The recent announcement by the Cypriot government regarding the levy on savings accounts has caused a bit of a stir, to say the least, even though it’s now been defeated.
Depending on your vantage point, it can be seen as an unlawful expropriation of assets or a desperate measure to secure the EU bailout package, or somewhere in between. But whatever your stance, the overriding concerns must be:
1. At what cost (in terms of national and international confidence)?
2. And will it set a precedent for other governments facing similar economic problems? I am sure other governments will be observing the ripples closely, anxious to avoid a tsunami on their own shores.
While bank bashing is currently all the rage (both onshore and offshore), it’s a salutary reminder to those looking for a depositary jurisdiction to consider all the pros and cons – not just fiscal – of the recipient jurisdiction.
To the layman, it might appear that the sunnier the clime, the lower the tax rate, which certainly has its appeal. However, as recent events have shown, it is vital to look closely at political stability and robust regulation as well as the fiscal climate when forum shopping.
As Marios Skandalis (perhaps an unfortunate surname in the circumstances), vice president of the Cyprus Institute of Certified Public Accountants, points out: “The whole banking system is based on trust. If the trust is lost, the whole system is going to collapse.”
This must be a lesson for everyone. Surely a banking system based on rigorous financial regulation and complete transparency rather than trust, would fare better? Then the (incorrect) analogy between the atmospheric climate and the economic climate would no longer be drawn.
Sophie Mazzier is counsel at private client firm Maurice Turnor Gardner LLP
This blog first appeared on Spear’s.