CYPRUS NEEDS DIRECT INVESTMENT, NOT BILLIONS OF SHELL COMPANIES

HomeNewsCYPRUS NEEDS DIRECT INVESTMENT, NOT BILLIONS OF SHELL COMPANIES

Servicing the large deposits of third-country nationals and shell companies in Cyprus is over. The Cypriot Minister of Finance Harris Georgiades affirms that this sort of practice on the island contributed to the financial crisis in spring 2013.

“We have to admit that this was the model for many sectors of our economy”, said the head of the Finance cabinet of Cyprus. “When we talk about the service sector, we need to realise that we had foreign deposits, not investments.”

“In recent years, the amount of foreign funds, mainly from Russia, held in the Cypriot banks, decreased dramatically. Let's face it: we had billions in deposits of shell companies without any employees or a real presence in Cyprus,” Haris Georgiadis says.

According to Moody's, the cash on accounts in the banks held by citizens of countries outside the EU reached EUR 21.9 billion in April 2012, exceeding the GDP of the Republic of Cyprus (EUR 17.4 billion). The financial crisis brought radical changes into the situation. By September 2018, the volume of cash from the third-country nationals in Cyprus amounted to EUR 7.1 billion (or some 15% of all the deposits).

On 1 June 2018, Cypriot banks received a recommendation of the Central Bank ordering them to get rid of the shell company accounts. To single them out, the CBC referred to the US Treasury, quoting that such “companies established for either legal or illegal purposes usually do not have a physical presence other than a postal address, do not have any personnel, and create little added economic value with a tendency to run as low as zero”. Therefore, according to the Minister of Finance of Cyprus, “it's over now: even if we wanted to reanimate the old model, we would not be able to do so. The model does not exist any more! Cyprus needs companies with a physical presence.”