Cyprus – Awash With Russian Money

The example of Cyprus clearly shows the urgent need for a more integrated and better regulated EU economic structure. The small island is awash with Russian money, the origins of which are dubious. 

By Eleni Courea

* This article, along with the image, was originally published by Project for Democratic Union

Cyprus. With a population of just over a million, the island primarily conjures images of sandy beaches, salty halloumi cheese and UN peacekeeping troops on idle patrol in the midday sun. There’s not much industry or agriculture, and very little to export. Yet, the islanders enjoy a very comfortable standard of living – the 23rd-highest in the world according to The Economist – dependent on an annual 3 million tourists and a 120-billion-dollar financial industry.

But it wasn’t sun or sand that splashed the wonky-shaped Mediterranean island onto the front pages of virtually every major international newspaper. On 24 March 2013, The Economist ran an issue depicting Cyprus as a sinking ship in shark-infested waters, with a headline borrowed directly from Jaws 2: “Just when you thought it was safe…”. It was a story we’d all heard before: the banks were in deep trouble and needed to be rescued at all costs.

After a long and painful negotiation process, Cyprus ended up receiving a €10 billion loan from the ECB and IMF, on the condition that it subjected itself to a set of austerity measures. The final agreement forced the government to completely close down Cyprus’s second-largest bank and impose a staggering 47.5% haircut on all uninsured deposits exceeding €100,000. In other words, small Cypriot businesses, universities, and families who had amassed large savings in their neighbourhood Bank of Cyprus branch found that all deposits over €100,000 had been slashed in half. Not even charities were spared; their deposits suffered a 27.5% haircut, and the Cyprus Anti-Cancer Society continues to protest outside the Nicosia Presidential Palace to this day.

The European Central Bank was not Cyprus’s first call when, in 2013, its state finances began to go awry.

This year, the Cypriot economy, which contracted by –2.8% in 2014, has finally embarked upon the slow road to recovery. But still, all is not forgiven. No other floundering European economy was forced to make its citizens finance the bailout from their savings; and Cypriots hold the EU directly responsible for their plight. Cyprus, which was referred to by European bankers as ‘a special case’, was punished for its lax financial controls, as one of the regions’ most prosperous tax havens.

Before 2013, Cypriots had always been great lovers of Europe. Since Cyprus’s accession to the European Union in 2004, the blue and gold EU flag has flown freely – outside government buildings, but also schools, company offices and hotels, with far more enthusiasm and regularity than in many other EU states. And yet, the European Central Bank was not Cyprus’s first call when, in 2013, its state finances began to go awry. The Cypriot President at the time – Dimitris Christofias – spent months in negotiations with Moscow, in an attempt to secure a multi-billion-euro loan from Russia. By the time the European Union began getting truly involved in resolving the Cypriot crisis, the new president, Nicos Anastasiades, had entered office and the prospect of Russian help had already gone out the window.

Why, then, was Christofias so cosy with Putin? The answer is simple, and at this point, well-known: Cyprus is awash with Russian money. The figures are shocking – in 2013, the BBC estimated that between one half and one third of all Cyprus bank deposits were of Russian origin. Russian millionaires, including President Putin himself, were said to be harbouring €30 billion on the island. Meanwhile, those who have lived in Cyprus’s biggest city, Limassol, for the past decade have experienced a remarkable transformation; shop signs and advertisements along the palm-lined streets are no longer printed in Greek and English, but instead, in Greek and Russian. The city is frequently referred to as ‘Limassolgrad,’ because of the sheer number of Russians that live in it.

While Cyprus is a proud member of the European Union, there are still buckets of dodgy Russian cash floating around its economy.

The problem is that the origins of all this investment are dubious. Cyprus has not simply turned into a popular Russian expat destination, but a money-laundering hub for the East. As far back as 1994, a reporter from The Independent sounded the alarm with an article claiming that Russians were, quite literally, arriving at Cypriot banks with suitcases stuffed with up to €15 million in crisp $100 bills. It was not NGOs or watchdogs, but local bankers themselves who complained about Russians shoving millions in cash into taxis and bringing them in straight from the airport. When, in 2013, the BBC asked the Director of the Moscow office at Tax Consulting UK, why so many Russians had been pouring their money into Cyprus, he replied: “Because they weren’t asked many questions about the origins of the money. Other countries are more careful.”

The Cypriot government, of course, categorically denies this accusation, claiming that it has strict money-laundering checks in place. But the reality is that many of the glistening new roads and sun-soaked buildings in Cyprus were paid for by Russia’s dark shadow economy. Perhaps it was Russia’s illegal arms sales to Iran that financed the new Limassol marina. It’s impossible to know. What we do know is that, while Cyprus is a proud member of the European Union, there are still buckets of dodgy Russian cash floating around its economy. This money would not even be allowed to enter most other EU countries, let alone finance major government projects. This lack of regulation and control categorically proves that, economically, Cyprus is not a fully integrated EU member. If similar situations are to be averted and the European Union is to survive, there is an urgent need for a more democratic, integrated and better regulated EU economic structure.

Cover and in-text image: By Olivier Hansen, “Cyprus president Dimitris Christofias”, via Flickr under Creative Commons Licence 2.0.