NICOSIA - The festival atmosphere on this sunny morning in Nicosia doesn’t match the bad vibes coming out of Brussels. The Faneromeni church in the heart of Cyprus’s capital is decked out with garlands made of hundreds of blue and white Greek flags and Cypriot flags with the shape of the island nation depicted in gold on a white background.
March 25 is Greece's national day, and Cyprus traditionally celebrates along with its neighbor. But the harmony could soon be a thing of the past – and that has a lot to do with what just happened in Brussels.
"It’s a shock," says Zinonas Pophaidis as he orders a cup of bitter mocha coffee. The 62-year-old economist was up until 3 a.m. watching TV, and up again at 6 a.m. to watch some more. "I didn’t want to miss anything," he says.
And in the bright light of this Monday morning, just how high a price Cyprus will pay to be saved from bankruptcy has started to sink in. "For many businesses this is going to be a tragedy -- how are they supposed to pay their workers’ salaries?" Pophaidis, who also works as a consultant, asks. "About 70% of business life here depends on the two biggest banks” – and those, at least in their old form – will no longer exist.
The smaller of the two, the long insolvent Laiki Bank, will become a "bad bank," a collection pot for bad loans. Laiki’s “good” part will move over to the Bank of Cyprus where, however, anyone with deposits over 100,000 euros will see at least 30% of it converted to bank shares. "On top of it we’re paying for part of the Greek crisis," the economist says.
This is because of the Laiki Bank, which got 9 billion euros in emergency funding from the European Central Bank (ECB) but then turned over about two-thirds of it to its floundering Greek subsidiary – that was then taken over by the Greek Piraeus Bank.
But it’s the Bank of Cyprus that has to pay the EBC back. "A huge burden," groans Pophaidis. "Unemployment is going to rise, recession could reach 20% – it’s like the aftermath of a war."
Nevertheless: the bailout package is in the bag, and Cyprus appears to have been saved. But when the banks open again on Thursday, chaos could be unleashed – which is why they’re staying shut for the time being. Cypriot President Nikos Anastasiadis has also announced temporary restrictions on capital flows.
State-television uses more circumspect language than Pophaidis to describe the situation. A moderator spoke of a "new era" for Cyprus. But he might as well have spoken of a new era for Europe, because what’s going on in Cyprus right now has happened in no other crisis-stricken country.
"A week ago, I woke up and thought, "hey, what the hell’s going on here?"" says a young woman who introduces herself as Elena. The 23-years-old is very angry. As a Cypriot she feels "humiliated." She doesn’t place much stock in the country’s conservative president and believes that the "government should have accepted the first package, then we would have all paid, it would have been better."
Down the river
Many people are saying that now: that the first bailout package – a levy on all accounts in return for 10 billion euros from Brussels – would have been a better deal. However, the package was met with protest – mainly from members of Cyprus’s communist party, the Progressive Party of Working People (AKEL). Hundreds of bank employees also protested the dissolution of the Laiki Bank, and there were also small spontaneous street protests. Fifty youths carrying Cypriot flags and a megaphone marched through Ledra Street in the downtown pedestrian zone proclaiming: "We’ve been sold down the river!"
The English-language newspaper Cyprus Mail wrote that they had been receiving advertising requests from foreign financial consultants offering their services – including money transfers to Asia. Another ad in English, Russian and German, read: "Manage your assets in Germany." Cyprus Mail didn’t print the ads, just reported on them. The “vultures are circling over Cyprus,” was their comment.
Economist Pophaidis had "as pure luck would have it," deposited his money in the island’s third largest bank, the Hellenic Bank, a major shareholder of which is the Cypriot Orthodox Church. Archbishop Chrysostomos II announced that he was planning to sue all those responsible for the disaster -- including former finance ministers, Central Bank brass, bankers, and former government officials. "I am not going to leave anyone out," he vowed.
Days ago, he had advised the present government to withdraw from the euro zone. But that wouldn’t have helped the situation because then not even the ECB could have helped Cyprus, whose bank sector will now be scaled back – a move Cyprus’s own Central Bank has deemed necessary for a while now. The bank's website states that it recently mandated a study in this regard.
On Sunday night, a man – a foreigner, but not a Russian – who had tried to kill himself was rushed to one of the capital’s large hospitals by ambulance. He had apparently lost 90% of his wealth. "Many people came to Cyprus to do business and to live here – that’s not illegal," says Michalis Attalidis. He is a former Cypriot ambassador posted in Paris, London and Brussels, now rector of the University of Nicosia. He predicts that many foreigners will leave Cyprus, and that their departure will further deteriorate the economy.
Already now, some 50,000 people are out of work, and "will be seeing only six months worth of unemployment benefits." The government urgently needs to extend the six-month timeframe and also to make use of the solidarity fund parliament has just approved, says Attalidis adding: "We have no idea what’s going to happen to us. It’s like being in a bubble."
It is today a proven fraud, nailed by the French stock market watchdog: Air Next resorted to a full range of dubious practices to raise money for a blockchain-powered e-commerce app. But the simplest of errors exposed the scam and limited the damage to investors. A cautionary tale for the crypto economy.
PARIS — Air Next promised to use blockchain technology to revolutionize passenger transport. Should we have read something into its name? In fact, the company was talking a lot of hot air from the start. Air Next turned out to be a scam, with a fake website, false identities, fake criminal records, counterfeited bank certificates, aggressive marketing … real crooks. Thirty-five employees recruited over the summer ranked among its victims, not to mention the few investors who put money in the business.
Maud (not her real name) had always dreamed of working in a start-up. In July, she spotted an ad on Linkedin and was interviewed by videoconference — hardly unusual in the era of COVID and teleworking. She was hired very quickly and signed a permanent work contract. She resigned from her old job, happy to get started on a new adventure.
Others like Maud fell for the bait. At least ten senior managers, coming from major airlines, airports, large French and American corporations, a former police officer … all firmly believed in this project. Some quit their jobs to join; some French expats even made their way back to France.
Share capital of one billion
The story began last February, when Air Next registered with the Paris Commercial Court. The new company stated it was developing an application that would allow the purchase of airline tickets by using cryptocurrency, at unbeatable prices and with an automatic guarantee in case of cancellation or delay, via a "smart contract" system (a computer protocol that facilitates, verifies and oversees the handling of a contract).
The firm declared a share capital of one billion euros, with offices under construction at 50, Avenue des Champs Elysées, and a president, Philippe Vincent ... which was probably a usurped identity.
Last summer, Air Next started recruiting. The company also wanted to raise money to have the assets on hand to allow passenger compensation. It organized a fundraiser using an ICO, or "Initial Coin Offering", via the issuance of digital tokens, transacted in cryptocurrencies through the blockchain.
While nothing obliged him to do so, the company owner went as far as setting up a file with the AMF, France's stock market regulator which oversees this type of transaction. Seeking the market regulator stamp is optional, but when issued, it gives guarantees to those buying tokens.
The infamous typo that brought the Air Next scam down
Raising Initial Coin Offering
Then, on Sept. 30, the AMF issued an alert, by way of a press release, on the risks of fraud associated with the ICO, as it suspected some documents to be forgeries. A few hours before that, Air Next had just brought forward by several days the date of its tokens pre-sale.
For employees of the new company, it was a brutal wake-up call. They quickly understood that they had been duped, that they'd bet on the proverbial house of cards. On the investor side, the CEO didn't get beyond an initial fundraising of 150,000 euros. He was hoping to raise millions, but despite his failure, he didn't lose confidence. Challenged by one of his employees on Telegram, he admitted that "many documents provided were false", that "an error cost the life of this project."
What was the "error" he was referring to? A typo in the name of the would-be bank backing the startup. A very small one, at the bottom of the page of the false bank certificate, where the name "Edmond de Rothschild" is misspelled "Edemond".
Before the AMF's public alert, websites specializing in crypto-assets had already noted certain inconsistencies. The company had declared a share capital of 1 billion euros, which is an enormous amount. Air Next's CEO also boasted about having discovered bitcoin at a time when only a few geeks knew about cryptocurrency.
Employees and investors filed a complaint. Failing to find the general manager, Julien Leclerc — which might also be a fake name — they started looking for other culprits. They believe that if the Paris Commercial Court hadn't registered the company, no one would have been defrauded.
Beyond the handful of victims, this case is a plea for the implementation of more secure procedures, in an increasingly digital world, particularly following the pandemic. The much touted ICO market is itself a victim, and may find it hard to recover.
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