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Originally published Saturday, March 23, 2013 at 9:05 PM

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Russian depositors worry about funds in Cyprus

For Russians, the appeal of banks in Cyprus stems from their lower taxes and service fees, flexibility, reduced paperwork and no-questions-asked approach. The island has also long been considered a money-laundering hub for wealthy Russians.

The New York Times

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LIMASSOL, Cyprus — Andreas Marangos, a Porsche-driving lawyer in Limassol, had just waked up when he heard news that threatened to destroy his and Cyprus’ most lucrative business: setting up shell companies and providing financial services for wealthy Russians.

He rushed to his computer to check whether the “crazy talk” he had heard was true: In talks with international lenders in Brussels, his government had agreed last week to effectively confiscate 9.9 percent of the wealth of anyone holding more than about $130,000, in any Cyprus bank.

This minuscule nation is engulfed in an acute financial and banking crisis that many experts think will end its days as an offshore money center.

Amid furious debate over whose deposits should be confiscated and how much, Cypriot officials were working feverishly Saturday to come up with a way to raise the $7.5 billion required by European lenders by Monday in return for a bailout.

Marangos, however, had more personal concerns. “Since last Saturday, we are just answering calls from angry clients,” said the lawyer, whose firm has helped hundreds of Russians and Ukrainians register 6,000 companies in Cyprus so they can avoid taxes at home, enjoy the benefits of a sound and previously predictable legal system overseas and, they hoped, keep their money safe.

Cyprus became the center of Europe’s financial crisis last week when the plan to seize money from bank depositors sent swarms of panicked residents to ATMs to try to withdraw their money.

With about 1.1 million people and a gross domestic product of only $23 billion, the Republic of Cyprus makes an unlikely strategic prize. But it sits atop a web of overlapping and potentially volatile fault lines — between east and west, the European Union and Russia, and Greece and Turkey, whose troops occupy the northern part of the island. It also has natural gas off its coast toward Israel, although nobody knows how much.

The possibility of significant reserves has raised hope in Brussels, and fear in Moscow, that Cyprus could help break the European Union’s dependence on Russian-supplied gas.

Cyprus has until now frozen out Russian interests from offshore-gas concessions. In talks last week in Moscow over a possible loan to Cyprus, Russia made clear it expected a piece of the gas pie for its own companies, according to Cypriot officials and politicians. The Moscow talks yielded no deal,

According to a recent poll by Cyprus’ Sigma television, the public mood has turned against Europe and toward Russia. More than two-thirds of those surveyed agreed Cyprus should drop the euro and move closer to Russia because of the “behavior of our European partners.” Protesters outside Parliament last week waved banners cursing the European Union and Chancellor Angela Merkel of Germany.

With Cyprus’ banks closed for more than a week and the country plunged into uncertainty, fear-driven rumors have become the main coin of the realm.

As a team of EU experts set up camp in Nicosia to try to resuscitate the bailout package announced in Brussels on March 16 and declared dead on arrival by the Cypriot Parliament, a Russian-language radio station led its news bulletins with reports of a “direct strike against Russia’s position” in the Mediterranean by U.S. Secretary of State John Kerry.

The report, on Russian Wave radio, said Kerry had telephoned Cyprus’ finance minister and told him the U.S. was ready to help, as long as Cyprus guaranteed a bigger role for the United States in gas concessions and raised the levy on large foreign depositors, many of them Russians, to 15 percent.

U.S. officials said they knew of no such call by Kerry.

There are more than 50,000 Russian-speakers from across the former Soviet Union living in Cyprus, according to the Association of Russian Businessmen in Cyprus. Many live in Limassol, or Limassolgrad, as some call it.

The city has two Russian-language newspapers, dozens of shops selling Russian products and a memorial to Russia’s national poet, Alexander Pushkin, in a seafront park.

Billboards in Russian hawk luxury property developments and inexpensive sightseeing tours.

Most Russians who live in Cyprus full time are of modest means and they resent a widespread view of Cyprus as a haven for Russian crooks and dirty rubles.

“We are not criminals, arms dealers or bootleggers,” said Sergey Ivanov, a Russian who runs a wine business in Limassol.

“There is a generation of Russian businessmen like me who have lost faith in the Russian government, in Russian banks and in Russian laws. That is why we are in Cyprus.”

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