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By Dr Alan Waring
Having highlighted in Part 1 the activities of rogue developers and lawyers in the inglorious Title Deeds/fraud mess in Cyprus, what about others in the cast of characters in this macabre theatre? Where is it all heading? Is there a way out?
THE ATTORNEY GENERAL
Although aspects of Cyprus property law are based in Ottoman law, the administration of justice and Cyprus law in general claims to follow English law and precedents. Therefore, where there is prima facie evidence of criminal activity, then criminal procedures should take precedence over civil. Indeed, in English law it is standard for civil cases to await the outcome of related criminal cases so that a higher standard of proof ('beyond reasonable doubt') has been tested. Cyprus law references, e.g. Neocleous (2000), state that in determining whether actions are fraudulent, the authorities ‘must concentrate on the acts committed and determine whether the taking was deliberate and intentional’. The general ‘lack of intent’ exemption from criminal liability therefore does not apply if there is prima facie evidence that, for example, a developer has (a) received payment from one buyer, kept the money and then sold it again to a second buyer (or, in some cases, more than two!), and (b) refused or failed to return the first buyer's money. However, as the Attorney General has repudiated all this in relation to property offences, the police cannot act. It is puzzling why property crime has been singled out for this special dispensation. Why not also for murder, rape, robbery or blackmail? Why does the Cyprus property establishment use the quaint and trivializing word 'cheating' when they mean 'fraud'? Why are long-winded civil cases forced on property victims before a criminal investigation is allowed, even when strong prima facie evidence of a crime exists? A perverse parody of English law is being acted out, which has not gone unnoticed in legal circles in other countries that actually do follow the English legal system.
THE CYPRUS BAR ASSOCIATION
Ostensibly, the Cyprus Bar Association is the professional body for lawyers and to practise as a lawyer in Cyprus requires CBA membership. The CBA supposedly sets professional standards and a Disciplinary Board exists. However, beyond the window dressing there is precious little evidence that it takes its disciplinary role seriously.
With such a growing number of allegations of professional misconduct, including fraud, against its members, especially in property-related cases, many are asking whether the CBA controllers have even a basic understanding of the purpose, function and duties of a professional body. Early in my career, the Deputy Director General of a UK law enforcement body advised me that a professional body exists primarily to protect the public from the activities of rogues, quacks and charlatans and should never allow itself to fall into the trap of becoming a trade union protecting the interests of its members at the expense of its duties to the public. The contrast between the behaviour of the CBA and the UK’s Law Society, for example, on matters of client allegations of fraud or other misconduct is startling.
Recently, Antonis Loizou, a high profile member of the Cyprus property establishment and a regular commentator on property matters, asked in the media why there appeared to be such a disproportionately high number of cases of allegations of fraud and misconduct against Paphos lawyers. The implication of an alleged cabal of rogue lawyers operating in Paphos is disturbing enough in itself. The deafening silence from the CBA on the matter is even more disturbing. One would expect a professional body to act swiftly and publicly at the merest hint of impropriety.
THE BANKS
There is also the question of the banks’ role in the whole sorry property mess in Cyprus. As the recent Toscafund Asset Management report on Cyprus emphasized, Cyprus banks are vulnerable to the continuing further slide in property values which may involve a sharp correction. The banks would then be forced to either liquidate immovable property at fire-sale prices or extend loans but with the risk of creating a massive toxic debt bubble already thought to be in excess of EUR 7 bln.
However, just as they were only too happy to grant developers further mortgages on properties already sold, banks are still willing to extend developer loans even those that are clearly distressed or delinquent. Such loan extensions are encouraging greedy developers to maintain artificially high prices (at least 30% too high). The 90-day foreclosure procedures are supposed to kick-in on defaulters but rarely do in Cyprus. Even establishment figures in the property market such as Antonis Loizou have been calling for developer foreclosures by the banks so as to bring Cyprus into line with the rest of the developed world.
WHERE ARE THE ‘HONEST BUT SILENT’?
It is often said that the only thing necessary for the triumph of evil is for good men to do nothing. From what I know, there are decent developers, lawyers and agents in Cyprus who hate what they see going on among the 'bad guys' and the conspiracy of convenience with a grossly inefficient government administration; but they are scared to go public. Many of them tell me how much they admire what the Cyprus Property Action Group has done. We need to hear more public statements of support from the 'honest but silent' so as to publicly identify and isolate the wrongdoers. If a cabal of dishonest lawyers exists, for example, why does a cabal of honest lawyers not stand up and denounce the ‘bad apples’ and insist that the CBA throws them out?
Without unequivocal action from those developers, lawyers and agents who do have integrity, I fear that Cyprus will continue to carry a general stigma that will continue to harm the economy.
A WAY FORWARD?
The damage to the property market inflicted collectively by bad developers and their lawyer cronies and the weak and flaccid authorities can only be countered by sustained action on the whole 'system'. That includes the government stopping the banks in Cyprus from extending developer loans when they clearly have no means to repay.
CPAG has already advised the Interior Minister of a tried-and-tested formula to save developers from bankruptcy and all the terrible effects on buyers and the economy. The Irish government, with full EU backing, has instituted a compulsory developer debt purchase scheme. A National Agency (using existing civil servants) to supervise the Cyprus property developer debt bubble and loosen the constipation of the market and tax revenues would also be a positive step in the gathering crisis.
The longer-term culture change at the population and industry levels will require time and persuasion. Bringing individual rogues to account in specific cases, however, warrants more immediate action and of a different kind. Unfortunately, the current attitude of the Bar Association and the Attorney General makes redress, both criminal and civil, that is normal in other EU countries, hard to attain in Cyprus.
The ‘appeasement of wrong-doers’ argument favoured by some apologists is without merit and will only encourage bad developers and crooked lawyers to continue to ride roughshod over their luckless clients. Throughout history, appeasement of power-abusers and bullies of any kind has rarely worked. They can only be contained or crushed, not bought off or negotiated with. Pressure and persuasion of the right kind do work. 'Naming and shaming' is one tactic against individual wrong-doers, which eventually hits them in the pocket if they fail to remedy the wrongs or to change for the good. If the professional bodies and the justice system fail to identify and root out dishonesty, it is likely that an angry and emboldened public will do it themselves. A number of developers and lawyers who are alleged to be ‘bad apples’ have been identified on a variety of websites and blogs. Ultimately, there is no hiding place.
Apart from culling the ‘bad apples’, what is also needed, in effect, is an embedded cultural change in the property industry and the wider population. This will take many years. It can't be bludgeoned into people. Changing deep-seated attitudes and behaviours in a whole population can only come about if the population sees clear benefits from the change, i.e. enlightened self-interest. Remember, the problem of rusfeti, 'cheating' i.e. fraud, cigar-cigar and laissez-faire does not just involve neatly packaged groups such as 'bad developers', 'dodgy lawyers', 'low integrity bankers' and 'incompetent and inefficient civil servants'. These entities exist and flourish in a wider society that nourishes them. The carrot is Cyprus’s return to economic prosperity and a respected status as a high integrity/high reputation investment location. The stick is economic decline and a low reputation among foreign buyers and investors.
A twin-track approach is needed involving the faster-paced pressure from CPAG, the EU, foreign governments, international media, etc. plus pro-active peer pressure from the honest but thus far silent individuals within the industry itself.
CONCLUSION
One might imagine that the Cyprus property market's current Ice Age might have already concentrated minds and galvanized action to attract foreign buyers back by the industry cleaning up its own mess. It was not compulsory that mastodons and dinosaurs should survive a sudden and lengthy change in climate. It is not compulsory that the Cyprus property market should survive a sustained loss of customers.
Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. Contact [email protected] .
©2010 Alan Waring
