Kostikov's Disclosure Revelation Upsets Cyprus Central Bank

by Tatiana Smolenska, Tax-News.com, Moscow

26 March 2003

The Russian Federal Securities Commission has found itself embroiled in a diplomatic row following comments allegedly made by its chairman, Igor Kostikov concerning the disclosure of information by the Cyprus Central Bank.

Kostikov was recently quoted as announcing that the Cyprus Central Bank had been fully disclosing to Russia's FSC the beneficial owners of companies operating in Cyprus. The reason why the remarks - which Kostikov subsequently denied making - caused such controversy is because many lawyers and investors read between the lines that Kostikov was inferring the Cyprus Central Bank was infringing its own rules on the matter of disclosure. A rebuttal of the allegations was swiftly issued by the bank.

In a statement released on its website, the Cyprus Central Bank said that the flow of information was strictly limited to that which is necessary for both countries to perform their minimum regulatory obligations.

The FSC and the Cypriot Central Bank signed an accord last year which facilitates the exchange of information on companies from either country that provide investment services to the public. However, this information cannot be obtained without consent of the owners and even then, according to the Central Bank statement, it does not apply to many of the offshore Russian firms registered on the island.

According to accounting giant Ernst and Young, which has a presence on the island, the Central Bank has not changed its policies or practices with regard to the exchange of information since the agreement was signed. "Under Cypriot legislation, it would not disclose information about the beneficial owners of any company set up in Cyprus unless there is a court decision in cases of fraud, money laundering or criminal proceedings," Neophytos Neophytou, a tax partner at the firm, told the Moscow Times.

Reports of Kostikov's comments have led to intense speculation as to the exact meaning of his words. Some attribute a sinister political motive with the elections to the state Duma around the corner, whilst others think that the chairman was merely flexing his muscles in a display of the FSC's apparent power.

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