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Cyprus to launch new unit targeting sanctions evaders

The new unit, slated to launch later this year, is the latest reform effort after Cyprus Confidential revealed the role of Cypriot firms in helping Putin allies avoid Western sanctions.

Cyprus plans to create a new financial sanctions implementation unit by the end of the year, officials say, as the tiny EU member state seeks to clean up its reputation as a financial playground for Russia’s rich and powerful.

The new unit will be developed with help from the United Kingdom, which pledged to provide “technical support” and guidance on best practices based on its own new Office of Trade Sanctions Implementations, which will leverage tougher penalties against companies dodging sanctions, help businesses comply, and investigate breaches.

If the legislation creating the Cypriot unit passes, the new body will help fulfill a mutual agreement between the two countries made in May 2023 to boost collaboration in stemming illicit financial flows, by strengthening Cyprus’ “existing legislative framework.”

The head of the Cyprus Bar Association has also reportedly promised to publicly punish any lawyers found to be breaking the rules, after ICIJ’s Cyprus Confidential investigation exposed how some of the country’s law firms may have helped sanctioned Russians continue to do business. The association’s chairman Michael Vorkas said Cyprus’  legal industry needed to remain out of “the crosshairs” of scandals that in the past have caused the public to receive the “wrong message.”

“You can be sure that those cases which involve serious violations of the law will not remain in the drawer, but will come out, and names will be made public,” Vorkas told journalists at a press conference in January, according to the Cyprus Mail. “We must protect society and society must trust us.”

The Cypriot government faced harsh criticism after Cyprus Confidential revealed the key role Cypriot financial services providers played in helping Putin allies shelter their wealth and hide billions of dollars, even as sanctions came down in the wake of Russia’s full-scale Ukraine invasion. More than 270 journalists took part in the collaboration, which spanned eight months and was based on 3.6 million leaked files.

Cyprus President Nikos Christodoulides made swift promises of a government probe shortly after the revelations came to light, with the new sanctions unit only the latest in a series of reform efforts reportedly underway.

“Everything that has come to light will be investigated,” he said, hours after the first Cyprus Confidential stories were published. “The reputation of our country, the credibility of our country, you understand, is crucial.”

Shortly after ICIJ published its investigation, a team of U.S. financial crime experts with the Federal Bureau of Investigations traveled to Cyprus to aid a Cypriot government probe into the “enablers” of sanctions violations.

“The political commitment to demonstrate zero tolerance for practices that expose Cyprus internationally is real, it is tangible and it is unequivocal,” President Christodoulides said at an American-hosted dinner in November. “We are working tirelessly in promoting actions to restore the reputation of Cyprus as a credible business and financial center.”

While not indicative of the success of reform efforts so far, the Associated Press reported the Cypriot economy is slowly shifting away from its reliance on Russian wealth. The AP reported that between 2014 and 2022, Russian and Ukrainian deposits in Cypriot banks both plunged, by 76% and 67%, respectively. The number of Russian and Ukrainian clients using Cypriot banks also dropped in the same period, by 82% and 54%, according to government data obtained by AP.

The AP also cited recent local media reports that several large Russian-owned companies registered in Cyprus have transferred their headquarters abroad.

The Bank of Cyprus also closed its offices in Moscow and St. Petersburg in late January, the third foreign bank to pull out of Russia this year, Moscow Times reported.

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