No impact to financial stability has been recorded so far by the US and UK sanctions against Cypriot persons and entities for assisting Russian sanctioned nationals apart from Cyprus’ credibility, Governor of the Central Bank of Cyprus (CBC) Constantinos Herodotou said on Wednesday, noting that non-compliance would pose “very negative consequences to the economy.”

The US and the UK have placed a number of Cypriot persons and entities to their sanction lists over facilitating transactions of sanctioned Russian citizens. Although the Republic of Cyprus implements sanctions by the EU and the UN, the banking system has opted to comply with US and UK sanctions and as a result has frozen the accounts of the sanctioned Cypriot natural persons and entities.

“Although there is no legal framework for mandatory compliance with the US sanctions, non-compliance would pose very negative consequences to the economy,” Herodotou told the parliamentary committee of Ethics which discussed the issue.

As he noted, if a bank does not freeze the accounts of persons included in the sanctions then the bank would be deemed in violation of the sanctions and the banking institution as a whole could be considered as a designated entity.

“If this were to happen it would be detrimental not only for the bank but for the country because we would be stigmatised,” to the extent that investors would leave triggering many other consequences, Herodotou said, noting that should a banking institution enter the US sanctions, it would lose access to US dollar transactions, something which could possibly avert new investments, while current investors could choose to leave Cyprus.

He also explained that the US law includes secondary sanctions which allows the US to prosecute those who facilitate persons included in the primary sanctions list, while he recalled that in their general rules the Cypriot banking institutions stipulate that they comply not only with the EU and UN rules but also of other countries.

On the issue of the frozen accounts, Herodotou said the CBC has called on commercial banks to expedite the due diligence process and unfreeze accounts where appropriate without placing any banking institution at risk.

He also explained that exemptions for transactions such as staff salaries by a sanctioned entity could be provided, but this could be done following a request by the affected company to the US authorities and not by the bank.

Replying to a question if the legal framework in Cyprus is adequate, Herodotou said that the issue at hand is implementation and fines so the supervised entities feel they are being supervised.

Furthermore, Herodotou said that the numbers mentioned by EU Justice Commissioner Didier Reynders were wrong, recalling that deposits in the Cypriot banking system amount to €50 billion and not €96 billion.

Georgia Themistocleous, member of the sanctions team in the Ministry of Finance said that Cypriot entities have been placed in the US and UK sanctions on the basis of a review that deemed they were facilitating Russian oligarchs who were also in the US sanctions list, adding that these data have been conveyed to the Attorney-General.

She also said that the Ministry is drafting a reply to the EU over the total investments in Cyprus before and after the sanctions.