Russian opposition to Cypriot bank levy draws attention to Russian “corrupt money” on offshore accounts

Russia’s abrupt response to a proposed levy on Cypriot savings, a condition set by the EU to provide the Cypriot government with a bailout loan for its financial debt crisis, has drawn attention to the huge volume of allegedly laundered funds held by Russians on the island tax haven.       

“We should probably refer to a very interesting interview that the outgoing Central Bank governor in Russia did a couple of weeks ago,” top Russian economist Ivan Tchakarov said in an interview. “He said in the local papers that about 40 per cent of the overall amount of capital outflows, that have been leaving Russia for many years now, are actually related to suspect money, to corruption money, to money that is being siphoned off Russia into offshore locations including Cyprus.”

The Cypriot parliament almost unanimously rejected the proposed bank levy March 19, 2013, at the risk of losing the EU bailout. Banks have been shut and accounts blocked since Monday. This is expected to continue until Monday March 25, the deadline set by the European Central Bank for Cyprus to come up with a solution.

Meanwhile the Cypriot Finance Minister Michael Sarris is returning from Moscow following an unsuccessful attempt to negotiate the extension of a EUR 2.5 bln loan, and a reduction of the 4.5 per cent interest rate. Sarris also hoped to extend the loan by another EUR 5 bln. Meanwhile, Russia announced that it would wait until the ECB deadline before making a decision on whether to help Cyprus’ ailing economy.

If the proposed levy were to be imposed Russian bank account holders could lose USD 3 bln out of an estimated USD 30 bln held on Cyprus’ accounts by Russian citizens, Tchakarov said. Despite the fact that this would not cause a massive dent in the Russian economy, President Vladimir Putin has called the bank levy “dangerous and unfair.”

Cyprus is the only country in the European Union’s financial crisis to have been forced to tax savings accounts to bailout government debt. It is also a beneficiary of multi billion euro loans from Russia.

A total USD 90 bln of savings deposits are held in Cyprus banks, half of which are held by foreigners, mostly Russians.