The Cyprus Securities and Exchange Commission (Cysec) has been spurred into action by the allegations, made last week by Paphos mayor Phedonas Phedonos, about links between Cyprus-based foreign exchange firms and South American drug cartels. Although the mayor did not substantiate his allegations, Cysec still said on Tuesday it was “taking practical steps to collect all the data and information” needed to decide whether to proceed with an investigation.

As the Commission pointed out, the foreign exchange market “is the largest and most liquid market in the world,” and financial groups held multiple licences in different jurisdictions. There was no single supervisory authority for this market, but Cysec acknowledged that it has “a responsibility to supervise domestic investment firms providing investment services in the foreign exchange market in Cyprus.” If there was concrete evidence of non-compliance with the laws, there would be an investigation.

This was a direct response to Phedonos, who, returning to one of his favourite themes – of Cyprus being a market of high drug consumption – last week claimed Cyprus was “entering the international money laundering system of Latin American drug cartels.”  He asked: “Why do some forex companies based in Cyprus set up subsidiaries in Latin American with a large client base in these countries? Why are the supervisory authorities of Cyprus allowing the movement of money without investigating the source of the money?” He said the authorities had an obligation to investigate the movement of the money.

Police chief Themistos Arnaoutis invited the mayor to go to the police and give a statement about all the information he had, something that has not happened yet. Press reports suggested there would be a meeting in Paphos at a date and time that would be chosen by the mayor. Unless the mayor, provides the police with concrete evidence to back his claims, which at present appear to be nothing more than wild allegations, there would be no investigation.

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Of course, neither the police nor Cysec could have ignored what an elected official said in public, even though his claims were not backed by a shred of evidence. It is difficult to understand why Phedonos chooses to make such allegations and speak with such certainty about them. Forex companies have subsidiaries all over the world, and that they have some in South American countries does not mean they are engaging in money laundering for drug cartels from those countries. Even his assertion that “Cyprus is a high consumption drug market,” is does not stand up to reason. Can a country of a million people really be regarded as a high consumption drug market for drug cartels?

Phedonos is a brave politician, who has won respect by exposing several big scandals in the past (Turkish Cypriot properties, sewage board, waste treatment plant). Allegations that he cannot substantiate can only harm his political standing and respect he has rightly earned.