Safe haven loses its appeal to Russian depositors
Published 19/03/2013 | 05:00
RUSSIANS have responded angrily to the threat of a levy on bank deposits in Cyprus that could end the Mediterranean island's appeal as a safe haven for their money and cost them billions of euro.
Russians have stashed away huge sums in Cyprus since the Soviet Union collapsed in 1991, making the most of low taxes and light regulation to keep their money safe and, in some cases, to launder it.
But Russian banks, companies and individuals will be hit hard if Cyprus imposes the one-off levy on bank deposits as part of a European Union bailout, and some started withdrawing their money even before the weekend deal was agreed.
"Corporate clients have been calling and emailing asking what is happening and they are quite concerned to say the least, because they need to know what to do," said Thomas Keane, co-founder of Cyprus-based law firm Keane Vgenopoulou & Associates LLC, which has Russian corporations amongst its clients.
"They are considering discussing looking at other jurisdictions." Mr Keane said that in the past 10 days since rumours surfaced about such a move, Russian depositors had taken around €2bn out of Cyprus.
A Moscow-based adviser said: "People will start looking at London, Zurich, maybe the Far East, Switzerland."
Cypriot ministers were trying yesterday to revise the plan to seize money from bank deposits, which could amount to 9.9pc on accounts holding more than €100,000, but the damage has already been done in Russia.
Michael Pugh, partner at law firm Hogan Lovells in Moscow said he expected the move to provoke turmoil in the markets and it could lead to people withdrawing their deposits, which may destabilise Cyprus further.
Russian President Vladimir Putin said the move was "unfair, unprofessional and dangerous" and Russians with money in Cyprus said they had lost confidence in the banking system of a country with which they share Orthodox Christian links.
There is no official sum available in Russia or Cyprus for the amount Russian banks, firms and individuals hold in Cyprus.
But of almost €70bn in deposits held there, a little less than half is held by non-residents and most are believed to be Russian.