For decades, an utterly Cypriot phenomenon is to advertise Cyprus as an International Business Center and to demand the strengthening of the services sector which is proven to account for 40% of the country’s GDP. On the other hand, within a few months, and by means of misinterpretations, there have been arguments that this “model” has caused problems to the economy and that it is necessary to change it, whilst forgetting that this model has sustained the Cyprus economy since the first years of establishment of the Republic as well as following the Turkish invasion and contributed to the development of the state to this day.
As you are well aware, mismanagement, arbitrary decision-making and greed have contributed to the disintegration of the system, for which political leaders and incompetent independent supervisory authorities are solely to blame, in view of the fact that they failed to control the system that was maintained by highly paid executives who only sought to gain profit and maintained a state of favouritism and partisanship, a well-known factor in Cyprus society. Furthermore, we should not ignore the poor policies that have been adopted, the erroneous strategies that have been implemented nor the unjustified decisions that have been executed.
Within the context of changing the service model, the Government and Big Audit Firms propose to attract shipping companies and investment fund management companies and to further develop the real estate sector (“investing in real economy”), instead of the old model of company management. We are not against the attraction of shipping companies and investment fund management companies, the employment of staff and fund managers, nor against the development of the real estate sector. At the same time, however, we must be realistic and hope that what we strive to achieve is to actually change the “model” and that this will not result in a boomerang. This is due to the fact that it is not easy for large investment funds to trust us since we are influenced by various foreign decision-making centres as a result of our size and there is no International Bank that is operating in our country. Furthermore, our banking institutions cannot offer services because various directives have tied their hands and there is a threat that bank accounts in dollars will be closed down. In addition, we cannot easily proclaim that the development of the real estate sector will contribute to the economy through the award of passports by failing to calculate the impending losses that may be sustained in the event of a potential bursting of a bubble in the event that no immediate action is taken.
The statements made by the highest official government representatives and in particular by the Minister of Finance, who, in a number of interviews and speeches interprets the term “Shell Company” as a company with no physical presence and no personnel in Cyprus and urges banks to avoid concluding business relationships with such companies, are wrong. This is due to the fact that the law does not contain any provisions to the effect that a company must have personnel and physical presence in Cyprus or anywhere else. Furthermore, no such provisions or conditions exist in any other country in the world. The countries which have traditionally been our competitors in the service sector, such as the Netherlands, Luxembourg, Malta, Switzerland, Austria, England and other countries, have never adopted any such interpretations and have not placed any labels on their companies thus harming their own credibility and economy as a result. On the contrary, they advertise their companies and try to take advantage of the state in which our country has been led where we are not in a position to open any corporate accounts if companies do not have any personnel or physical presence in Cyprus and whereby service providers are forced to cooperate with foreign banks that easily open bank accounts.
«Shell companies» are not related to large deposits and money laundering, as certain people are trying to convince. It should be clarified that a company without personnel can lawfully exist and have a legal presence and be represented by its board of directors which may be constituted by any person to whom the shareholders or ultimate beneficial owners have entrusted the company’s management. Such companies may be traditional holding companies or trading companies that use Cyprus due to its low taxation, or holding companies of large groups etc. which prefer our country because of the tax advantages offered. We have safeguarded such companies for so many years for the purpose of attracting investors to this “model” which we are now finding to be wrong. We must not overlook the fact that a Cyprus company is a European company that is taxed and no money or assets may move under any circumstances in an uncontrolled manner without any tax consequences. In any event, Cyprus companies should be excluded from this controversial terminology.
The wrong impression is given and an effort is made to pass along the message that “Shell companies” are the cause of the problems of the banking and service sectors. This is due to the fact that what really caused the problem, which was corrected by the directives issued by Supervisory authorities and by the Central Bank from time to time, were the bad practices that had been implemented in the past as outlined above, as well as uncontrolled movements of capital, inadequate controls of transactions, the unknown source of funds and the poor profile of the ultimate beneficiary which did not justify his economic substance in many cases.
The wrong impression is also given and an effort is made to pass along the message that “Shell companies” only have deposits and do not increase productivity or employment positions. This is due to the fact that the services sector that serves these companies employs thousands of members of staff and the taxation of these companies which are now considered to be shell companies brings hundreds of millions to the State. Moreover, it has never been a criterion for tax authorities to collect taxes depending on whether or not a company has any staff or an office in Cyprus.
The control of transactions and the practices that were adopted by supervisory authorities, in combination with the actions taken by banks, have helped to eliminate suspicious transactions and to further strengthen anti-money laundering practices. This is because of the fact that once the source of funds, the transaction and the substance of the ultimate beneficial owner is controlled, then the problem is solved and there is no need to change the “model” which has been proven to have placed Cyprus at a high level as a recognized International Business Centre.
We are in the nick of time and we call upon all competent persons to realise the magnitude of the damage that is being caused and take immediate corrective measures to resolve the problems that have been created and normalize the situation.
Panikos Symeou