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Recidivism: the curse on Cyprus

Unless the Cyprus government cracks down hard on recidivism in all its forms, an international risk management consultant predicts that Cyprus is likely to hit another 2013 scale financial crisis within five years.

Recidivism: the curse on CyprusWITH the 2013 financial crisis in Cyprus, the intervention by the Troika (EU, ECB and IMF) brought not just a last minute rescue but also heralded the wholesale reform of Cyprus’ financial institutions, economy, government structures and ways of doing things.

The Troika’s message was that there would be no more ‘business as usual’, no more acceptance of cosy incompetence and casual inefficiencies and no more blind eyes being turned to fraud, corruption and rusfeti, all of which had been instrumental in causing the 2013 crisis.

The Memorandum of actions and reforms imposed on Cyprus by the Troika, as a condition to receive the bailout funds, came as a shock to a society in which incompetence, inefficiency, fraud, corruption and rusfeti had become part of the cultural DNA.

So, three-and-a-half years on, has there been the kind of sea change envisaged by the Troika in 2013? Has there been excellent progress, little progress or somewhere in between? From here on, are there any dangerous icebergs looming out of the fog that Cyprus needs to avoid?

The good news

The Anastasiades government, and especially Finance Minister Haris Georgiades, has worked something of a miraculous turnaround in the state’s finances and managed to exit the bailout programme in record time, given the gravity of the nation’s dire state in March 2013. The economy is now stable and there is a mood of optimism generally in the population for a gradual improvement and strengthening of the economy.

Although not yet complete, major structural and procedural reforms are underway in the public sector and the banks. Although there is still some way to go, the attitude of officials in dealing with citizens and customers has also shown a marked improvement and is now far more helpful and respectful than in earlier years. To paraphrase former UK Prime Minister Tony Blair, public sector officials are now accepting that they are the servants of the public not their master, i.e. the public do not exist to provide public servants with a comfortable well-paid job.

Moreover, the government, through the combined efforts of the Interior Minister, Auditor General and the Attorney General, has put into effect one of President Anastasiades’ early policies on coming to power, namely the pursuit of those engaged in fraud, corruption and money laundering which was having such a damaging effect. For the first time in the Republic’s history, many of those ‘big shots’ who seemed to regard themselves as untouchable and immune to investigation and prosecution have found themselves in court, being convicted of serious criminal offences and being sent to jail for lengthy terms.

Major Criminal Cases

Here, are a few recent and current examples.

  • The Paphos Sewerage Board contracts fraud and corruption case. Former mayor of Paphos Savvas Vergas convicted in February 2015 along with several council employees, associates, AKEL party officials and others of bribery and money laundering over a 15 year period. Over EUR 1 mln in bribes were split between Vergas and Eftychios Malekides, the former sewerage board head. Vergas was sentenced to six years in jail and others to varying jail terms. Mayors in other municipalities are now under similar investigation and face criminal charges.
  • The CYTA pension fund fraud involving land at Dromolaxia. In January 2015, the ex CYTA boss Stathis Kittis was sentenced to eight years in jail for fraud and corruption, along with numerous others who received sentences varying from three to nine years. These included the former director of CYTAVision, Orestis Vasileiou, a former head of the Electricity Authority, Charalambous Tsouris, an AKEL member, a CYTA union official, a Land Registry official and others.
  • Christodoulos Christodolou, former Governor of the Central Bank of Cyprus, convicted in September 2014 on six counts of tax evasion and fined EUR 13,500 and sentenced to five months in jail. In July 2016, he was also charged along with the Greek financier Andreas Vgenopoulos and five others and three companies in relation to alleged payment of a EUR 1 mln bribe to him by the Zolotas company.
  • In December 2014, five former senior officials of the Bank of Cyprus, including the former Chairman of the Board, Theodoros Aristodemou and four former directors, plus the Bank itself as a corporate entity, were charged with criminal culpability in the Cyprus financial collapse of March 2013. The charges centred on alleged manipulation of the bank’s share price and alleged misleading statements to investors on the capital adequacy of the bank. A charge of conspiracy to defraud was later dropped. Other investigations relating to the collapse of the former Laiki Bank are ongoing. The case continues.

As I noted in Risk Watch in December 2014, for a very long time, Cyprus has suffered from a pernicious form of corruption that goes far beyond petty and even grand corruption, namely ‘sovereign corruption‘.

Widespread collusion occurs over a very long period between, on the one hand, unethical companies and their bosses (for example, those engaged in wholesale cheating of customers, suppliers and/or the taxpayer) and, on the other hand, party hacks across the political spectrum and officials of successive administrations and local authorities. This is to the detriment of the public interest in general and particular classes of person or corporate entity or particular individuals and organisations. If the government fails to radically correct the tainted system and the collusion, it creates an impression that corruption has become an accepted and institutionalized fact, i.e. an instrument of state policy. That is sovereign corruption and it is essentially what the present government is seeking to combat.

Recidivism: the Looming Iceberg

Despite the valiant efforts of the government over the past three years, there is much observational and anecdotal evidence that once the Troika bailout programme ended (and even before), anti-reform forces were already at work. There is still a strong pervasive element in society that wants, almost desperately so, to return double quick time to the ‘good old ways’ (or bad old ways, depending on your view).

Reckless borrowing and debt default at other people’s expense is their metier. Demetris Georgiades, Head of the Fiscal Council, hit the nail on the head very recently when he said: “All those who believe that the exit from the (bailout) programme will give the green light to return to practices of the past, will soon realise that this is not the case”. But, therein lies the problem. There may well be no green light for that but the forces of recidivism are not taking much notice.

An anecdotal example says it all. As reported to Risk Watch by someone who was present, a small group of Cypriot developers held an informal meeting at which they were jumping for joy now that the bailout programme was ending. However, their joy was not just confined to seeing the last of the Troika. The conversation went something along the lines of: Well, we ripped off the Brits, then the Iranians, then the Russians and now the Chinese. Who’s next? The Cyprus Property Scandal of developer fraud is being revitalised.

Such reportage suggests that sections of the business community still retain their old rapacious model for making money, in which foreigners are specifically targeted for fraud. Mr Georgiades, I’ve got news for you: such recidivists are not listening to you, are not frightened by you and will thwart your best efforts to combat them.

One also has only to look at what has been happening in the public sector companies scheduled for privatisation. Staff at CYTA, EAC and port pilots at Limassol have all been variously engaged in trying to thwart any change in the status quo. This privileged minority of economic saboteurs, recidivists to their core, are determined to protect their historically over-generous remuneration, pensions and terms and conditions, at the expense of the taxpayer and the economy.

Unless the government cracks down hard on the recidivists in all their forms, I predict that Cyprus is likely to hit another 2013 scale financial crisis within the next five years.

About the author

Dr Alan Waring is an international risk management consultant who has written the Risk Watch column in the Financial Mirror since 2004.

His latest book Corporate Risk and Governance is at https://www.routledge.com/Corporate-Risk-and-Governance-An-End-to-Mismanagement-Tunnel-Vision-and/Waring/p/book/9781138274761.

Contact waringa@cytanet.com.cy

©2016 Alan Waring

Readers' comments

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  • joseph Hunnam says:

    In your article you mention (Sovereign Corruption) I could not agree more with you, had I been aware of this Thirteen years ago I would never of invested my hard earned cash into buying a property in Cyprus.

    As for the Cypriot Developers jumping for joy at the bailout programme ending.

    I certainly do not need any Risk Financial Management to tell me what the likely outcome will be in 5 years.

    Can’t wait

  • Deanna says:

    Excellent article and extremely good comments on this.

  • Peter Davis says:

    I look at those around me who I know have not paid their IPT tax for years 2014 & 2015 and I know won’t be paying 2016. And what has happened to them?

    Well nothing, absolutely nothing and next year this tax will go away. So I’m thinking should I be paying IPT 2016?

  • U-bend says:

    One could be forgiven for thinking that there was something not quite kosher in the Limassol District Office.

    I received a letter from them telling me that the soil sample analysis provided by my developer in order to obtain a Building Permit, has now (15 years later) been found to be incorrect and I should take the matter up with the Developers Civil Engineer.

    Clearly, the Limassol District Office simply issues such permits without any further checks. Is there any wonder houses are on the move in Pissouri.

    One wonders why the said office requires qualified Engineers when the issuing of these documents could obviously done by the Receptionist or the Office Secretary.

  • alex says:

    The main cause of wide spread corruption comes from a “it’s always been like this” attitude. Well it does not have to be like it always was. It can be different and work more for the good of the many instead of the corrupt few.

    The first thing that must be overcome is for politicians to have less money to spend and therefore to waste. Smaller Government brought about by privatising and outsourcing much of what the State tries and fails to do would be a good start. That in itself guarantees nothing if we simply move corruption from the State to the Private sector. However, corruption in the Private sector can be attacked by politicians, whilst corruption in the Public sector is by politicians, that difference matters. So there will be an improvement simply by avoiding the messy hands of state and local politicians, so we should start there.

    Leadership aimed at promoting and preserving the best practices that our western way of life can deliver is important, but remember the further East one goes the harder it becomes to avoid the DNA corruption gene. There is an element of the bazaar in all of us – being selective about which laws to observe and which to ignore seems to be more prevalent the hotter the climate.

    So there is no full-proof solution to corruption and the very people in the White House, Berlin, Brussels, IMF / ECB, EEC, Eurozone etc. who sit and pontificate on how corrupt we are, forget that they are not the innocents that they proclaim to be and often give us directives which appear open, transparent and worthwhile – but can also lead to our economies collapsing with a one size fits all directive rather than what is best for an individual country and it’s culture. The European Union is an excellent example of how the elite mask their own corruption by sounding righteous. It’s what corrupt people are really good at!

    If corruption is to be fought it must start and end with politicians. We’ll get to the rest later – once the taxes are lower, personal income higher and political leaders can be trusted, no matter how small their responsibilities might be! Any attempt to put the Public and Private sectors in the same priority will not work – politicians work for us, not all Private gangsters do.

    We must take our responsibilities to vote for honest leaders very seriously, low information about current affairs and global events are no excuse to make corruption worse by voting for politicians who say one thing and do another.

  • Adrian Wright says:

    I called into CYTA to return a modem as I have now switched to Primetel. when I sat down with the service advisor he took his clipboard with several sheets of paper scanned down, found my name and scored it off. I asked him if they were all people turning to other suppliers he said that they were but did not appear to be worried as no doubt the union had him covered if he sat all day without any customers. Is this a plan to run the business down so that it will be difficult to sell and then only those in the know will step in with a silly offer!!

  • Dunn Good says:

    A Leopard cannot change his spots!

  • Who Gives says:

    Dr. Alan very good article that highlights some of the problems that exist in Cyprus. Now that Cyprus are back to implement there own version of Governance.

    Without the right level of control- guidance to ensure the changes implemented by TROKIA, ESB, EU then it will be all pointless.

    There is a old saying that a ‘leopard never changes it spots’ which in the case of Cyprus, Greece not more you can say.

  • stanno says:

    I agree with the theft as stated in your report starting with Brits, Iranians, Russians and now Chinese. I am a Cypriot living abroad and have lost all my savings to the Cypriot corruption. Will have nothing to do with that Mafia organization ever again.

    I hope Cyprus hits rock bottom. Absolutely hate them for stealing from me the money I have worked and saved for 28 years.

    I am sure some kid with his Father in Government is driving a Ferrari with my money. Hope they all go to Hell

  • sky says:

    I predict it between 2018-2020 (so 3,5 years max).

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