Dr Christodoulos Christodoulou, Cypriot Finance Minister, argues
that it takes more than tax breaks to create a thriving offshore centre
What does Cyprus offer as a financial
centre that others, for example the Caribbean islands, do not?
Cyprus is today a well-established and respected international business
centre due to the high quality of the facilities it provides for the conduct
of banking, financial, commercial and maritime activities worldwide. In
contrast to 'tax havens', Cyprus is a tax incentive country which offers
benefits aimed at attracting foreign individuals and enterprises. We believe
that tax and other concessions by themselves are not enough to transform
a country into a regional, still less an international, business centre.
Well-developed institutions and infrastructure are also necessary. Our ability
to do this, coupled with our English-based legal system, high quality of
life, low cost of living, well-educated labour force and non-bureaucratic
regulatory framework create an ideal business environment. Furthermore,
the island's strategic location - near to the European Union market, eastern
Europe, the Middle East and Africa, has also been a major factor in Cyprus'
success.
It is our opinion that Cyprus' entrepreneurial environment compares favourably
with that of other major, well-established centres. Unlike other offshore
centres, including most of the Caribbean islands, Cyprus possesses a wide
network of double tax treaties which can be effectively used for tax planning
purposes. Some of these treaties, especially those with eastern Europe,
contain uniquely favourable features.
How do you respond to allegations that Russian criminals use Cypriot
banks to launder illegal funds?
The allegations appearing in the international press are unsubstantiated
and at odds with the facts. Cyprus, of course, is not unique in facing accusations
of this sort; other countries, including major financial centres such as
New York, London and Frankfurt, have faced similar allegations from time
to time. Although unsupported accusations are best ignored, it can be said
that in the case of Cyprus, available concrete information, such as the
total amount of cash being deposited in our banks, suggests that the island
is not a laundering centre. Nevertheless, we are doing everything we can
to combat laundering. Cyprus has ratified and implemented the 1988 UN ('Vienna')
Convention against drug-trafficking by enacting appropriate legislation
criminalising drug money laundering. We have also ratified the 1990 Council
of Europe Convention on laundering and a draft law in accordance with the
Convention's provisions is expected to be adopted in the next few months.
In addition, the Central Bank of Cyprus, the country's leading regulatory
authority, has, since 1989, taken various precautionary measures in accordance
with the Financial Action Task Force's recommendations.
What are your plans to expand the banking sector in Cyprus?
Cyprus' domestic banking sector, which at present comprises nine banks with
more than 500 branches all over the country, satisfies the needs of our
economy, and the market is almost saturated. However, given the state of
economic development, there might be room for one or two additional banks
of prime international standing.
At the same time, the Central Bank welcomes and encourages the establishment
of Off-shore Banking Units in Cyprus by foreign banks with good international
reputations and with a record of growth and profitability. It must be emphasised
that only banks which are, in the opinion of the Central Bank, subject to
adequate supervision and regulation in their countries of incorporation
are allowed to establish a presence in Cyprus. So far, 26 foreign banks
from several countries have been granted banking licences to establish an
offshore presence, while the Central Bank is currently dealing with a number
of serious enquiries from other international banks which are interested
in exploiting the opportunities offered in the sector. A further eight foreign
banks have established representative offices in Cyprus.
Cyprus is well-placed to act as a trading centre with the Middle East.
To what extent do political developments in the region affect the island's
investment potential?
Cyprus is strategically placed to act as a base for expansion in the Middle
East once peace is secured in the region. We have long maintained excellent
relations with the region, hosting diplomatic missions from Israel, the
Palestine Liberation Organisation (PLO) and various Arab countries. Cyprus
is therefore set to become a centre for trade, economic and financial exchanges,
and our banking sector is expected to benefit from the greater volume of
investment and commercial and private transactions. Already, several Arab
banks have expressed an interest in setting up Off-shore Banking Units to
finance development projects in areas governed by the Palestinian authorities.
To Top
Will the rehabilitation of Lebanon's banking sector harm the industry
on Cyprus?
We have never considered that the efforts made by the Lebanese people to
rebuild their country from the civil war present a danger for Cyprus' banking
sector. I do not believe that Lebanon is among our direct competitors, given
that it has yet to resolve its economic and political difficulties. Moreover,
Lebanon is in the midst of the difficult task of rebuilding the infrastructure
required to meet the demands of a modern and developed international business
and financial centre. Given these demands, it will probably take several
years for Lebanon to reach Cyprus' level. Even then, I believe that Cyprus
will continue to enjoy a competitive advantage because Lebanon has traditionally
operated as an international centre without drawing a distinction between
on- and off-shore banking. I should also say that none of the six Lebanese
banks with an off-shore presence in Cyprus has abandoned - or expressed
a wish to abandon - the island. Far from seeing the re-emergence of Lebanon's
financial sector as a threat, I believe that it will create challenging
opportunities to enhance investment potential in the region.
Cyprus looks close to joining the European Union. What benefits would
this bring for the banking sector, and for the economy as a whole?
Following our application to become a member of the European Union, in July
1990, the government of Cyprus has embarked upon a programme to harmonise
Cyprus' institutions with those of the Union. Part of this effort concerns
the harmonisation of Cypriot banking legislation. In this respect, the Central
Bank has prepared a comprehensive banking bill aimed at modernising and
streamlining our banking legislation by incorporating current concepts of
regulation and supervision. We have already had substantial success in harmonising
our banking legislation with that of the Union.
Membership of the European Union will accelerate overseas expansion of local
banks, while increased interaction with the liberalised financial environment
of the European Union will enhance local banks' sophistication and foster
greater efficiency. Indeed, we are already working cautiously towards greater
liberalisation of our financial system. Co-operation agreements with other
European banks are also a feasible strategic alternative for Cypriot banks.
These agreements, which will be stimulated by Cyprus' membership of the
European Union, will provide access to the European banking market. At the
same time, European banks will offer their products through domestic banks
to the local market. The entire services sector, which contributes nearly
70 per cent of GDP, will have the opportunity to expand beyond the tight
limits of the Cypriot market, especially given the skills factor and educational
standards which characterise Cypriots.
I am convinced that Cyprus' accession to the Union will have a positive
impact on the Cyprus Question. Even the prospect of accession will have
a bearing on the settlement of this longstanding problem because it will
act as a catalyst in efforts to find a solution. This is already apparent.
Turkey, which is the key to any solution, is now under European Union pressure
to act and to co-operate with us and other interested parties.
Turkey is now in a serious dilemma. The Council decided on 6 March that
accession negotiations would begin six months after the end of the Inter-Governmental
Conference. Turkey must decide whether to co-operate, so that the whole
of the Cypriot people accede to the Union, or to remain intransigent and
thus deprive the Turkish Cypriots of the benefits of membership.
Are you confident about the future of the Cypriot economy?
I believe that the economy is strong in terms of growth and stability, and
compares well with that of other European Union nations (for example, Cyprus
already satisfies the economic criteria for Union membership). Our annual
growth rate over the past decade has been more than double the Union average,
unemployment is low (2.6 per cent) and inflation has sharply declined. We
have good reason to believe that this will continue, and our efforts will
remain focused on exploiting all our comparative advantages, such as the
dynamism of our professionals, our modern infrastructure and our geographical
position.
To Top
To Archive Index To Contents
©Kensington Publications 1996