NICOSIA – Law and accounting firms in Cyprus have aided wealthy Russians in evading American and British sanctions, concealing their assets and alleged connections to President Vladimir Putin. These actions have tarnished the country’s reputation, according to Constantinos Herodotou, the Governor of the Central Bank.

During a session with a parliamentary committee, Herodotou stated that although there hasn’t been a direct impact on financial stability, newly elected President Nikos Christodoulides expressed concerns about the negative effect on international investment opportunities for the island.

Herodotou emphasized that while there is no legal obligation for the government to enforce the sanctions, failing to do so could have severe repercussions. The Cyprus Mail reported that the bank chief mentioned Cyprus is solely obligated to comply with sanctions imposed by the European Union and the United Nations. Banks that refuse to freeze accounts under such sanctions could be deemed in violation, thus becoming designated entities. Herodotou warned that this scenario would be catastrophic for the institution, the economy, and the country as a whole, causing a significant loss of credibility and likely resulting in investors fleeing.

Furthermore, Heredotou added that if a bank falls under US sanctions, it would lose access to the US dollar, potentially discouraging new investments. He also noted the existence of American secondary sanctions.

The bank chief said Cyprus is only legally obliged to comply with European Union and United Nations sanctions under which any bank refusing to freeze accounts could be considered in violation.

That would make them a  designated entity he said would be catastrophic for the institution, the economy and the country and create such a stigma that credibility would be lost and investors would likely flee.

Having a bank under US sanctions will mean losing access to the US dollar, which could deter new investments, Heredotou added, adding that there are American secondary sanctions too.