Just as I was getting used to thinking of Cyprus as the Mediterranean clime where Hezbollah agents go to spy on ‘the Jews’ and Rami Makhlouf is granted citizenship, I awaken to the fact that future of the eurozone may in fact depend on the good graces of Vladimir Putin. An island nation with a ten percent corporate tax rate and no-questions-asked banking protocols is hardly the new “sick man of Europe,” as it’s been called. It’s a national Rick’s Cafe, where everyone professes himself shocked, shocked to discover that illicit or suspect activities have been going on all this time.
The oligarchs may cut the first check, but they’ll still have the last laugh. Russian wealth now accounts for a third of Cyprus’ entire banking sector, with Russian commercial, institutional, and individuals’ deposits – some 31 billion USD – exceeding Cyprus’ GDP. Much of this money is thought to have been stolen or laundered. There are, according to a leaked and much-discussed German intelligence assessment, around 40,000 shell companies in Cyprus, all registered with no background checks as to where their capital came from. Larnaca was a popular landing post of many of the state officials and mafiosi involved in the 230 million USD tax fraud perpetrated against the investment bank Hermitage Capital. The fiasco culminated in the arrest, murder and now posthumous trial of Sergei Magnitsky, the whistle-blowing attorney who exposed the fraud and was then blamed for masterminding it. In a perverse twist of irony, Ivan Tchakarov, the chief economist at the Russian investment bank Renaissance Capital, told Sky News that about 40 percent of capital outflow leaving Russia is “corruption money.” He did not add that Igor Sagiryan, a former president of Renaissance Capital, has been implicated in the transnational crime group behind the Hermitage fraud and Magnitsky affair.
Nicosia has harbored no reservations about becoming a warm-water oblast of the Russian Federation. In September 2010, 25 foreign businessmen were granted Cypriot citizenship. Most of them, according to the Cyprus Mail, were Russian. This includes billionaire Alexander Abramov, the second biggest shareholder in Roman Abramovich’s steel and mining giant Evraz, which is listed on the London Stock Exchange. As Cyprus’s then-interior minister put it, Abramov had rendered “the highest level of service to the Republic of Cyprus” by arranging for Evraz’s purchase of stakes in several Cypriot enterprises. According to a British High Court judgment from 2008, Abramovich himself uses the Cyprus-based company Meritservus as a nominee or director for many of his own pseudonymous entities, especially those that control his “livery,” which is to say his mega-yachts and helicopters.
Cyprus has a population of around 800,000; the per capita income is around 27,000 USD. So it won’t shock you to discover that most of the deposits in Cypriot banks in excess of 130,000 USD are foreign deposits. For Russians, an austerity troika used to consist of the names Bukharin, Rykov, and Tomsky. Today, they’re the European Commission, European Central Bank, and the International Monetary Fund, all of which decided that it should be the foreign depositors – chiefly, the Russians; specifically, the billionaire oligarchs – who ought to assume most of the burden of any bailout package necessitated by Cypriot banks’ reckless investment in Greek bonds.
On Tuesday, the Cyprus parliament resoundingly rejected the treatment prescribed: a 13 billion USD IMF/EU credit, offset by a 7.5 billion USD tax (or ‘haircut’) on bank deposits, with a 9.9 percent tax on all deposits above 130,000 USD and a 6.75 percent tax on smaller ones. A late revision to the plan, offered by the newly elected center-right president Nicos Anastasiades, stipulated that no deposits under 25,800 USD would be taxed at all (presumably, this was a vain flirtation with populism as the average Cypriot probably does not have in his checking or savings account more than he makes in a year.) In effect, the Russians were being asking to pay a 2 – 3 billion USD bill to rescue one of their preferred offshore tax havens. As Moscow-based oligarch watcher John Helmer put it on his blog, the troika’s program constituted “one of the biggest attacks on Russian financial interests since the US and the NATO alliance went to war in Libya, killing Russian arms supply charges, infrastructure contracts, and past-due state debt.” So while Angela Merkel might not do humanitarian interventions in the Middle East, she still knows how to hit Putin where it hurts the most.
For his part, the king of the Kremlin has ostensibly declared war on his subordinates’ keeping assets offshore, yet now rejects an initiative that would certainly speed ‘de-offshoreization’ along nicely. He called the EU/IMF plan “unfair, unprofessional and dangerous” even as his own deputy minister of finance thought the package was the best that Cyprus could expect to get under the circumstances. Cyprus Finance Minister Michalis Sarris is now rumored to be traveling to Moscow to see if Russia will extend the terms of a four-year loan it previously made to Cyprus for 3.2 billion USD (at an interest rate of 4.5 percent) and to possibly even offer the Kremlin a buyout stake to one of the most imperiled national banks, Laiki. Gazprombank, the financial arm of the largest gas company in the world, is reported to be eyeing Laiki in the hopes of profiting from Cyprus’s natural gas reserves. But for every long-term prospect, there’s a short-term condition. On Wednesday, Sergei Glazyev, an advisor to Putin, suggested that if Russia were to finance Cyprus’s debt restructuring, then Cyprus should fall under Russian jurisdiction.
