Cyprus launches criminal probe to dig deeper into financial collapse

Friday 05 July 2013 13.22
Deeper probe into Cypriot banking problems
Deeper probe into Cypriot banking problems

Criminal investigators will help judges in Cyprus dig deeper into what caused a financial crisis that forced it to ask for a bailout by  lenders.

An inquiry into Cyprus' financial practices led by three former Supreme Court judges has been limited by their refusal to delve into areas which could become subject to lawsuits, such as possible failures in corporate governance and acquisitions.

"The issues raised (by judges) can be resolved by inquiries which will be handled by criminal investigators," said Ionas Nicolaou, Cyprus's Justice Minister.

Cypriot authorities were forced to seize uninsured deposits at its two main banks in March to qualify for €10 billion in aid from international lenders, the first time bank savers were singed in the euro zone crisis.

Islanders still live under capital controls, also a first in the history of the euro zone.

Problems on Cyprus, which joined the euro zone in 2008, snowballed into the winding-down of Cyprus's Laiki Bank under a mountain of debt and a large chunk of deposits exceeding €100,000 being converted to equity to prop up Bank of Cyprus.

The scope of the inquiries covers the expansion into Greece, corporate governance, and why Cypriot banks bought large quantities of Greek bonds.

Cypriot banks lost about €4.5 billion when European Union leaders agreed in late 2011 to a Greek debt writedown, designed to make that country's debt burden more sustainable.

They will also assess regulatory supervision, decisions by banks to write off loans, the soundness of fiscal policies, the conditions under which the bailout was negotiated, and whether central bank regulations were followed by commercial banks.

An independent assessment into banking practices last week said Cyprus's banking crisis was caused by a lack of coherent national policy.