Cyprus Fiscal Council on Thursday called on both the government and the legislature and supervisory bodies to observe a “strict stance” on the issue of Cypriot individuals and legal persons sanctioned by the US and UK authorities over facilitating transactions of Russian sanctioned oligarchs.

In a press release, the Council stressed that this issue constitutes “a long-term risk which threatens the growth of the economy.”

A significant number of Cypriot individuals and entities have been placed in the US and UK sanctions list while more persons and companies are reportedly expected to be included in an updated sanctions list to be released on Friday.

The Council said in its press release that Cyprus needs foreign investments including Foreign Direct Investments (FDI) to finance its trade deficits, whereas in the absence of FDI the government would resort to borrowing to cover its public and private debt with long-term adverse consequences.

It noted however that Cyprus “negative image” created by the sanctions “has far-reaching consequences and consists a counter-incentive with costs to all interested foreign investors who potentially are interested to operate in our country.”

The Council pointed out that there is an “increased moral hazard as Cyprus’ bad reputation discourages intentions by repudiated investors while it attracts investors with not satisfactory reputation or intentions.”

“This adverse option in compliance issues has turned to a long-term risk which threatens growth. Apart from covering our economy’s international investment position, it is matter of financial sustainability for the island,” the Council added.

Furthermore, the Council highlights that a possible lax approach in compliance issues acts against proper competition, as companies and organisations which opt for full-compliance are in a competitive disadvantage compared those who circumvent requirements or opt for loose implementation.

“Therefore, we call on both the legislature and the executive as well as supervisory bodies to observe a strict stance to such phenomena and to adopt a ‘compliance-plus’ policy as some organisation have already done, aiming at aggressive restoration of unjust competition but also Cyprus- capacity to attract high quality investors that are absolutely need,” the Council said.

Acknowledging that strengthening compliance levels is not an easy process financially, the Council noted however “it is absolutely essential.”

“Reversing moral hazard and the adverse option regarding foreign investments in itself constitutes a significant investment to the future of our economy,” the Council concluded.