the largest domestic and Cooperative banks in Cyprus. As of September 2013, NPLs of domestic banks in Cyprus represented 46% of gross loans, a rate in line with PIMCO’s projections. It also shows a worrying upward trend. One-third of the total NPLs is credited to corporate and SME loans in the construction and real estate sector. While the NPL ratio has been increasing, the profitability of the domestic banks has been declining; Bank of Cyprus

Non Performing Loans (NPLs) 1/ (Percent)

50 40

NPLs to Total Loans NPLs-PIMCO Provisions to NPLs

{money}

European Banking Sector Restructuring Continues

By Antonis Vidakis

ver the last few years, the European Union has been struggling with the effects of the global recession and threats from the financial sector that have yet to be fully addressed. In large part, they reflect weaknesses in the public, household and corporate sectors but the banks have also contributed to the problems as the financial sector constitutes a feedback channel that has reinforced negative tendencies elsewhere. Banks have been found to be insolvent as the rate of Nonperforming Loans (NPLs) to Total Loans has increased dramatically. The financial market is already in the process of restructuring, even though transparency and trustworthiness have not yet been fully recovered, especially in the countries under financial aid (e.g. Greece, Spain, Cyprus). While Europe’s troubled financial sector challenges the decision-making of companies and investors, weak global economic conditions, such as the growth slowdown in emerging markets, remain a serious concern. While financial collapse has been averted by the core eurozone and 36 of the most important banks elsewhere, 8,000 other European banks have made little progress in restructuring. Funding remains a large challenge, especially for banks in the peripheral countries, where taxpayer patience has diminished. Many such banks are heavily dependent on European Central

banking

Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Operations of the largest Cypriot domestic banks and coops.

Sep-13

reported losses of €1.8 billion through June 2013, and Hellenic Bank posted losses of €90 million through September 2013. So what is the outlook for the EU banking sector? At the macro level, gradual and cautious decisions are likely through incremental adjustments to the debt crisis, with an avoidance of taxpayer burdening and continued low interest rates. While bailouts for countries such as Slovenia and/or a revived bailout for Greece and Portugal seem likely with further mini-crises still possible, it appears that further bank bail-ins are expected, especially in tier-2 capital, to limit the direct burden on the taxpayer. A long-drawn-out process of change and restructuring is still to come in banking with up to $2.5 trillion left in deleveraging European banks. Management of NPL assets remains at the heart of the agenda, possibly allowing them to be picked up by non-European banks and large private equity (PE) funds. Consolidation, capital raising and further pullback to core geographies and products will increasingly become evident. Regulation will remain the primary driver of reform for the foreseeable future. EU bank resolution tools need to be strengthened, while the legal framework should not slow down restructuring but must maximize asset recovery. In addition to this, further development of the General Directorate for Competition’s (DG COMP) practices will be needed in systemic cases to ensure consistency with a country’s macro-financial framework and support the viability of weak banks, the recovery of market access, and credit provision. Increased transparency would give added credibility and accountability. In order to restore market confidence, disclosures should be significantly enhanced and harmonised by EBA. All things considered, financial sector restructuring in EU will divide banks into winners and losers and while a few could become ‘too big to fail’, only local and regional specialists will survive.

info: Antonis Vidakis is a CFA charter holder, and is currently leader of the Valuation and Business Modelling/Transactions team with EY Cyprus. the international investment, finance & professional services magazine of cyprus

Gold 75

banking

{MONEY}

EU-Wide Bank Stress Test

WHAT YOU NEED TO KNOW

ollowing the recent report that the Central Bank of Cyprus will be inviting tenders from audit firms to perform asset quality reviews on the Bank of Cyprus, Hellenic Bank, the Co-operative Central Bank and RCB Bank as part of the impending EU-wide ‘stress test’, the European Banking Authority (EBA) has released a document including Frequently Asked Questions relating to the test, with the relevant answers.

WHY DOES THE EBA RUN AN EU-WIDE STRESS TEST?

The EU-wide exercise serves as a common foundation on which national authorities can base their supervisory assessment of banks’ resilience to relevant shocks, in order to identify appropriate mitigating actions. It should be noted that the EUwide stress test is a complement and not a substitute to other supervisory stress tests conducted at domestic level. Moreover, the exercise strengthens market discipline, through the production of consistent and granular data on a bank by bank level illustrating how balance sheets are affected by common shocks.

WHO IS INVOLVED IN THE EUWIDE STRESS TEST?

The EU-wide stress test is initiated and coordinated by the EBA and undertaken in coordination with national supervisory authorities, the European Central Bank (ECB), the European Systemic Risk Board

(ESRB) and the European Commission (EC). This exercise is conducted by all competent authorities across the EU on a sample of banks covering at least 50% of the national banking sector in each EU Member State.

WHAT IS EXACTLY THE RESPONSIBILITY OF THE EBA IN THIS PROCESS?

The EBA is responsible for developing and providing competent authorities (CAs) with a consistent and comparable methodology to allow them to undertake a rigorous assessment of banks’ resilience under stress. The ESRB will provide a common scenario on which the stress test can be run. The EBA will also provide CAs with EU benchmarks on risk parameters for the purposes of consistency checks. Furthermore, the EBA will act as a data hub for the final dissemination of the common exercise, thus ensuring transparent and comparable disclosure of banks’ results. Finally, the EBA will play a key role in ensuring effective communication and coordination between home and host authorities in the framework of colleges of supervisors.

WHAT IS THE RESPONSIBILITY OF COMPETENT AUTHORITIES?

CAs are responsible for ensuring that banks correctly apply the common methodology developed by the EBA. In particular CAs are responsible for assessing the reliability and robustness of banks’ assumptions, data, estimates and results. In addition, CAs and, for euro-area countries, the ECB are in

charge of quality assurance and therefore of challenging banks’ results and ultimately of determining and taking any supervisory action needed.

WHAT IS THE TIMELINE FOR THE STRESS TEST?

The 2014 EU-wide stress test is expected to be launched in May 2014. By that date the EBA will communicate the final methodology, adverse scenario and templates to be used by the banks involved in the exercise. The EBA expects to publish the final results of the 2014 EU-wide stress test in October 2014. The timeline has been agreed and coordinated with the ECB and is, therefore, in line with the overall timeline of the Single Supervisory Mechanism (SSM) Comprehensive Balance Sheet Assessment.

WHAT IS THE SCOPE OF CONSOLIDATION?

The EU-wise stress test will be conducted on the highest level of consolidation (group level). Subsidiaries of banks in the European Economic Area are excluded given the Single Market perspective of the exercise. This also explains the difference between the SSM sample, which includes subsidiaries, and the EBA sample.

WHAT IS THE SAMPLE FOR THE 2014 EU-WIDE STRESS TEST? The 2014 EU-wide stress test exercise will be carried out on a sample of banks covering at least 50% of the national banking sectors in each EU Member State, as ex-

76 Gold THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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THE MOST IMPORTANT ASPECT OF THE EBA’S COMMON EU-WIDE EXERCISE WILL BE THE DISCLOSURE OF COMPARABLE AND CONSISTENT DATA AND RESULTS ACROSS THE EU pressed in terms of total consolidated assets as of end of 2013. It will include 124 EU banks from 22 EU Member States.

thresholds such as fully phased-in Basel 3 capital ratios, but also presented separately from the common EU wide exercise.

WHAT DEFINITION OF CAPITAL HOW WILL THE EU-WIDE WILL BE USED? STRESS TEST INTERACT WITH The impact of the EU-wide stress test ASSET QUALITY REVIEWS will be assessed in terms of Common (AQRS)? Equity Tier 1 (CET1) as defined in the Capital Requirements Regulation (CRR)/Capital Requirements Directive with transitional arrangements as per December 2014, December 2015, and December 2016.

WHAT WILL BE THE TREATMENT OF BANKS’ SOVEREIGN ASSETS?

The scenarios will affect the price of all sovereign security positions. Those securities held in the trading book will be subject to mark to market with losses realised immediately. Those sovereign assets held as hold to maturity will be subject to a shift in the risk weights based on internal model assessments of changes in credit risk. The treatment of securities that are held as available for sale are marked to market too, but the capital impact will depend on choices made by supervisors. In the legal framework competent authorities have the discretion, as per the CRR/CRD4, to filter out unrealised losses. Either choice will be clear in the transparency of the results.

HOW WILL THE ADDITIONAL NATIONAL SENSITIVITIES WORK?

To enhance the relevance of the shocks for the specific jurisdictions and contribute to a better understanding of idiosyncratic risks in banks a CA can apply system specific shocks on top of the common EU-wide scenario. National sensitivities might for instance encompass other hypothetical interest rate scenarios or shocks in geographies or sectors of high importance for the national system. However, to ensure comparability the EBA will disclose the results on basis of the common scenarios, while results stemming from those additional sensitivities will be shown separately by CAs. Similarly a CA can apply additional

AQRs are a prerequisite for stress tests since they ensure the reliability of the starting point. The EBA issued a recommendation on asset quality reviews to contribute to a more uniform approach in competent authorities’ evaluations of banks’ credit portfolios but CAs are responsible for determining the modalities of the AQR. The AQR should include risk classification and provisioning and support sufficiently prudent capital levels and provisions to cover the risks associated with these exposures. AQR results should inform the starting point for the stress test.

HOW WILL THE EBA ENSURE CONSISTENCY BETWEEN BOTH EUROZONE AND NON-EUROZONE COUNTRIES IN THE CONDUCT OF THE EXERCISE?

The aim of an EU-wide stress test is to assess the resilience of financial institutions across the Single Market to adverse market developments. Consistency in the way the exercise is conducted across the EU is necessary to ensure a rigorous assessment as well as comparability of data. To this end, two elements are crucial: (1) a common methodology which will provide market participants and institutions with

THE EU-WIDE STRESS TEST IS A COMPLEMENT AND NOT A SUBSTITUTE TO OTHER SUPERVISORY STRESS TESTS CONDUCTED AT DOMESTIC LEVEL a common exercise to contrast and compare EU banks under adverse market conditions; (2) a common baseline and adverse macro-economic scenario. In addition, the EBA will provide comparative analysis at the end of the quality assurance process by competent authorities and bank

results will be discussed in the framework of colleges of supervisors involving home and host authorities, as well as the EBA.

IS IT PLANNED TO PUBLISH DATA AND RESULTS?

The most important aspect of the EBA’s common EU-wide exercise will be the disclosure of comparable and consistent data and results across the EU. Results will be disclosed on a bank by bank basis and the EBA will act as a data for the final dissemination of the outcome of the common exercise. The level of granularity of the data disclosed will be at least consistent with that of the 2011 EU-wide stress test and 2013 EU-wide Transparency Exercise. It will include the capital position of banks, risk exposures and sovereign holdings.

BOOK REVIEW THE MONEY BUBBLE BY JAMES TURK & JAMES RUBINO (WAVECLOUD CORPORATION, 2014) R.R.P. £10.99 (£9.52 FROM AMAZON.COM.UK)

n their 2004 book, The Coming Collapse of the Dollar, James Turk and John Rubino advised readers to bet against the housing bubble before it popped and to buy gold before it soared. Those were the two best investment ideas of the decade. Now Turk and Rubino are back to say that history is about to repeat itself. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path, accumulating even more debt and inflating even bigger financial bubbles. So another, bigger crisis is coming. Among other things, the authors explain why they believe the world’s currencies will soon stop functioning, how you can protect your savings from the threats posed by this transition from “unsound” paper currencies to “sound” money like gold and silver and how those able to understand it and act accordingly will actually make money during this transition. Turk and Rubino claim that their aim is to ensure that readers of the book join “this small but happy” group.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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energy

{business}

ENR Industry Falling Behind in Risk

Management Capability

oday’s energy and natural resources (ENR) organisations may be unprepared to meet the ever-growing array of risks now present in the market, according to a recent review of ENR data collected by the Economist Intelligence Unit (EIU) for KPMG’s Global ENR practice. The data is conveyed in a report entitled No Paper Chase: Transforming Risk Management at ENR Companies. Michael Wilson, partner, KPMG UK, warns: “ENR companies are at an inflection point in their risk management efforts. “This data clearly shows that today’s ENR organisations urgently need to return to the basics and reconsider what they expect to achieve through their risk programmes if they hope to keep up with the rapidlychanging risk environment in which they now operate.” The review of the data found that, while risk management continues to be a high priority for ENR executives and Boards, the management of these risks is not advancing as fast as the threats that they face and companies are, therefore, at risk of falling short in important areas. Indeed, the data shows that ENR organisations are already starting to lag behind: less than two thirds of respondents said that they ‘often’ or ‘constantly’ build risk management into their strategic planning decisions; only 14% of respondents said they had a formal risk appetite statement; almost half admitted to not doing an annual bottom-up risk as-

sessment; and more than one third said that their risk management function relies on a self-assessment from the business units, rather than a centralised risk function. “Oil and gas companies have always invested in risk management activities to address those risks that are function-specific, such as exploration risks, production risks and financial risks,” Paolo Mantovano, partner, KPMG Italy, relates. “The challenge is how to get all these risk management initiatives integrated into a common framework to make sure that the Board and top management are kept informed about top risks and mitigating plans, in order to strengthen decision-making.” This is very much dependent, the report asserts, on understanding the challenges. More than two thirds (69%) of ENR respondents see geopolitical instability as the greatest threat to the industry, while more than half (53%) also cited regulatory pressure as a major threat. Regulatory uncertainty is particularly keen for those ENR organisations venturing into new countries or unstable regions. In particular, the report finds that ENR executives are concerned about their internal capabilities and skills in important risk management areas. For example, 42% said that a lack of skills was the main obstacle slowing the integration of their risk and control functions, while almost half (47%) said that skills would need upgrading in order to improve their organisation’s adherence to regulation. When it came to risk management, ENR respondents noted less confidence in their Boards than other industry sectors surveyed

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The heart of the problem is that even huge companies address risk and measure risk very simplistically in the research. Just over a third (37%) of respondents suggested that their Boards had a strong enough understanding of the issues to effectively communicate risks. And only 42% thought that their Boards fully appreciated the importance of the risks they were facing. “It comes down to a question of what skills and resources have been dedicated to the enterprise risk management programme,” Wilson notes. “I’m not sure that ENR companies have done a good job of understanding the expectations of internal and external stakeholders with regard to risk management and building the process and skills to meet those expectations.” One of the bigger challenges slowing investment into risk management functions and capabilities within the ENR industry comes down to a lack of consensus between the Board and executives about the goals of their programme and the return on their investments. According to the data, almost a quarter of ENR organisations have no means of measuring the return on their investment into risk management at all. In addition, a third only focus on reviewing past events to assess the effectiveness of their risk controls. “ENR organisations need to have clear goals around their risk management programme and link those to what internal and external stakeholders expect,” maintains Steven Briers, partner, KPMG South Africa. “The heart of the problem is that even huge companies address risk and measure risk very simplistically. It’s not connected to the realworld finances and operational targets of the group.”

family businesses

{BUSINESS}

uropean Family Businesses (EFB) and KPMG have launched the first Family Business Barometer, which seeks to measure the confidence levels of family-owned businesses across Europe. The results of the Barometer indicate that a majority of family businesses are confident about the future, with 54% of respondents indicating that they have a positive outlook for their business for the next 6-12 months. In addition, with 43% of respondents reporting that their turnover has increased during the last six months and 26% indicating that they have maintained turnover, the future for many appears bright. Furthermore, 76% of respondents have either maintained their staff number or increased it over the last 6 months (40% increased, and 36% maintained). Other encouraging signs from the Barometer are that 92% of respondents are thinking about investment opportunities, and 57% of those are looking to invest in the European Union. This indicates that family businesses still see opportunities for growth in the EU. Although the Barometer shows that many respondents believe the picture is mainly positive for the future, significant challenges remain. Namely, lending to family businesses remains difficult, highlighted by just over half the respondents (51%) noting that they have experienced complications in accessing finance. The Barometer also suggests that a majority of respondents believe there is significant room

for improvement in the regulatory frameworks in which they operate. When asked to rank the regulatory changes that would have the greatest impact on the future success of their business and, therefore, would be most welcomed, 62% selected simpler tax rules; 59% indicated that bureaucracy is a major challenge; and 57% highlighted that simplification of labour market regulations, including more flexible employment arrangements, would be most welcome. Roger Pedder, EFB President, said, ”Family companies have a positive outlook for the future and they are investing in Europe. Exercises like this one reinforce the reality that family companies are a stable and responsible platform for growth in Europe. But, we must not ignore the other results from the Barometer, namely the challenges that remain. Lending to the real economy must be normalised and family businesses are still impeded by obstacles that are present in the regulatory environment.” Christophe Bernard, Global Head of KPMG’s Family Business Practice, added, ”This collaboration has provided an insight into the confidence of the family business communities across Europe, and it is refreshing to see whilst the economic landscape has been difficult, family businesses have remained confident and continued to contribute to the regional economies. These businesses are not only surviving but also taking advantages of opportunities for continued growth, investment and success.” The European Family Business Barometer is based on the responses of an online survey

from 600 questionnaires which were received from EFB Members across 14 European countries between July and September 2013.

THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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survey

{business}

CEO Confidence T in 2014 Rises

wice as many CEOs around the world as last year believe the global economy will improve in the next 12 months, and 39% say they are ‘very confident’ their company’s revenues will grow in 2014, according to PwC’s 17th Annual Global CEO Survey.

Global economy

The number of CEOs who see improvement in the global economy over the next 12 months leapt to 44%, up from only 18% last year. And just 7% predict the global economy

will decline, sharply down from 28% in 2013. Regionally, CEOs in Western Europe are the most confident about short-term global economic prospects (50%). They are followed by those in the Middle East (49%), Asia Pacific (45%), Latin America (41%), North America (41%) and Africa (40%). CEOs in Central and Eastern Europe show the lowest level of confidence at 26%. By industry, CEOs in the Hospitality and Leisure sector are most confident about prospects for the next 12 months (46%), followed by those in Banking and Capital Markets (45%), Retail (44%), Financial Services (44%), Asset Management (44%), Communications (44%), and Engineering & Construction (41%). CEOs in the Metals industry are least confident at 19%.

CEOs planning job increases by industry

Percentage of CEOs expected to boost headcount in next 12 months (by industry) Technology Business services Insurance Asset Management Energy Entertainment & Media Healthcare Banking & Capital Markets Communications Engineering & Construction Hospitality & Leisure Retail Chemicals Consumer Goods Consumer & Industrial Products Services Industrial Manufacturing Automotive Forest, Paper & Packaging Pharmaceuticals & Life Sciences Transport & Logistics Power & Utilities Mining Metals

2014

63% 62% 59% 58% 56% 53% 53% 52% 52% 51% 51% 51% 49% 46% 46% 46% 45% 45% 44% 40% 36% 25% 22%

2013

44% 56% 39% 55% 39% 43% 43% 44% 36% 52% 33% 49% 43% 40% N/A 36% 44% 32% 38% 43% 41% 39% 28%

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more CEOs feel positive about their ability to increase their revenues and prospects for the global economy

Revenue growth

For their own companies, 39% of CEOs say they are ‘very confident’ of revenue growth prospects for the next 12 months. That’s up from 36% last year. Confidence in revenue growth reached a low of 21% in 2009. CEOs in the Middle East, 69%, are the most confident of short term revenue growth, up from 53% last year. They are followed by those in Asia Pacific at 45%, up from 36% last year. In Western Europe, confidence has risen 8% from last year’s trough to reach 30%. But in Africa confidence has continued to fall. Just 4o% of African CEOs are very confident of 12-month growth, down from 44% last year and 57% in 2012. Confidence has also dipped among Latin American CEOs, to 43%, down from 53% last year. Meanwhile, CEO confidence in North America remains flat at 33%. Commenting on the survey results, released at the opening of the World Economic Forum’s annual meeting in Davos, Switzerland, Dennis M. Nally, Chairman of PricewaterhouseCoopers International, said: “CEOs have begun to regain confidence. They’ve successfully guided their companies through recession and now more CEOs feel positive about their ability to increase their revenues and prospects for the global economy. However, CEOs also acknowledge that generating sustained growth in the post-crisis economy remains a challenge, especially as they deal with changing conditions like slowing growth in the emerging markets. For the future, CEOs tell us that they expect three major global trends – rapid technological advances, demographic changes and shifts in economic power – will have a major impact on the future of their businesses. Finding ways of turning these global trends to their advantage will be the key to future success.”

Country/regional CEOs who are very confident of 12-month growth Very confident of short-term revenue growth

Russia Mexico Korea India China/Hong Kong ASEAN Denmark Switzerland Brazil

Global

Romania US Australia Germany Scandinavia UK Canada Japan Italy Venezuela South Africa Spain France Argentina

2014 53% 51% 50% 49% 48% 45% 44% 42% 42%

39%

39% 36% 34% 33% 30% 27% 27% 27% 27% 25% 25% 23% 22% 10%

2013 66% 62% 6% 63% 40% 40% NA 18% 44%

36%

42% 30% 30% 31% 20% 22% 42% 18% 21% 30% 45% 20% 13% 26%

Top concerns

As CEOs’ viewpoint on the economy slants upward, their major concerns have also changed. Government action, or the lack of it, tops the list of CEO worries. The level of concern about over-regulation at 72% and fiscal deficits at 71% are as high as they have ever been. In addition, CEOs say they are worried almost as much about a slowdown in emerging economies (65%) as they are about sluggish growth in developed markets (71%). Other top concerns include increasing tax burdens (70%), as well as the availability of key skills (63%), exchange rate volatility (60%) and the lack of stability in capital markets (59%).

Preparing for the future

When asked what would drive future growth, new product or service development leads the list of opportunities, cited by 35% of CEOs compared with 25% last year. Those planning mergers and acquisitions or strategic alliances in the next year have risen to 20%, up from 17% a year ago. CEOs also say they are exploring growth in countries beyond the BRICs (Brazil, Russia, India and China), and see good growth prospects over the next three to five years in Indonesia, Mexico, Turkey, Thailand and Vietnam. The US, Germany and the UK are also ranked highly.

CEOs are also more positive about hiring plans for the coming year. Half of CEOs say they expect to add to staff in the next 12 months, compared with 45% who had such plans last year. Industries where job prospects look most positive are technology (63%), business services (62%) and asset management (58%). As the global economy stabilises, CEOs have identified major trends that will transform their business over the next five years. Top among them is technological advance, cited by 81% of CEOs, followed by demographic shifts, 60%, and shifts in global economic power, 59%. To meet these and other challenges, CEOs say they are making changes to their talent strategies (93%), customer growth and retention strategies (91%), technology investments (90%), organisational structure/design (89%) and use and management of data (88%). More than half of CEOs say their current planning time horizon is three years, though only 40% say that time frame is ideal.

Dealing with governments

Asked to rank the top priorities for government, CEOs say they should be to ensure financial stability, (53%) improve infrastructure (50%); and help to create a more internationally competitive and efficient tax system (50%). But less than half (46%) of CEOs say the government in their home country has effectively ensured financial stability, and just 37% give high marks for improved infrastructure. More than half (51%) of CEOs say their government has been ineffective in improving the tax system.

Stakeholder expectations and trust

CEOs worldwide report that stakeholder expectations in their industry have changed significantly in the past five years: 52% say the level of trust among customers and clients has increased, compared with 12% who say it has declined. While 43% say trust has improved among creditors and investors, 16% say it has declined. Finally, 42% say trust among suppliers has improved, while only 6% say it has fallen. But while 24% of CEOs have seen improved trust among government and regulators, 34% say it has declined. The great majority of CEOs say it is important for companies to address stakeholders’ expectations by promoting ethical behaviour, ensuring the integrity of supply chains and improving diversity.

Τhe views of CEOs in Cyprus

In the context of the global CEO survey, PwC Cyprus carried out – for the third consecutive year – a local study which includes the views of 70 CEOs. The results of the local survey will be presented during an event organised by PwC Cyprus on Tuesday, 18 February 2014.

BOOK REVIEW The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies By Erik Brynjolfsson & Andrew Mcafee (W.W. Norton & Company, 2014)

R.R.P. £16.28 (£15.44 from amazon.com.uk) he authors of this fundamentally optimistic book argue that, as the full impact of digital technologies begins to be felt, we shall benefit from dazzling personal technology, advanced infrastructure, and near-boundless access to the cultural items that enrich our lives. But professions will also experience huge change and companies will be forced to transform or die. Drawing on years of research and up-to-the-minute trends, Brynjolfsson and McAfee identify the best strategies for survival and offer a new path to prosperity. These include revamping education so that it prepares people for the next economy instead of the last one, designing new collaborations that pair brute processing power with human ingenuity, and embracing policies that make sense in a radically transformed landscape. The authors also make a strong argument that the way economists measure things, especially in terms of GDP, no longer does a good job of capturing what prosperity really means in the information age. This book will alter how we think about issues of technological, societal and economic progress.

the international investment, finance & professional services magazine of cyprus

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financial institutions

{economy}

European MFI Numbers Continue to Fall Cyprus sees 74.8% decrease in 10 years

he European Central Bank has revealed that on 1 January 2014 there were 6,790 Monetary Financial Institutions resident in the euro area, compared with 7,059 on 1 January 2013. In relative terms, the decrease was particularly pronounced in Cyprus (-26%), Greece (-17%), Luxembourg (-16%), Spain (-9%), Malta (-9%) and France (-7%). In absolute terms, Luxembourg (-70), France (-76), Spain and Cyprus (-36) were the main contributors to the net decrease of 269 units in the euro area. Since 2011 a substantial decrease in the number of money market funds (an MFI sub-sector) has been recorded in the euro area (-658 over three years), partly on account of their new statistical definition, which has been adjusted towards supervisory standards. In addition, the contraction in this sub-sector continued during 2013, most prominently in Luxembourg (-77) and France (-65). Despite the enlargement of the euro area with the accession of Greece (2001), Slovenia (2007), Cyprus and Malta (both 2008), Slovakia (2009), Estonia (2011) and Latvia (2013), the number of MFIs in the euro area has decreased by 31% – or 3,066 institutions – since 1 January 1999. On 1 January 2014 Germany and France accounted for 42% of all euro area MFIs, approximately the same share as recorded on 1 January 2013. On 1 January 2014 there were 8,746 MFIs resident in the EU, a

net decrease of 330 units (‑3.6%) since 1 January 2013. Compared with the situation on 1 January 1999, when there were 10,909 MFIs in the EU, there has been a net decrease of 2,163 units (-20%), despite the (net) addition of 1,608 MFIs on 1 May 2004, when ten new Member States acceded, a further 72 MFIs on 1 January 2007, when Bulgaria and Romania joined the EU, and the addition of 57 Croatian MFIs on 1 July 2013. The vast majority of euro area MFIs are credit institutions (i.e. commercial banks, savings banks, post office banks, credit unions, etc.), which accounted for 87% of MFIs (5,909 units) on 1 January 2014, while money market funds accounted for 12% (816 units). Central banks (19 units including the ECB) and other institutions (46 units) together accounted for only 1% of the total number of euro area MFIs. In the EU as a whole, credit institutions accounted for 88.3% of MFIs on 1 January 2014, while money market funds accounted for 10.8%. In Cyprus there were 409 MFIs on 1 May 2004 but by 1 January 2013 the number had plummeted to 139 (a fall of 74.8%) and on 1 January 2014 it stood at 103. In the euro area, Germany and France accounted for 42% of all MFIs. Austria, Italy and Ireland accounted for a further 30%. 78% of the sub-category of money market funds are concentrated in France, Luxembourg and Ireland. Over the past 15 years (1999-2013), one noteworthy development in national MFI sectors over the period as a whole is a significant increase of 458 units in Ireland. At the same time there were relatively large declines in the number of MFIs

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The number of MFIs in the euro area has

decreased by 31% – or 3,066 institutions – since 1 January 1999

in the Netherlands (61%), France (50%), Luxembourg (47%) and Spain (43%) and lesser declines in Portugal (29%), Italy and Belgium (24%). Among the non-euro area EU Member States, Poland had the largest number of MFIs (692), representing 8% of MFIs in the EU, or 35% of MFIs in the non-euro area EU Member States. The other main contributors among non-euro area EU Member States were the United Kingdom (20%), Hungary (13%), Sweden (9%) and Denmark (8%). Between the beginning of 1999 and 1 January 2014, there were considerable reductions in the number of MFIs in the United Kingdom and Denmark, by 30% and 24% respectively. On 1 January 2014 there were 645 branches of non-domestic credit institutions resident in the euro area. These branches accounted for 11% of all euro area credit institutions. 108 of these branches (17%) were located in Germany. Belgium, Slovakia and Greece had the largest number of foreign branches as a proportion of the total number of credit institutions, at 62%, 54%, and 48% respectively. The head offices of the majority of the foreign branches in euro area countries were located either in another euro area country (63%) or in the United Kingdom (15%).

predictions

Picking Up ADVANCED ECONOMIES

Speed

s part of its Global Economy Watch, PwC UK recently published its predictions for 2014, including who is going to win the World Cup but mainly focused on the world’s economies. The firm’s experts predict the following:

Advanced Economies Get Their Mojo Back For the first time since 2010 we expect advanced economies (the IMF classifies 35 economies with a high level of gross domestic product per capita and significant level of industrialisation as “advanced economies”) to contribute about 40% to global GDP growth. This is indicative of the improving consumer confidence that we are already seeing in our monthly Global Consumer Index which we expect will strengthen business confidence and help expand the global economy by 3.5% per annum in purchasing power parity terms, close to its long-term trend.

Fiscal Uncertainty Receding in the US In 2014, the largest economy in the world (the US) is projected to boost global GDP growth by around 0.5% (compared to 0.35% in 2012) when calculated at market exchange rates. We think the possibility of another federal government shut-down in 2014 is remote and thus fiscal uncertainty is projected to pose less of a drag on the wider US economy and specifically for smaller businesses which create most jobs.

Low but Positive Growth for Greece and Other Peripherals

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

BY THE END OF 2014, 22 ECONOMIES WILL BE SMALLER THAN IN 2007. OF THESE, NINE WILL BE IN THE EUROZONE

HEADING TOWARDS GROWTH IN 2014

continues unabated) we project GDP to grow by 0.8% per annum for 2014, which is the fastest rate since 2011. We are cautiously optimistic that peripheral countries like Greece and Portugal will post positive but low GDP growth rates. Ireland, however, is projected to out-grow the rest of the peripheral economies on the back of robust export growth. But we still think there is a one-infour chance of a significant flaring up of the crisis as it is unlikely the institutional reforms required to break free from the crisis will be in place and fully active in 2014.

levels. Italy the only exception. • By the end of 2014, we expect that 22 economies around the world will still be smaller than in 2007. Of these, nine will be in the eurozone. • We anticipate 13 economies will grow faster than China in 2014, including Bhutan, Gambia and Libya. Meanwhile, Sub-Saharan Africa will grow faster than global GDP (at market exchange rates) for the 14th year in a row.

China Leading Emerging Market Growth We expect that China will meet the government’s target of 7.5% annual growth in 2014, boosting global GDP growth by around 0.8% when calculated at market exchange rates. We expect that Brazil, India, Indonesia and Turkey to will face the triple challenge of: • a cyclical economic slowdown; persistent current account deficits; and • a squeeze on foreign capital flows on the back of tapering from the Federal Reserve. As 2014 is an election year for all of these countries, we expect some short-term volatility (and potentially delays in reforms) to manifest itself in the exchange rate market, similar to what we observed in mid-2013.

Other Predictions for 2014

• Brazil is our favourite to win the FIFA World Cup in 2014. We think its world-class track record combines its home country advantage to give it the edge it takes to win the Cup. • We project the GDP of all but one of the G7 economies to rise back above their 2007

Source: PwC analysis, IMF

Contribution to global GDP growth at market exchange rates

In our main scenario (where we assume the eurozone’s institutional reform programme

{ECONOMY}

2010 2011 2012 2013p Emerging and developing economies Advanced economies

BOOK REVIEW MAKING IT HAPPEN: FRED GOODWIN, RBS AND THE MEN WHO BLEW UP THE BRITISH ECONOMY BY IAIN MARTIN (SIMON & SCHUSTER UK, 2013) R.R.P. £20.00 (£13.20 FROM AMAZON.COM.UK)

eaders with short memories may forget that, five years before the Cyprus financial crisis, the Royal Bank of Scotland (RBS) collapsed and had to be bailed out by British taxpayers in 2008. That event played a leading role in tipping Britain into its deepest economic downturn in seven decades. How on earth had a small Scottish bank grown so quickly to become a global financial giant that could do such immense damage when it collapsed? At the centre of the story is the former CEO Fred “The Shred” Goodwin, who terrorised some of his staff and beguiled others. Not a banker by training, he was nonetheless given control of RBS and set about trying to make it one of the biggest brands in the world. This is the definitive account of the RBS disaster, one which still casts such a shadow over the British economy. Martin tells the story in a clear and compulsively readable manner, explaining what happened and why with elegance and a strong sense of fair play.

2014p THE INTERNATIONAL INVESTMENT, FINANCE & PROFESSIONAL SERVICES MAGAZINE OF CYPRUS

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legal news

{tax&legal}

Amendments

to Fiduciary

Law Proposed he Law regulating Companies providing Administrative Services and Related Matters of 2012 (‘the ASP Law’), is in the process of being amended as a result of discussions taken by the Troika, the Ministry of Finance and all three Competent Authorities – being the Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus (ICPAC) and the CySEC. Seven amendments have been put forward to resolve deadlocks and other issues arising after the enforcement of the original ASP Law that have been brought to CySEC’s attention by the market itself. One amendment in particular (to article 25) is necessary to meet the requirements stemming from the Memorandum of Understanding with the Troika. To this end, paragraph (2) of article 25 of the main law

The amendments will resolve deadlocks and other issues brought to CySEC’s attention by the market

is deleted and replaced with the following new paragraph: “When granting an authorisation, the Commission provides a Register number to every licensed person and registers its details, the administrative services provided, the names of its fully owned subsidiaries which offer administrative services according to section 3(5), the names of its employees who offer administrative services according to sections 3(2) and 5(1) and their work address, the name and communication information of the compliance officer, as well as any other information deemed necessary, to the Register kept according to the provisions

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of this article. It is provided that all Competent Authorities must maintain respective registers containing the information corresponding to the above.” This change is proposed in order to achieve effective implementation of the spirit of paragraph 4.1.2 of the Action Plan. The proposed bill is expected to undergo legal vetting first and then presented before the Parliament as soon as possible – so as to meet the MoU’s deadlines. The final text will be published in the Official Gazette and the CySEC will issue an announcement to inform interested parties accordingly.

Cyprus Law Firm of the Year

or the second consecutive year Andreas Neocleous & Co LLC has been recognised as “Cyprus Law Firm of the Year” at the prestigious Citywealth International Financial Centre Awards. Now in their third year, the Citywealth International Financial Centre Awards were established to highlight the excellence of advisors and managers in the private wealth sector in the major international financial centres. Winners were selected on grounds of achievement, innovation, expertise and service. The 2014 awards were judged by an international panel of highly respected practitioners from all sectors with extensive experience of working with advisors in all the jurisdictions covered. In addition, online voting for the awards meant that the views of sector participants such as ultra high net worth individuals, family offices, intermediaries, trustees and private bankers were taken into account in selecting the award winners. Accepting the award, the firm’s Founder and Chairman Andreas Neocleous said, “This award bears testimony to my colleagues’ efforts to constantly improve our service quality, and I should like to express my gratitude to them for their support, to our clients for their confidence in us and to everyone who voted for us. In a year which has been particularly turbulent for Cyprus I am honoured not only to accept this award but also to have been invited to join the leaders of this sector on the judging panel. This is a much-appreciated recognition that Cyprus continues to offer top-quality legal and professional services, as it always has done.”

double tax agreements

New Cyprus

Double Taxation

Treaties

In force with effect from 1 January 2014

{tax&legal}

Cyprus does not apply any withholding tax on dividend, interest and royalty payments out of Cyprus

In line with the OECD Model Convention, four new Double Taxation Treaties (DTT) came into force on 1 January 2014, between Cyprus and the following countries:

➊

DTT between Cyprus and Ukraine

The new DTT between Cyprus and Ukraine replaces the old DTT between Cyprus and the USSR. The main provisions of the new DTT agreement are as follows: Permanent Establishment: The permanent establishment definition included in the DTT is in line with the definition provided in the OECD model tax convention. Dividends: Withholding tax of 5%, provided the company receiving the dividend owns at least 20% of the share capital of the company paying the dividend or has invested an amount of at least €100.000. Otherwise, it will be 15%. Interest: 2% withholding tax. Royalties: 5% withholding tax. Capital Gains: Cyprus retains the exclusive taxing right on disposals of Ukrainian shares by Cyprus tax residents (no ‘property rich companies’ condition).

➋

DTT between Cyprus and Finland

The main provisions of the new DTT are as follows: Permanent Establishment: The permanent establishment definition included in the DTT follows the definition provided in the OECD model tax convention. Dividends: Withholding tax of 5%, provided a holding of 10% of the voting power in the paying company or 15% in all other cases. Interest: No withholding tax. Royalties: No withholding tax. Capital Gains: Cyprus retains the exclusive taxing right on disposals of shares in Finnish companies, except when the disposed shares derive more than 50% of their value from immovable property situated in Finland.

➌

DTT between Cyprus and Estonia

BOOK REVIEW The Oxford Handbook of International Adjudication By Cesare Romano, Karen Alter & Yuval Shany (OUP Oxford, 2014)

➍

DTA between Cyprus and Portugal

The main provisions of the new DTT are as follows: Permanent Establishment: The permanent establishment definition included in the DTT is in line with the definition provided in the OECD model tax convention. Dividends: 10% withholding tax. Interest: 0% withholding tax. Royalties: 10% withholding tax. Capital Gains: Cyprus retains the exclusive taxing right on disposals of shares in Portuguese companies except when the disposedof shares derive more than 50% of their value from the immovable property situated in Portugal. Irrespective of the withholding tax rates provided by the above new DTTs, Cyprus does not apply any withholding tax on dividend, interest and royalty payments out of Cyprus, as per the provisions of the local tax legislation. (Information courtesy of Nexia Poyiadjis)

R.R.P. £125 (£125 from amazon.com.uk) he post Cold War proliferation of international adjudicatory bodies and international adjudication has had dramatic effects on both international law and politics, greatly affecting international relations, particularly economic relations, the enforcement of human rights, and the criminal pursuit of perpetrators of mass atrocities. International courts and tribunals have become, in some respects, the lynchpin of the modern international legal system. This Handbook uniquely brings together analysis of the legal, philosophical, ethical and political considerations brought about by these bodies. It is divided into six parts: the first provides an overview of the origins and evolution of international adjudicatory bodies; the second analyses the main families of international adjudicative bodies; the third lays out the theoretical approaches to international adjudication; the fourth examines some contemporary issues in international adjudication; the fifth examines key actors in international adjudication, and the sixth provides an overview of some selected legal and procedural issues facing international adjudication. Comprehensive in its coverage, the Handbook presents a highly stimulating challenge to current perceptions of this subject.

the international investment, finance & professional services magazine of cyprus

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{lifestyle}

Mirror, Mirror, on the Wall Who Owns the Rarest of Them All? By Chloe Panayides

investing in manuscripts

surping rare books, handwritten manuscripts have made their way onto the throne of investment opportunities in the worlds of music and literature. The creative process immortalized or a true moment in storytelling history preserved: manuscripts are, indeed, considered the rarest – and therefore most profitable – find of them all.

Everybody enjoys a good story.

From the fantastical bedtime tales of one’s infancy and the consolation wrought from the song lyrics of one’s youth, to the depth of wisdom fathomable from timeless works of literature come maturity, stories – and their storytellers – have always embedded themselves deeply within humanity’s collective conscious. And so it is that competition to acquire rare examples of the said stories is rife and fervent. Exceedingly healthy sales within the rare book collecting market are testament to this. Still, whilst first edition books may be printed in limited numbers (considered, therefore, as being rare), multiple copies nevertheless circulate temptingly, influencing the highs and lows of the market. Place three copies of the same book in the same condition up for sale at three different auction houses and, the chances are, the hammer will fall on three different prices. Now imagine, if you will, the original manuscript becoming available at auction. The singular scraps of paper upon which the artist – author or lyricist – furiously scribbled down his words, forcing his hand to keep up with his head and the changing inspiration within. At what price would the hammer fall?

Discovering Cyprus through Manuscripts

ince its establishment in 1984, the Bank of Cyprus Cultural Foundation has remained faithful to its key strategic aims of encouraging research and study of Cypriot civilisation in the fields of archaeology, history, art, and literature, as well as preserving and disseminating the cultural and natural heritage of the island. Housed in the old administrative building of the Bank of Cyprus, built

Interestingly, the manuscript investment story is, in itself, a far departure from investment tales that traditionally expound the imperativeness of condition and caution against illiquidity and high volatility. Rather, the sheer uniqueness of the items means that condition recedes into the background whilst value rises steadily, with major auction houses – such as Christie’s, Sotheby’s and Bonhams – holding regular auctions to put bidder and seller closely in touch. John Windle, owner of John Windle Antiquarian Books in San Francisco, explains how the rarity of manuscripts supersedes all other conditions: “However rare a printed book is, it’s still one of several copies available. But if you buy manuscripts, every single one is unique. It’s one thing to have a first edition of The Great Gatsby; it’s another thing to have the manuscript of The Great Gatsby that F. Scott Fitzgerald gave to Zelda. Even if it’s in ratty condition, that’s the copy to have, because there simply isn’t another one.” Bill Gates agrees. Coming face-to-face, in 1994, with the opportunity to acquire the Codex Leicester document, handwritten by Leonardo da Vinci himself some 500 years earlier, the concern of condition obviously dissipated

in 1936 and situated in the historical centre of Old Nicosia, the foundation pursues, every year, a wealth of activities in keeping with its goals. A total of five Cyprological collections are kept and maintained: Coins; Maps; Rare Books and Manuscripts, Engravings, Old Photographs and Watercolours; Contemporary Cypriot Art, and the Archaeological Collection. The Foundation houses numerous manuscripts dating as far back as the 15th century, which reveal clues as to the historical and cultural development of Cyprus. Various books have been compiled based upon the original manuscripts kept by the foundation,

alongside his rising enthusiasm: he parted with $30.8 million to bring it into his possession, ratty condition and all. Whilst this sale endures as the most amount of money ever paid for a manuscript – it did, after all, re-route scientific development, and was bid upon by one of the world’s richest men – counterparts belonging to music and literature have fared fruitfully nevertheless. Consider December 2013’s sale of Bruce Springsteen’s Born to Run lyrics in draft form, handwritten by the singer/musician in 1974 when preparing for his third album release of the same name. Richard Austin, head of Sotheby’s books and manuscripts department that oversaw the sale, explained prior to the auction: “There is a story he tells about sitting on the edge of his bed with his guitar and the phrase ‘born to run’ comes into his head. And what you are actually looking at is the process he goes through to get to the finished song.” It took Springsteen six months to complete Born to Run, and it catapulted the New Jersey singer into rock and roll history. The December 5 sale – that took place in New York and was entitled ‘Fine Books and Manuscripts’ – had placed a tentative estimate on the manu-

including Manuscripts and Rare Books 15th-18th Centuries – comprised of documents spanning Cypriot life during the administration of the House of the Lusignan, House of Savoy, the Order of St. John of Jerusalem, as well as manuscripts shedding light on select charismatic personalities from Cyprus’ history, such as Catherine Cornaro, the last queen of Cyprus – and Venetian Letters 1354-1512, presenting 20 important letters from the period. Additionally, a project involving researcher Gilles Grivaud, professor of Medieval History at the University of Rouen, France, is ongoing, with Grivaud assessing

the significant manuscript of Ascanio Savorgnano, with a focus on the state of fortifications in Cyprus just a few years prior to the Turkish invasion of 1570. Ascanio – the stepbrother of Italian military engineer Giulio Savorgnano – was sent to Cyprus in 1562 in order to write a report on the conditions that prevailed on the island at the time. Grivaud’s research is expected to lead to the publication of a book.

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investing in manuscripts

handmade

Treasures

The Tales of Beedle the Bard J.K. Rowling rocketed to worldwide stardom thanks to her creation of Abraham the Harry Potter series of books Lincoln’s beloved by children and adults Letter alike. Whilst a manuscript of one Setting the of the Harry Potter books has record for the yet to make its way to the marhighest price ket, Rowling did donate a handever fetched by written manuscript of The Tales a presidential of Beedle the Bard – featured manuscript, a in Harry Potter and the Deathly letter written by Hallows – to a charity auction the American president in 1864 to benefit Children’s Voice. An unusual piece – handwritten on sold in 2008 by fine Italian paper with silver and Sotheby’s to a moonstone embellishments – private collector sold for $3.98 million. for $3.4 million. Considered a rare piece of history, the docuCosmography ment was written by Lincoln in response to a petition signed by Based on the research of Greek mathemati195 children asking the presician, geogdent to free all young slaves in the US. Lincoln replied, “Please rapher and astronomer, tell these little people I am very glad their young hearts are so full Ptolemy, a map was of just and generous sympathy created in 1477 by etching the and that, while I have not the power to grant all they ask, I trust figures onto a printed plate by hand. Known as Cosmography, they will remember that God only two copies were ever crehas, and that, as it seems, He ated using this method. The last wills to do it.” time one came up for sale was in 2006, commanding $4 million. Vita Christi Manuscript The Vita Christi Birds of America manuscript is a Birdwatching inherited a new rare collection of dimension art created in two when James different eras. Audubon’s Containing more Birds of than 100 handAmerica sold painted illustraat auction tions of the life of Christ, the first half in New York of the small draw- in 2000 for $8.8 million. An artist and author, ings are thought Audubon’s four-volume book to originate from the end of the was instrumental in introductwelfth century, whilst the second half of miniatures is thought ing people around the world to by experts to have been added the range of birds flourishing in nature. With more than 400 later in the fifteenth century. paintings of different species, The manuscript sold at SoAudubon used these illustrations theby’s London to a German to create hand-painted engraved collector, who paid $3.5 million plates that were sold as sets beto acquire it. mporting new value into the term ‘handmade’, these manuscripts – historical documents, letters, fictional tales, and illustrations – constitute some of the most expensive ever sold.

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tween 1827 and 1838. The complete work has been compiled in a rare bound folio format. Gospels of Henry the Lion With a conjectured inception date of 1188, this historical work spans 266 pages, and includes four gospels and 50 miniature paintings, which document Henry the Lion’s quest for power as the ruler of the Brunswick. This manuscript was written by the Monks of the Benedictine monastery of Helmarshausen at Henry’s request. This chronicle of Henry’s career changed hands most recently in 1983, when it was sold through Sotheby’s London for $12 million. Magna Carta One of the greatest documents belonging to British history, the Magna Carta was first issued in 1215 – during King John’s reign – to define people’s individual rights and freedoms under English law. Owned by the Ross Perot Foundation, it was bought by David Rubinstein of the Carlyle Group in New York in 2007 for an astonishing $21.3 million. Codex Leicester Leonardo da Vinci’s Codex Leicester holds the record as the most expensive manuscript ever sold to date. A journal containing the renowned artist’s notes concerning the link between art and science is further illustrated with his drawings and sketches to support his observations. Handwritten in Italian on 19 separate sheets of paper, which were folded in half and double-sided to create a 72-page document, Bill Gates, founder of Microsoft, purchased the manuscript in 1994 for a staggering $30.8 million.

script of $70,000 to $100,000. The outcome realised far overtook the expectation, reaping an amazing $197,000. Not bad for a piece of paper. Indeed, that particular Sotheby’s sale brought in more than $3.7 million from its 176 lots. Though depicted as representing the holy grail of music memorabilia, impressive sales of handwritten lyrics are not far and few between. Rather, the sale history of these intensely personal documents has flourished devoid of epochal oscillations. John Lowe of The Money Doctor describes how handwritten lyrics by John Lennon made £31,000 at auction in 1996. In 2005, a similar sheet of lyrics went for £690,000, reflecting a gain of over 2,200% in less than a decade. More recently, in June 2010 – just five years later – Lennon’s handwritten lyrics for the enigmatic A Day in the Life sold for a record $1.2 million, far surpassing its $500,000 preestimate. When, in October 2013, Martha Rafferty – daughter of famed ‘70s musician Gerry Rafferty who penned the hugely famous and successful Baker Street of which, undoubtedly, the seductive saxophone riff is recognisable by even those unfamiliar with the song – attempted to sell her father’s handwritten lyrics of the piece, she received such a severe backlash that she withdrew them from the sale, choosing instead to exhibit the lyrics at a museum in his hometown of Paisley, Scotland. Mark Macmillan, leader of Renfrewshire Council that is helping in organising the exhibition due to run from March to May 2014, said of the profundity imported in these handwritten lyrics: “For many people, the music of Gerry Rafferty was part of the soundtrack to their lives. It’s also a great inspiration to others that the boy who grew up on a council scheme went on to develop and showcase his musical talent to a worldwide audience.” In his bid to sway the deceased musician’s daughter’s decision, Mick McCarthy wrote: “It would be extremely foolish to sell the handwritten lyrics to Baker Street. Keep those in your family. “They’re priceless, both financially and historically: as important as anything from the Beatles.” And the Beatles are demonstratively bankable. Besides Lennon’s landmark sales, Paul McCartney’s handwritten lyrics to Maxwell’s Silver Hammer sold at Christie’s in 2006 for $192,000, whilst George Harrison’s handwritten lyrics to While My Guitar Gently Weeps reaped $300,000 at Cooper Auctions in 2007. In essence, the unifying thread runs thus: historic songwriters; historic songs; historic

One of Samuel Beckett’s notebooks for Murphy

sales. Manuscripts of works of literature are no different. In fact, the latter experienced a particularly good year in 2013, utterly defying the economic downturn. Consider the sale of an autographed draft of stanza 88 of Childe Harold’s Pilgrimage written by the famed British Romantic poet, Lord Byron. Composed over the two-day period (June 14-16, 1816) during the summer that Mary Shelley (soon to become renowned author, Mary Shelley, of Frankenstein fame) and her husband were staying with him near Geneva, Switzerland, the draft had not been seen since 1940. Besides featuring amendments to the closing couplet, the manuscript is further steeped in history thanks to Shelley professing to have had, on the very same weekend during which this stanza came to being, a terrifying nightmare lending to the conception of Frankenstein. One bidder certainly appreciated the intensity of this story, choosing to part with $103,000 in November 2013 at Bonhams London in order to purchase it.

Glass Town, written by Charlotte Brontë when she was 14

Earlier in the year, in May, the very same auction house also facilitated a landmark sale for Irish writer and poet, Oscar Wilde. Heart’s Yearnings, comprised of 40 lines divided into eight five-line stanzas, brought in $105,000. The previous record for a poetic manuscript by Wilde stood at $37,000. Sales of the Romantic poet John Keats have, in a similar fashion, displayed fantastic feats at auction. A month prior to the Wilde sale, part of a handwritten poem by Keats came up for auction, once again at Bonhams London. The autographed manuscript of his poem, I stood Tip-Toe Upon a Little Hill commanded

$278,500. More impressive, still, is the fact that it sold by some 300% more than its high estimate of $75,000, and far surpassed the previous Keats record of $130,000 established in 2001. In select cases of manuscript sales, the bidders are institutions invested in the preservation of a poet or author’s work, as well as research surrounding their lives and artistic development. The Brontë Parsonage Museum certainly aspired to do so, when bidding on a Charlotte Brontë manuscript that came up for sale at Sotheby’s London in December 2011. The miniature, handwritten booklet, made by Brontë when she was 14, is set in the fictional world of Glass Town, and contains 4,000 words over 19 pages, small enough to nestle in the palm of one’s hand. Formerly held in a private collection, it is thought to contain ideas later developed and integral to Brontë’s most famous works. One scene in the manuscript, says Sotheby’s book specialist Gabriel Heaton, anticipates Mr. Rochester’s mad wife, Bertha, trying to kill him by setting fire to the curtains in his bedroom, as later dramatically delivered in Jane Eyre. Despite its historical significance and import, the Brontë Parsonage Museum was outbid by £20,000 by France’s La Musee des Lettres et Manuscrits, which parted with, in total, £691,000 to acquire it. Lucasta Miller, author of The Brontë Myth, described the sale as a genuine loss: “This manuscript embodies a phase in Charlotte Brontë’s early development, and provides real insights into how she went on to produce her mature masterpieces, Jane Eyre and Villette. “As a physical object, it is not just of sentimental value. The tiny pages and the microscopic writing embody the nature of her creativity so uncannily that you have to see the manuscript in the flesh to truly feel and understand how her imagination worked.” An additional and acutely significant example of a manuscript displaying the virtuoso of an artist’s creative process is embodied in Samuel Beckett’s draft of his first novel, Murphy. Handwritten across six exercise books, the manuscript contains extensive notes, cancellations, and revisions, which are thought to hint at the author’s struggle to give form to his novel. Moreover, it contains hundreds of animated drawings courtesy of Beckett procrastinating in his quest to bring his prose piece to fruition. It is even thought that the portraits he drew of fellow Irish writer,

James Joyce (undoubtedly an inspiration to Beckett), and Charlie Chaplin, were precursors to the tramps famously featured in his play, Waiting for Godot. Given an estimate of £800,000, the manuscript sold for close to £1 million to Reading University, home to the Beckett International Foundation. Peter Selley of Sotheby’s described the manuscript thus: “The notebooks contain almost infinite riches for all those – whether scholars or collectors – interested in this most profound of modern writers, who more than anyone else, perhaps, captures the essence of modern man. The manuscript is capable of redefining Beckett studies for many years to come.” And so it is, with such zealous sales in tow, that collectors, investors, and scholars alike, in searching for their next acquisition, peer into the market and ponder: who’s got the rarest of them all?

BOOK REVIEW The Beatles - All These Years: Volume One: Tune In By Mark Lewisohn (Little, Brown, 2013)

R.R.P. £30 (£15 from amazon.com.uk)

he Beatles have been at the top for fifty years, their music remains exciting, their influence is still huge, and their achievements cannot be surpassed. But who were they, and how did they and everything else in the 1960s fuse so explosively? Mark Lewisohn is the definitive Beatles historian and this is the highly-anticipated first part of a trilogy titled All These Years that has taken almost a decade to complete. If you are wondering if we need another Beatles book, it’s clear from the opening pages that the answer is “yes” and this should be the last and definitive one. The author digs deeper than the official Anthology did a decade ago, so deep in fact that Volume 1 is over 800 pages long and only takes the story to the end of 1962 and the release of the group’s first single “Love Me Do”. The Beatles’ formative years have never been recounted in such detail. At last, the first volume of the epic biography that the Fab Four have long deserved.

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A Day in the Life

Marina Zevedeou The Co-Founder and Chief Operations Officer of the Aspen Trust Group on being a working mother, weekends spent at the sea and the cinema, and why she doesn’t regret not becoming a singer. “I wake up at 6am

every day during the week and I meditate for 15-20 minutes before getting dressed. It gives me the peacefulness required to set my positive intentions for the day. I live quite near the office with my husband and two children and we all have breakfast together before I take them to school for 7.30. I am then normally at the office around 7.45. For the first hour I clear my e-mail inbox, I read the news to see if there is anything affecting us or our clients and, after about an hour, I start my meetings, either internal ones or with clients. At 1.30pm I collect the children from school and we have lunch together at home. Sometimes it will be something I have cooked but my mother helps me a lot and in the freezer I have lots of things that she has prepared. When I was younger I wanted to be a singer. I was very musical, singing in choirs and taking vocal lessons. At school I was an excellent student and eventually I changed my mind and decided that accounting and finance seemed like a better choice in terms of a later career! I went to the London School of Economics and then became a Chartered Accountant. The

industry I’m in deviates a bit from auditing and accounting in that it gives me more opportunities to meet people and to use my organisational and interpersonal skills. I love this sector and I was very disheartened by what happened in Cyprus last year but I believe we’ll come out of the mess stronger. So I have no regrets about not becoming a singer! I still sing with my 13-year-old daughter who has an amazing voice and my son, who’s 12 and is already composing so there is still plenty of music in my life. I like Bryan Adams but I like opera too, though because of the children I often find myself listening to people like Pink, Christina Aguilera and Shakira. So I’m kept up to date! I don’t think there is any woman who won’t tell you that it’s hard to be a mother and maintain a career. I found it tremendously difficult when the children were young but I gradually realised that the guilt that many women feel because they can’t be there every moment is the price we pay for doing both. Working in the same place as my husband was also difficult at the beginning – we both

Everything he does… Bryan Adams

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