Why Cyprus is a ‘Russian bank with dirty money posing as an EU state’
Mediterranean nation faces some difficult questions as connections with Russia come back to haunt it
www.telegraph.co.uk
“Londongrad” may have become the playground of Russia’s ultra-rich, but Cyprus has long played an integral role in helping oligarchs make moves to the West.
The island, dubbed “Moscow-on-the-Med”, became a major magnet for magnates – from Russia and beyond – thanks to the generous perks it offers for the wealthy.
Sunshine, beaches and halloumi may be the main attractions for visitors to Cyprus, but for Vladimir Putin’s allies it has long provided a different class of services: EU passports and a number of banks with a relaxed stance on money-laundering.
The country has tried to clean up its act following a series of scandals, but apparent reticence over sanctions against Moscow have put its role as a gateway to the West under the microscope again.
Following the collapse of the Soviet Union, Cyprus offered attractive benefits to Russian nationals: low taxes, low scrutiny and – perhaps most importantly – somewhere to keep money out of the Kremlin’s sight.
Tellingly, Cyprus – one of the EU‘s smallests economies – frequently tops lists as the biggest source of foreign direct investment into Russia. Oligarchs like using the island as a base for operations as they direct their money back home. Russia, meanwhile, is typically its biggest investor.
As Jakub Janda, director of the Prague-based European Values Center for Security Policy put it last week: “Cyprus is a Russian bank with dirty money posing as an EU state.”
In return, Cyprus has made plenty of money from Russians. In 2014, Russia-related business income was equivalent to about 14pc of the country’s GDP. Of course, much of that is now tourism – the island caters to middle-class Russians seeking a spot of sun, as well as the billionaire clientele of its luxury retailers.
Facing increasing political pressure in the wake of the Crimea annexation, Cypriot authorities began to crack down on the island’s network of shell companies. That forced some Russians to wind down entities after being presented with anti-money laundering controls.
By early 2019, Cyprus’s foreign-held bank account valuation, mainly reflecting Russian wealth, had fallen to €7.1bn, according to its central bank. That was down from a peak of €21.5bn in 2012, when it was estimated a third of all bank deposits were of Russian origin.
Banking has not been the only draw, however.
Cyprus’s “golden passports” were, until recently, one of the easiest ways for Russians to buy the power and credibility granted by citizenship of a bloc member.
The idea was simple: foreigners could obtain “citizenship by investment” if they pumped enough money into Cyprus.
Initially introduced in 2008, the scheme was loosened substantially by current president Nicos Anastasiades. Facing a financial crisis after coming to power in 2013, he cut the amount of investment needed for eligibility from €10m to €3m. The figure was subsequently lowered even further.
Anastasiades’ target was obvious. The policy was announced to a crowd of Russian business figures in the port city of Limassol (sometimes called “Limassolgrad"), where Cyrillic signs and Russian-named yachts are commonplace.
Russian investors and their families made up almost half of the thousands of passports awarded in the first five years of the loosened scheme. It even continued to draw huge amounts of interest after Russia’s move on Crimea in 2014.
An investigation by Reuters found relatives and allies on Hun Sen, Cambodia’s authoritarian prime minister, had been granted Cypriot citizenship. Then Politis, a domestic news organisation, revealed that Jho Low, a Malaysian businessman at the heart of the
multi-billion-dollar 1MDB lotting and money-laundering scandal had also become a citizen.
The revelations prompted probes in Cyprus, and led EU politicians to issue calls for the golden passport scheme to be tackled. Authorities have subsequently stripped nationality from dozens of people after finding “mistakes” in the process.
The coup de grace was delivered by broadcaster Al Jazeera, which a year later revealed documents that showed how Russian elites – including several with state positions, and some of the country’s richest men – had bought their way into the benefits from EU citizenship through the Cypriot scheme.
An independent commission found Cypriot authorities had unlawfully issued passports to relatives of investors who ploughed money into the island, and that many of those granted passports had failed to meet the conditions.
The scheme was wound down in disgrace last year, after 13 years that generated political scandal, 6,779 new citizens, and about €8bn of direct cash for the island.
As Russia becomes a political and economic pariah, Cyprus will be keen to show that it has cleaned up its act. But as global regulators try to crack down on the flows of Russian wealth, Cyprus’s bankers may face some difficult questions.
