Big Russian money out of Cyprus; crisis endangers flows

Fri Mar 22, 2013 11:47am EDT
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By Polina Devitt and Katya Golubkova

MOSCOW (Reuters) - If Russian oligarchs still have money in Cyprus, where a lot of them base their businesses, they aren't letting on.

"You must be out of your mind!" snapped tycoon Igor Zyuzin, main owner of New York-listed coal-to-steel group Mechel (MTL.N: Quote), as he dismissed a suggestion this week that the financial meltdown in Cyprus posed a risk to his interests.

His response is typical across the oligarch class of major corporations and super-rich individuals, reflecting the assessment of officials and bankers on the Mediterranean island who say the bulk of the billions of euros of Russian money in Cyprus comes from smaller firms and middle-class savers.

The collapse of an economy 75 times smaller than its own may not have much impact in Russia, though the crisis has strained relations with the European Union, raised questions on Russian influence over Cypriot politicians and highlighted geopolitical competition for new offshore gas fields. But some would suffer.

As much as losses likely to be sustained on deposits held in Cypriot banks, pain for the Russian economy could come from a disruption in money flows between Russians which pass through the island - transfers that dwarf Cyprus's own national income.

Light regulation and taxes, cultural ties through Orthodox Christianity and the weather have long attracted the capital and savings of Russians - many keen to keep their wealth out of the sight of often predatory bureaucrats at home.

Yet precisely because investors can hide their wealth behind nominee structures - often held in the name of a local lawyer - it is difficult to say just how much Russian money is tied up on the Mediterranean island. Or how much has already left.

Where it is going is also unclear, though a possible rise in Russian deposits in fellow EU member Latvia, a former Soviet republic that hopes to enter the euro zone next year, has raised concerns of displacing instability northward.   Continued...

A man walks past an office of VTB Bank in central Moscow March 18, 2013. REUTERS/Sergei Karpukhin