Cyprus threatens to play the role of Russian bank in the Mediterranean

After anti-aircraft sirens went off, residents of Kiev fled on February 24 to take shelter from Russian bombs. Hours later, EU leaders met in Brussels to agree on a response to Moscow’s attack. Meanwhile, the Nicosia and Limassol offices have developed a plan to bail out Cyprus’ third largest bank, RCB. Later in the day, for the first time since its founding in 1995 – then under the name Russian Commercial Bank – it became an all-Cypriot bank after a major shareholder, the Russian state-owned bank VTB, acquired its shares. Sale to Cypriot partners. For example, the RCB would abolish the sanctions that would be announced the next morning. Once the message in Greek welcomes guests to the bank’s website: “No to War”.

Cyprus is the largest island in the Mediterranean and the third smallest country in the EU. However, with a population of just over a million and a GDP of €23,000 (50 times less than Spain), Russia is the most investing country in the world. Compared to the rest: in June 2021, according to the Central Bank of Russia, it invested 155 billion euros. Three times more than the other, the UK. Cyprus is also Russia’s largest recipient of direct investment: nearly EUR 180 billion, six times more than the second largest, the Netherlands.

But these numbers are dangerous. “Actually, this is not a foreign investment. “It’s actually a more or less complicated method of stealing money,” said Andrew Kenningham of London-based consultancy Capital Economics. That is it, it does not end in factories or manufacturing companies, but ends up in Cyprus as a first step to get lost in the network of accounts of previous companies. And tax havens to later return to Russia with reduced taxes because it looks like a foreign investment, although they are backed by Russian businessmen and magnates who often have good ties to the Kremlin. “Clearly this is being done to evade taxes and hide who owns this wealth,” Kenningham concluded.

After the Russian invasion of Ukraine, this model was delayed by the freezing of access to certain funds and the exclusion of several Russian banks from the SWIFT payment system. “We are in a simple situation, we have a lot of problems,” laments a Russian who has lived in Cyprus for more than a decade and prefers not to be identified.

Some of the cash flow that ends up in Cyprus is in the form of bonds, company shares, bank deposits or real estate. They seek state security that offers “better protection of property rights,” according to a study by three researchers at the University of Nicosia, who fear losing their property, as some of Vladimir Putin’s shamed Russian oligarchs have done. This is how Russian society grew in Cyprus and there are an estimated 20,000 to 40,000 inhabitants all over the island. According to the Cypriot consultancy Sapienta, 10% of the island’s real estate market depends on Russia, as well as 20% on hotels and restaurants and 35% on professional services such as law and consultancy.

This is especially noticeable in the seaside town of Limassol, where RCB’s headquarters is located and is referred to by many as “”. The luxury economy, extravagant parties, luxury cars has multiplied. “Most of the skyscrapers are Russian investments. “They work as developers or invest in expensive properties,” says the architect, who has worked with Russians in Cyprus. “They come here with great arrogance; “You have to keep in mind that they are rich people, but not really doctors or artists,” he added.

Cypriot model

Cyprus has been a financial center in this region for decades: a safe haven in the middle of a troubled region where refugees or those feared for their fate – more or less legally sheltered – can safely secure their future. This happened during the Lebanese Civil War, and especially when mafia capitalism flourished in Russia and other countries of the former socialist bloc after the fall of the USSR.

The system was destroyed in 2013 due to the severe impact of Cyprus’s Greek debt. Coralito was announced, three banks were liquidated (one of them, FBME, after serious allegations of complicity in money laundering) and the Cypriot financial system was restructured: if it used to be eight times GDP, it is now only three times bigger than other EU countries. In addition, deposits from non-EU citizens, which amounted to almost EUR 30 billion ten years ago, now do not reach 7 billion and just over half are owned by Russian citizens. Money laundering controls have also been tightened: thousands of frontline businesses closed in 2018 and the Moneyval committee of the Council of Europe insists “progress has been made” on the matter, although the country is still under periodic review .

To make the island more attractive as an investment center after the financial crisis, the government of conservative Nikos Anastasiadis has offered Cypriot citizenship – and with it a European passport – to those who have invested more than two million euros in Cyprus. Citizenship was awarded to 3,125 and a half Russian citizens. The investigation identified at least nine Russian oligarchs, several people accused of financial crimes and at least 40 people closely associated with the Kremlin.

The scandal that followed the revelation by the European Commission and the opening of the file forced this scheme to end in 2020. A parliamentary inquiry found that half of them received illegally. In addition, the Nicosia executive has been forced in recent weeks to revoke the passports of four Russian millionaires and their loved ones because they were on a new EU sanctions list.

Speaking to the Cypriot parliament on May 7, Ukrainian President Volodymyr Zelenksy called on to go ahead and revoke all passports issued “except those that have been proven to have caused no harm to Ukraine”. There is also pressure to end the resident investment grant program.

For years he kept an eye on these money flows and the dubious activities of Russian personalities on the island. For example, in 2018 Cypriot citizenship was granted to three directors of the Russian bank VTB, despite the unit already being on the radar of international organizations considering sanctions in 2014 after Russia’s annexation of Crimea. Also a constant leak. It turned out that the Cypriot bank RCB, which was owned by the Russian VTB until February, has transferred dubious legal claims to Konstantin Ernst, one of Putin’s main propagandists, and Sergei Roldugin, a close friend of the Russian president. Image of some of your personal belongings.

The reality is that the cream of the crop of the Cypriot political and economic elite sits on the board of directors of the RCB. “What is expected, even if the president is involved in these issues?” Unfortunately, my compatriots do not receive enough care and attention. [respecto al dinero ruso]”, said Stelios Platis, director of the European Institute of Management and Finance in Nicosia.

They are not the only Russian – or Belarusian – interests in the Cypriot banking system. The largest shareholder in the island’s main bank, Bank of Cyprus, is Lamesa, the Panamanian subsidiary of Grupo Renova, owned by oligarch Victor Wexelberg, one of the 250 richest people in the world near the Kremlin. Wexelberg has been sanctioned by the United States since 2018 and his yacht was seized in Mallorca on April 4.

The second largest shareholder in Cyprus’ second largest financial institution, Hellenic Bank, is video game company, owned by Belarusian businessman Victor Kisli, who settled in Nicosia in 2011 to obtain tax breaks. The company was forced to fire one of its managers in February after he defended a Russian invasion of Ukraine. “It’s completely different this time. “Now there is war,” said Platis, adding: “Cyprus belongs to the West and the European Union. “So this government has no choice but to make full use of sanctions.”

controlled crisis

Lawyers in Cypriot offices have been busy for weeks. “New sanctions are announced almost every day, which means that lawyers, accountants, advisers have to assess the situation every day and see if their clients have sanctions. “The sanctions are not easy to interpret and we are contacting the Cypriot and European authorities to follow up on their recommendations,” said Nicolas Tsardelis, director of the Cypriot Bar Association. He had patience.”

The dependence of the Cypriot economy on the Russian economy is very important. According to several authorities, Cyprus could lose 3% of GDP this year due to a lack of tourism in Russia and Ukraine, and another 7% due to financial services and the closure of all businesses around it. “There is a risk that Cyprus will go into recession, but we are not thinking about financial instability, because this time there is a lot of liquidity and the position of the European government is different from the previous crisis,” said Kenningham.

Banco RCB’s rescue plan failed and the entity is heading for its dissolution, but it is being implemented cautiously and in collaboration with the European Central Bank. On March 22, it announced the transfer of a lending business to Hellenic Bank and two days later announced that it was ceasing its banking activities to become a “wealth management company” for its clients.

Analyst Fiona Mullen, with decades of experience on the island, is more optimistic that the impact of sanctions will be “offset” by the influx of Russian, Ukrainian and Belarusian companies and citizens moving to Cyprus to avoid sanctions. War. Of course, Cyprus will have to reinvent its own model. “Cypriots have proven time and again that they are highly resistant to shocks,” Mullen said. “The model is slowly changing. We must now use European recovery funds to build a more sustainable economy that does not rely on companies that can explode face to face.

Source: La Neta Neta