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Money Laundering Curbs in Cyprus may cost an Energy Supply Cut-off

Money Laundering Curbs in Cyprus may cost an Energy Supply Cut-off

Money Laundering Curbs in Cyprus may cost an Energy Supply Cut-off

The Cyprus Bailout deal has been described as a covert move by Germany and its Eurozone partners to tackle what they perceive as Russian money laundering in Cyprus. European policy makers must weigh how far to push Cyprus after lawmakers in the Mediterranean nation rejected an unprecedented levy on bank deposits, throwing into limbo a rescue package designed to keep it in the Eurozone. Luxembourg Finance Minister Luc Frieden called for the 17 euro-area finance ministers to reconvene “as soon as possible” to cobble together a new package. The ECB Governing Council meets today to decide whether to give Cyprus more time or consider cutting off liquidity to the country’s banks. It was proposed earlier that Cyprus could meet its target of generating 5.8 billion euros by imposing a 15.6% levy on bank deposits of more than 100,000 euros and no levy on deposits below that amount. The levy, part of the 10 billion-euro rescue package, initially called for a tax of 6.75% of all deposits up to 100,000 euros and 9.9% above that. European Union-imposed levy on Cyprus bank deposits would risk a restructuring of a 2.5 billion-euro ($3.2 billion) Russian loan to the Mediterranean island. A double-tax avoidance treaty and low tax rates have made Cyprus the conduit of choice for Russians moving money into and out of their country. Including bank deposits and loans to companies registered in Cyprus, Russia’s exposure is about $60 billion, Moody’s Investors Services estimates. In June, Cyprus became the fifth country in the Eurozone to request an international bailout after lenders got caught up in the debt restructuring of Greece’s banks.

Alleged Money Laundering in Cyprus:

Cyprus is still waiting for funding amid EU fears that the island is a haven for Russian dirty money. Such fears are particularly strong in Germany and will need to be assuaged if Berlin is to back a bailout. In 2011, Cyprus was the number-one destination for Russian money being sent abroad and the number-one direct investor in Russia, with more than $13 billion in investments, according to Russia’s Central Bank. “From an economic perspective,Russia and Cyprus are so intertwined,Cyprus could almost be another region of the Russian Federation,” said Steven Dashevsky, founder of Dashevsky & Partners, a Moscow investment company. Russian accounting and law firms recommend the island as a legal tax haven thanks to its 10 per cent flat tax rate, while the Cypriot legal system, based on English law, is often more appealing to Russian groups than the local alternative. A number of cases have raised questions about the type of Russian money that Cyprus attracts and how well anti-money laundering regulation is enforced. The most-publicized allegation of Money Laundering in Cyprus is linked to the story of Sergei Magnitsky, a Moscow lawyer who accused Russian officials of a $230 million tax fraud before being thrown into prison, where he died in 2009. According to detailed allegations by Mr Magnitsky’s former employer Hermitage Capital, an estimated $30 million of illicit funds from the tax fraud went abroad through Cypriot banks. This is one of the few instances where there have been detailed and explicit allegations of Russian money laundering in Cyprus. Yet there have been other cases where the activities of Russian corporations in Cyprus have attracted scrutiny.

Russia on the EU’s Cyprus Bailout Deal:

“The EU should look for a solution with Russia through joint negotiations and not unilaterally,” former Finance Minister Alexei Kudrin told reporters in Moscow. “If it’s done unilaterally, then Russia will be less accommodating about the conditions of the restructuring.” While partial losses for depositors are inevitable, the Cypriot authorities should negotiate a deal with account holders, he said. Russia may reconsider its role in the Cyprus bailout because it wasn’t consulted about the bank tax, Finance Minister Anton Siluanov, who succeeded Kudrin at the post, said yesterday, reported Bloomberg. He said last month that Russia was willing to restructure the 2.5 billion-euro loan it provided in 2011 and possibly agree to a lower interest rate. Cypriot President Nicos Anastasiades is trying to persuade lawmakers to back the plan to impose losses on the nation’s depositors as part of a 10 billion-euro rescue aimed at preventing a financial collapse and a possible departure from the Eurozone.

Russia could use Arm-twisting over Cyprus Issue

Russia could use Arm-twisting over Cyprus Issue:

Russia’s leaders have already condemned the European Bank levy proposal, with President Vladimir Putin calling it “unfair, unprofessional and dangerous” on Monday. On Tuesday, Russian Prime Minister Dimitry Medvedev added to the growing Russian frustration over the move. “Quite strange and controversial decisions are being made by some EU member states. I mean Cyprus. Frankly speaking, this looks like the confiscation of other people’s money,” Medvedev said on Monday. Germany might be telling the world not to blame it for Cyprus’ bailout plan, but one analyst told CNBC that Russia could avenge the loss of billions of dollars it has invested and deposited on the island by cutting Germany’s energy supply. This bailout agreement has Germany’s political fingerprints all over it,” Nick Spiro, head of Spiro Sovereign Strategy told CNBC Europe’s “Squawk Box.” “If Germany’s aim was that the larger deposit holders, the Russian ones, were going to bear the brunt of this, then obviously it’s backfired,” he added. Steve Keen, professor of Economics & Finance at the University of Western Sydney, told CNBC that Russia could retaliate against the perceived proxy attack on its citizens, and their money. “If you try to target the Russians, and there’s President Putin acting under the image of the ‘strong man’ of Russia, why would he not then decide to shut down gas supplies to Germany until that was righted? “If you’re going to attack money laundering then attack it directly, don’t make Cypriot peasants and small businessmen collateral in your campaign against Russian oligarchs. Declare the campaign rather than doing it under the carpet like this too,” he added, reported CNBC. With 36% of Europe relying on Russia for its gas supply, the threat or act of limiting supplies gives Russia a powerful card to play should it wish to push home a political point against Germany. The card has been in play before when Russia’s largest state-owned gas and oil supplier Gazprom reduced gas supplies to Europe in 2009 during a dispute with an Ukrainian energy company. Steve Keen said that the proposal was tantamount to “blowing the brains out of capitalism” and such a proposal would destroy the euro and the idea of a monetary system. “If you destroy the trust that depositors have in their bank accounts, you fundamentally destroy the oil of capitalism.” Against a backdrop of protests in Cyprus and sharp declines in global equity markets on Monday, German finance minister Wolfgang Schaeuble attempted to deflect blame from his country, saying the solution had not been a German idea and that he was open to it being changed.

Why Russia is irate about the Cyprus bank tax – CNNMoney

Russian expat invasion of Cyprus also has sinister overtones – The Guardian

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