Bank of Cyprus, which began to close the accounts of some Russian clients, found an unexpected reason for this. The bank explained this by the fact that Russia is no longer included in the Financial Action Task Force on Money Laundering, but is included in the black list of tax jurisdictions. Analysts expect other banks to take advantage of this reason.
Bank of Cyprus’ decision to close the accounts of some Russian clients, which the organization began notifying them last week, came after Russia’s membership in the Financial Action Task Force (FATF) was suspended. The bank reported this to Forbes in response to a request to comment on the reasons for this decision.
“This decision follows the suspension of Russia’s membership in the Financial Action Task Force (FATF) and the designation of Russia as a non-cooperating tax jurisdiction with the European Union,” the bank said in a comment.
In total, the bank confirmed, it will close the accounts of about 4,000 Russians who kept 0.5% of deposits in the bank and were not residents of the European Union. At the end of 2022, the total volume of deposits of Russians in the bank exceeded €700 million, which accounted for 3.9% of all deposits of Bank of Cyprus.
According to a bank spokesman, there were no letters from European regulators, and there were no (as in the case of Emirates MDB) letters from Euroclear and Clearstream regarding Russian investment accounts. “(We made this decision) based on our customer approval policy and willingness to take risks,” the bank said in a comment to Forbes.
The intergovernmental organization FATF was founded in 1989 to develop world standards in the field of combating money laundering and terrorist financing, its headquarters is located in Paris. Russia joined it in 2003. The suspension of Russia’s membership in the organization was announced on February 24 – exactly one year after the start of the “special operation”* in Ukraine. The FATF message stated that Russia’s actions contradict its basic principles for ensuring the security, reliability and integrity of the global financial system.
Russia got into the black list of tax jurisdictions shortly before that – on February 14th. Inclusion in this list means, according to the EU, that the jurisdiction does not meet international standards of tax competition and refuses to cooperate with the European authorities in the issue of increasing the transparency of tax administration. In particular, Russia made the list because the EU considered that it had not eliminated controversial aspects of the special regime for international holding companies.
However, according to experts interviewed by Forbes, both of these reasons are only formal reasons. FATF is a kind of club, the suspension of membership in which means that Russia temporarily does not share its values, says Sergey Glandin, a partner at the NSP law firm. At the same time, the organization is not institutionalized, it does not even have a charter, so banks that continue to work with Russian clients do not bear any risks, the lawyer notes.
Banks have no legal obligation to close accounts for Russians, Andrey Ryabinin, head of the sanctions practice at the Delcredere Bar, adds. For residents of countries outside the organization, there should be stricter compliance, but this does not mean that you cannot work with them at all. Nevertheless, someone had to use this occasion first, says Sergey Glandin.
According to Andrey Ryabinin, other Cypriot banks will follow the example of Bank of Cyprus, as in making appropriate decisions, the management of financial organizations often focuses on the actions of not only regulators, but also major competitors. In addition, other banks of the FATF member countries, for example, Switzerland, Great Britain, can also use this occasion. However, these countries closed the accounts of Russian clients all last year, recalls Ryabinin.
Banks are actively getting rid of high-risk customers. These are those who have an opaque history of income, as well as those who have a high potential for getting into the sanctions lists, says Vadim Pogosyan, managing partner of Smartly LLC. In addition, if the bank has a small share of Russian clients, it is unprofitable for it to increase the cost of additional compliance – it is easier to refuse all at once. At the same time, in the case of Bank of Cyprus, the situation is reversed – the share of Russian clients is too large, obviously, the organization was afraid of sanctions and found a reason to protect itself from them.
