The government of Cyprus opened an investigation last month into whether stolen Russian tax money was laundered through its banks. It has done so with reluctance after Magnitsky’s former employer Hermitage Capital Management submitted paperwork in July 2012 showing that $31 million of this stolen money was moved out of Russia using five Cypriot banks: Alpha Bank, Cyprus Popular Bank, FBME Bank, Privatbank International and Komercbanka. It also pointed a finger to Dimitry Klyuev as the alleged ringleader in the corruption case who owns a Cyprus-based firm called Fungamico, and who was in Cyprus with his associates at the time the money went missing. Cyprus government officials delayed starting an investigation telling Hermitage Capital representatives that they first must consult with Russian officials to determine if money was really stolen before they could start an investigation.
The timing of Cyprus’ Magnitsky probe is terrible for a country that relies heavily on its Russian clients and their large amounts of money deposited in its banks, but that also is waiting on a €17 billion ($22.4 billion) bailout from the European Union (EU) and the International Monetary Fund. If the Cypriot government finds its own evidence that its banks laundered stolen Russian currency, there could be a push from the the rest of the EU for further investigations of all of its Russian banking clients. Der Spiegel reports through a German intelligence (BND) source that Cyprus banks could hold $26 billion in its Russian client accounts. Approximately 50,000 Russians live in Cyprus.
The main reason for Cyprus’ financial downturn is that its banks took on substantial Greek debt while its banking system grew to seven times the size of its economy. Information about Russian money being laundered in Cypriot banks has angered Europeans who see a bailout of Cyprus as a bailout of the Russian mafia since as much as €10 billion of the €17 billion proposed bailout will go to Cypriot banks on th
The main reason for Cyprus’ financial downturn is that its banks took on substantial Greek debt while its banking system grew to seven times the size of its economy. Information about Russian money being laundered in Cypriot banks has angered Europeans who see a bailout of Cyprus as a bailout of the Russian mafia since as much as €10 billion of the €17 billion proposed bailout will go to Cypriot banks on the verge of bankruptcy. “We will not allow the money of German taxpayers to insure Russian black money deposits in Cypriot banks,” stated Social Democratic Party Budget Spokesman Carsten Schneider. German taxpayers would shoulder a significant amount of a Cypriot bailout.
The Russian government may find itself participating in a Cypriot bailout to minimize the banking investigation and to work cooperatively with the EU, especially Germany. The Russian government loaned Cyprus $2.5 billion in 2011 at a below-market rate of 4.5 percent, but that loan was only a short term help. A request for a further $5.0 billion loan was denied. President Putin is in favor of participating in the bailout via the International Monetary Fund once the EU has come to agreement on terms. Cypriot government and bank officials continue talks directly with the Russian government.
The Sergei Magnitsky case and its political implications may be far from over. In the short term, a bailout of Cyprus could be delayed. The EU may consider adopting its own Magnitsky Law, banning entry to Russians identified with the Magnitsky affair into the 22 EU countries and an additional four countries who participate in the Schengen Agreement, as well as freezing their assets. It would be interesting to know how much money those 60 Russians implicated in the Magnitsky affair have pulled out of the Motherland and in which banks and countries it all now resides. If Europe wants to take a stand against continuing Russian corruption, this is the time to do it.