Cypriot banks burst, Russians count losses

Many experts agree that Russians own about 40% of all savings placed in Cypriot banks. In total, this may amount to about 30 billion euros taken to the island of Aphrodite from Russia. As a result, the one-time losses of Russians from "bad" Cypriot assets will amount to about 4 billion euros. And in the long run - ten times more

The financial collapse of Cyprus echoed around the world. But perhaps the loudest of all this echo thundered in Russia. After all, it is Russian deposits that make up a fair part of the money that burned in Cyprus. It is difficult to name specific figures characterizing the amount of Russian deposits; one can only speak of rough estimates. Many experts agree that Russians own about 40% of all savings placed in Cypriot banks. In total, this may amount to about 30 billion euros taken to the island of Aphrodite from Russia. As a result, the one-time losses of Russians from "bad" Cypriot assets will amount to about 4 billion euros. And in the long term, under the most unfavorable scenario of the deepening of the crisis and its dragging on for years, losses could amount to tens of billions.

Cypriot Atlantis

The crisis in Cyprus was predictable. Especially after the events in Greece in 2010-2012, which, under the threat of default, requested financial assistance from the European Union. Events in Cyprus, which is connected with Greece by blood ties, developed according to the Greek scenario. In the same way, under the threat of default, in March 2013, the island republic turned to the European Union for help.

However, unlike the case with Greece, the EU was in no hurry to fork out. This may seem strange, because the amount of financial injections into Cypriot banks was required ten times less than into the Greek financial system. At the same time, the European Union probably had a lot of questions regarding Cyprus. One of them: who will we actually help, whose money will we save in Cyprus, because it is no secret that almost half of it is Russian capital?

Cyprus rushed to Moscow with a plea for help. But he did not find support there either. Well, the European Union, after painful reflections, agreed to issue a saving loan to Cyprus. True, on harsh, if not enslaving conditions. Brussels actually forced the Cypriot authorities to rob their own banks.

10 billion euros was promised to Cyprus by the European Union in fulfilling such a requirement. A significant part of the funds that are missing up to 17 billion needed to save the republic sinking in the ocean of debt, Cyprus must find on its own - by surgically reducing the financial sector and "haircutting" deposits in the largest banks. At the same time, small deposits up to 100 thousand euros remain untouched. (This amount is insured by the EU banking system, and the safety of such deposits is guaranteed to depositors.) But those whose deposits are more than 100 thousand euros will suffer significant losses. They will lose up to 60%, or even up to 80% of the money. And the return of the remaining funds will stretch for years.

This whole procedure concerns the two largest banks in Cyprus: the Bank of Cyprus and the Cyprus Popular Bank (Laiki), the latter being completely liquidated.

The People's Bank of Cyprus (aka Laiki) is a special article. It was he who was a favorite bank for Russians. There was a simplified procedure for working with depositors. Opening an account with this bank did not require a large number of documents certifying the source of funds. An account could be opened without even leaving Russia. Just in connection with this bank, it was most often said that “dirty” Russian money is laundered in Cyprus, that the funds of Russian corrupt officials and the Russian mafia are here.

Not a single mafia

Here is a characteristic statement from The New York Times editorial on the Cyprus events.

“Why worry about Russian oligarchs, Russian firms and corrupt officials who will lose money in Cyprus? Russian companies like the low tax rates that can be paid by registering a company in Cyprus. Due to the special relationship of Cyprus with Russia, the rubles invested in the banks of Cyprus cannot be found in the same way as dollars in bank accounts in Switzerland in the old days.

And here's another. “President Putin's henchmen, who made their fortune by defying the rule of law, now ran into what they fought for. In Cyprus, the rules changed without warning. The result is the same as the trumped-up tax evasion charges that Russian officials make to steal a businessman's assets."

The most amusing thing the leading American publication finds is the fact that some Russian firms are threatening to sue. “There is a certain perverse meaning to this: Russian officials are in a hurry to withdraw freshly stolen goods from Russia in order to hide them in countries where the rule of law is not an empty phrase. They don't want to be treated the way they treated their compatriots."

All right. And if it was only about the money of the Russian mafia, there is nothing to add. But the real picture is more complicated.

• All Russian money accumulated in Cyprus should not be considered dirty money, - says Alexander Pogorletsky, professor at the International Banking Institute in St. Petersburg. - The attractiveness of Cyprus for Russian business, including quite legal ones, has its own objective reasons. First of all, this is the fact that since the 1990s in Russia there were practically no guarantees of property rights, legal and judicial guarantees for doing business. And Cyprus seemed to be just such a legal jurisdiction.

Yes, there were no legal guarantees in Russia, and no. And if in the distant nineties competitors were simply shot off, then this bloody lawlessness was replaced, in addition to dashing raiding, and other bloodless, but more sophisticated ways of seizing business assets and redistributing them in favor of those who are stronger. Today, the strongest are not those whose argument is a baseball bat or a silenced pistol. Stronger are those who are close to state structures unlimited in their capabilities, the all-powerful security officials (primarily the Chekists), as well as the all-powerful "Putin's friends." And this forces many in Russia, who are not able to resist this colossus, to divert capital to a safe harbor. Cyprus was ideal for this.

Cyprus has been a hub for Russian business for many years. Operations were carried out here for international commercial activities. After all, unlike in Russia, there were legal guarantees here, and the right of ownership (until recent events) was not an empty phrase.

The traditions of English law inherited from the British Empire (Cyprus was a British colony until 1960) is not the only thing that attracted Russian capital to the island of Aphrodite. Since May 2004, Cyprus has been a member of the European Union (and since 2008, Cyprus has also been a member of the Euro zone). So since 2004, the island formally ceased to be offshore and acquired the respectable charm of the European Union. At the same time, preferential, in fact still offshore, taxation has been preserved here. Low taxes: on company profits - 10% (in Russia - 20%), on dividends - 15%, and transactions with securities are generally exempt from taxation. (Now taxes on income in Cyprus are raised to 12%, and there will probably be further increases).

• In Cyprus, income tax is two times lower than in Russia, but that's not all, - says Andrei Zaostrovtsev, professor at the St. Petersburg branch of the Higher School of Economics. - Cyprus and Russia have an agreement on the exclusion of double taxation, thus, Russian capital exported to Cyprus was subject to less taxes than in Russia.

The Cypriot tax haven was a savory lure for Russian business and the new Russian rich.

However, not only him. For similar reasons, other offshores were also very attractive for Russian money. According to the British research company Tax Justice Network, over the twenty years from 1990 to 2010, an astronomical amount of 800 billion dollars was withdrawn from Russia to foreign offshores, an average of 40 billion a year. But in 2012, according to Rosstat, 60 billion went offshore from Russia.

Most likely, these figures are, in fact, significantly higher, because the path of money through offshore companies was often so confusing that it was almost impossible to trace their initial point of departure. One can only imagine what could have been done with this money if they had remained in the country, and taxes from this amount went to the Russian budget.

Well, the main addressee of this offshore movement of capital from Russia was, again, Cyprus. This made it possible to speak of Cyprus as a permanent laundromat for laundering Russian money.

Russian Cyprus

Not only Russian money came to Cyprus. Many Russians, following their capital, themselves settled on a sunny island. With a total population of the Republic of Cyprus of about 800 thousand people, the "Russian colony" has 40 thousand. Especially many compatriots settled in the vicinity of Limassol, the second largest city and the financial capital of Cyprus. Numerous signboards in Russian are striking here. The city has not only Russian shops, restaurants, clubs, but also schools and kindergartens. And local agencies selling real estate, expensive cars and yachts are focused almost exclusively on Russian clients. As a result, it is no coincidence that the Western press, not only jokingly, but almost seriously, often calls today's Cyprus a Russian colony.

When the crisis erupted and the Cypriot banks closed on March 16, slamming the money in their accounts, the "Russian Cypriots" took to the streets along with the Greek Cypriots. They protested against the forcible expropriation of their deposits. They carried posters with inscriptions in Russian: "Russia, save us!". But the distant Motherland remained deaf to these calls.

As Western analysts rightly noted, Putin could not afford to throw funds from the Russian budget to save his Cypriot rich compatriots. It must be said that among the majority of Russians, the problems of the "Russian Cypriots" did not arouse any sympathy. Rather, gloating and remarks like this: “Those who keep money in Cyprus should not be deprived of 60 or 80 percent, but in general everything that they have stolen.”

For a more accurate understanding of this mentality, it is worth noting that Russia is a country with a monstrous social and property stratification of the population. As it is sometimes called, the country of beggars and millionaires. With a generally rather modest standard of living for the population, Russia today is one of the leaders in terms of the number of super-rich people. So, there are more than a hundred billionaires (whose fortune is more than a billion dollars). According to this indicator, the country is the first in Europe and the second in the world after the USA. And Moscow is generally the first city on the planet in terms of the number of billionaires living there (there are 80 of them). There are more than 130 thousand millionaires (again, in dollars) in Russia, and according to this indicator, the country is the third in the world after the USA and China. At the same time, for most of the population, the multimillion-dollar fortunes of compatriots who litter with money and live in ostentatious luxury are strongly associated with corruption, theft and crime.

But back to Russian money in Cyprus. Russian business is widely represented here. Starting with giants such as Gazprom, Lukoil, TNK-BP, Norilsk Nickel, VTB Bank and ending with little-known mid-range companies. Of course, in the overwhelming majority of cases, all these firms do not conduct any economic activity on the island, carrying out only financial transactions.

There is another interesting fact from the history of Russian-Cypriot financial ties. Cyprus is the undisputed leader in terms of investment in the Russian economy. A small island in the Mediterranean Sea is ahead of such superpowers as the USA, Japan, Germany, France in this indicator. Thus, according to the Russian Federal State Statistics Service (Rosstat), in 2012 Cyprus invested $77 billion in Russia.

It is clear that the bulk of these funds are still the same Russian money, which first came from Russia, legalized in Europe and then returned back to their homeland, but already as quite respectable foreign capital.

By the way, in connection with this fact, the Cyprus crisis will inevitably cause a decrease in investment in the Russian economy. According to some experts, this may cause a decrease in the total gross domestic product of Russia by 0.3%. Based on Rosstat data on GDP in 2012, 0.3% is half a billion euros. Not so much on a national scale, but not enough ...

And yet the main question remains open - who will be the first to suffer from the expropriation of deposits in Cypriot banks: Russian bribe takers, swindlers and bandits who laundered money in Cyprus, companies hiding from taxes, or completely legal businessmen and respectable Russian firms?

In general, both those and others. You just need to understand that a significant part of the “Russian” Cypriot money is money that is completely legal. And these are not the funds of Russian oligarchs, but rather mediocre entrepreneurs. The oligarchs just had time to play it safe. After all, the crisis in Cyprus did not break out overnight, the fact that events are developing according to the Greek scenario has been said since the autumn of last year. And even at the very last moment, the oligarchs, most likely, managed to withdraw their capital through the branches of Cypriot banks in Moscow and London. It is in these cities that there is an increased concentration of Russian billionaires.

But businessmen on a smaller scale can hardly boast of powerful analytical support and prompt legal support for business. They hardly had time to react. They will have to pay in full for the years of quiet accumulation of capital on the warm Mediterranean shores.

True, they were promised some support from the Motherland. So far it's very foggy. The chairman of Vnesheconombank said that his state corporation is ready to consider the issue of creating a mechanism to help Russian companies that have suffered in Cyprus. But there are no details yet.

Cypriot lesson

It would seem that Cyprus gave the whole world an object lesson: today there are no safe havens for capital fleeing abroad. There are no guarantees for Russian money either at home or abroad. So, maybe it's time to return to Russia? True, for a start in Russia it is necessary to reduce taxes and protect property.

“The Cypriot lesson has been learned,” says Alexander Pogorletsky, professor at the International Banking Institute in St. Petersburg. - Yes, in the future, Russian business should gradually transfer capital from offshore back to Russia. But first, it is necessary to seriously change the existing realities, not only to reduce taxes, but, most importantly, to establish a system of legal relations and legal guarantees for business in the country.

“Establishing legal relations in Russia is a matter of distant prospects,” Andrey Zaostrovtsev, professor of the St. Petersburg branch of the Higher School of Economics, continues the topic. - And in the near future the money will not return to Russia. The capital will look for new schemes and a replacement for Cyprus, which has left the game.

As confirmation of these words - facts. In the week after the Cyprus collapse, a record $300 million immediately fled from Russia. So Russian money will look for new safe havens abroad. Liechtenstein, Luxembourg, Malta, Monaco, Latvia, Hong Kong, countries of Asia, the Middle East, and the Caribbean are called as an alternative to the Cypriot tax haven. The increased activity of Russians in Switzerland, the Netherlands, in the US markets has already been noticed, not to mention traditional offshore companies in the British Virgin Islands and the island of Jersey. True, some European countries, in particular Latvia, are already receiving unofficial signals from Brussels about caution in placing Russian money.

Well, what lesson did the sinking Cyprus teach Europe?

“For the euro area and Europe as a whole, the Cyprus crisis means a new round of tension, which can easily, like wildfire, spread from a small Cypriot hearth to large European countries,” says Andrey Zaostrovtsev. — According to a similar pattern, crisis phenomena are growing in countries such as Spain and Italy. This is no longer Cyprus or Greece, in which case much more significant financial injections will be needed. Germany, acting, in fact, as the guarantor of the eurozone, will no longer be able to cope with this. Ultimately, this may threaten the disintegration of the Eurozone and the European Union in its current form.

In a word, life after Cyprus will not be easy anyway. And we have to live with it.