Insight: Bank documents portray Cyprus as Russia's favorite haven

Wed May 15, 2013 4:09am EDT
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By Stephen Grey and Michele Kambas and Douglas Busvine

NICOSIA (Reuters) - When the Cyprus bank run began earlier this year, Russians set much of the pace. Documents seen by Reuters show that as the Mediterranean island headed towards financial meltdown in March, most notable among companies transferring money from the country's two main banks were Russians and East Europeans.

At least 3.6 billion euros ($4.67 billion) was removed in two weeks by big depositors, according to the documents. Though many companies listed initially appear obscure, a Reuters analysis shows a significant proportion are vehicles for foreign investors more at home in Moscow or Kiev than Nicosia.

The lists give an insight into the March crisis and how the tax haven, with a population of just 1.1 million, had amassed bank deposits that peaked at 72 billion euros - more than four times the island's GDP.

Prepared in April by private sector lenders Bank of Cyprus and Laiki Bank, and passed to lawmakers by the island's central bank, the documents list 5,323 transactions, most previously undisclosed. They detail transfers of 100,000 euros or more from Bank of Cyprus and Laiki Bank in the two weeks before Cyprus closed its banks on March 16 as it desperately negotiated an international rescue.

Reuters analyzed 129 companies that each transferred 5 million euros or more over the two-week period, collectively accounting for 1.9 billion euros. Of those companies, 95 could be traced.

Out of that group, 34 have links to Russia, five have links to Ukraine and two to Kazakhstan. The remainder comprise companies from Cyprus and other countries including tax havens such as the Cayman Islands, the British Virgin Islands and the Dutch Antilles. By value, more than half the transactions were made in dollars.

"This list verifies as well-founded Cyprus' reputation as an offshore economy used as a conduit for people, particularly Russians, to hold large sums of money, often to avoid paying tax and without too much scrutiny," said Michael McIntyre, professor of law and a tax expert at Wayne State University in the United States.

While the transfers appear mostly related to moving money out of Cyprus, Reuters could not establish where the funds went. It is possible some transfers were between banks within Cyprus.   Continued...

Anti-Troika protesters hold a "Hands off Cyprus" banner during a demonstration outside the EU offices in Nicosia in this March 24, 2013 file picture. REUTERS/Yannis Behrakis/Files