ECONOMY

Plans to curb bank secrecy won’t affect foreign deposits

NICOSIA (Reuters) – Cyprus said yesterday plans to curb banking secrecy as it prepares to join the European Union would not affect foreign deposits or firms on the island, a center for hundreds of offshore companies. Commercial banks have expressed misgivings over a bill pending in Parliament which would compel them to identify secret bank account holders, and say it could trigger a flight of capital. Cyprus needs to introduce the law to be in line with practice followed in the EU, which it joins in May 2004, and to curb tax evasion. «A partial lifting of banking secrecy does not concern nor will it affect foreign deposits or foreign companies in Cyprus since they are excluded from the scope of the proposed law,» the central bank and the Finance Ministry said in a statement. The bill will apply to Cypriot nationals only and will cover both local and foreign-currency denominated secret accounts they hold. The vast majority of secret holdings are thought to be in Cyprus pounds. «This won’t affect foreign businesses. We do not think they have secret accounts anyway,» a Finance Ministry official told Reuters. Banks say the proposal is ill-timed. It will coincide with Cyprus dismantling capital controls and they fear the move could pressure the Cyprus pound, the national currency. Business groups also worry that authorities’ plans to exclude foreign entities may be temporary, since the practice could be deemed discriminatory by Brussels. «If it doesn’t apply to non-residents, then it shouldn’t really matter to them. The issue is whether that (exemption) will be accepted by the EU. There are a lot of questions,» said Chris Koufaris of the offshore companies’ association. The legislation would give the tax authorities access twice a year to bank accounts whose holders are now identified only by serial numbers and known only to individual banks. The practice of making secret bank accounts available is not officially sanctioned by authorities, but they have tolerated it. «We have given the banks a grace period until May 2004 to stop this,» the Finance Ministry official said.