The question of whether the government in Nicosia should be allowed to bolster its ailing banks with more than €17 billion from Europe bailout funds is dividing the euro zone, causing uncertainty in international markets.
The financial woes of Cyprus are a thorny issue for Europe's bailout policy because an aid program for the country would also benefit Russian oligarchs who have deposited billions in assets from dubious sources on the Mediterranean island.
This realization triggered hectic activities in various places. In Brussels, the Euro Group of euro zone finance ministers postponed its decision on the bailout program last week, while donor countries like Germany, Finland and the Netherlands voiced concerns.
The euro rescuers face a dilemma. On the one hand, they want to prevent the country from going bankrupt. On the other hand, they lack the support of a majority of member states for an aid program that would mostly benefit rich Russian tax fugitives.
The tricky situation is prompting European leaders to do what they always do when a crisis comes to a head: play for time. They want Nicosia to satisfy additional conditions in the fight against tax dodgers and economic criminals. At the same time, Brussels is hoping that current President Dmitris Christofias will be ousted in the February election.
For decades, Cyprus has seen itself as a prime destination for honest and dishonest investors from around the world. Until now, someone who wanted a safe haven for his money could simply take a plane to Nicosia, because the country is an EU member and yet is lax when it comes to financial regulation.
The Russians are particularly well of the island's attractions in this respect. Last year, once again, entrepreneurs from Moscow and St. Petersburg moved about $60 billion in assets out of the country, much of it through Cyprus. Several dozen oligarchs and financial sharks have set up offshore companies in Cyprus, where they can protect their assets, at very favorable tax rates, from the Kremlin-controlled Russian justice system.
The list of Russian investors in Cyprus is almost identical with that of the country's richest men. Together with a partner, Roman Abramovich, known internationally as the owner of some of the world's largest private yachts and London's Chelsea Football Club, controls his Evraz holding company through a Cyprus-based company, Lanebrook. The financial magnate and former presidential candidate Mikhail Prokhorov, who owns mining companies in Russia, registered Intergeo Management Ltd. in Cyprus in 2008. Magnate Vladimir Lisin, worth an estimated $15.9 billion, controls more than two-thirds of his most important company, a steel mill in Novolipetsk, through the Cypriot company Fletcher Holding Ltd.
Owners of other companies registered in Cyprus include Lisin's competitor Alexei Mordashov (worth $15.3 billion), nickel tycoon Vladimir Potanin ($14.5 billion) and oil baron Vagit Alekperov ($13.5 billion). There is also Suleyman Kerimov ($6.5 billion), a dubious investor who was interested in buying a three-percent stake in Deutsche Bank in 2008, and Internet czar and friend of Prime Minister Dmitry Medvedev Alisher Usmanov, who topped the list of Russia's richest men last year at $18.1 billion. Yelena Baturina ($1.1 billion), the wife of former Moscow Mayor Yury Luzhkov, who has been accused of corruption by the Kremlin, has also allegedly moved some of her assets through Cyprus.
The case of fertilizer magnate Dmitry Rybolovlev shows how closely intertwined Russian oligarchs are with the Cypriot financial system. More than two years ago, Rybolovlev increased his share in the Bank of Cyprus to just under 10 percent. This makes the Russian, whose assets are estimated at $9 billion, the biggest single shareholder in the Mediterranean country's most important bank.
In the 1990s Rybolovlev, now 46, developed Uralkali into the largest potash producer in the country in the Siberian region of Perm. In 1996, he was held in jail for 11 months on the suspicion he was involved in the murder of another businessman, although he was ultimately acquitted for lack of evidence. He acquired a $100-million estate in Palm Beach, Florida from American real estate tycoon Donald Trump in 2008. In 2011, Rybolovlev, a sports fan, bought the AS Monaco football club. He owns a $110-million yacht, and his exquisite art collection includes paintings by Modigliani, Van Gogh and Picasso.
But tax fugitives aren't the only ones drawn to the island. "A classic route for laundering illegal Russian funds first passes through offshore companies, in the Caribbean, for example, and then through accounts in Cyprus," reports the Organization for Economic Cooperation and Development (OECD) Working Group on Bribery.
Cyprus has only a one-percent share of the global market for international financial service exports. Nevertheless, it's in the top third of countries listed on the Financial Secrecy Index, a sort of international ranking of tax and money-laundering havens.
The Cypriot government, on the other hand, stresses that upon joining the European Union in 2004, the country adopted all regulations and laws to fight money laundering, as well as creating new government agencies. Independent auditing institutes and international organizations have given Cyprus their seals of approval again and again, and the parliament has also approved the measures called for by the "troika," made up of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).
By Guylain Gustave Moke
sources: IMF's documents & reports
Economic Cooperation and Development (OECD): Reports
European Central Bank (ECB): Reports
Financial Secrecy Index