News / Europe

Cyprus Crisis Burns Russian Investors

Cyprus Crisis Burns Russian Investorsi
X
March 28, 2013 3:31 PM
The banking crisis in tiny Cyprus is shaking company boardrooms across Russia. James Brooke explains why.
TEXT SIZE - +
— For years, construction companies in Cyprus lured Russians to invest in the Mediterranean island. Over the last decade, 40,000 Russians moved to Cyprus. They now make up five percent of the population.

The lure, however, was more than just trading Moscow's cold winters for fun in the sun. Cyprus offered low taxes, low regulation, and the security of the euro zone.

While the glass office towers of Moscow City, Moscow's new financial district, languish half-empty, Russians now have $32 billion deposited in banks in Cyprus.

Tiny Cyprus is now the largest foreign investor in Russia, a nation with an economy 75 times larger.

Minimizing taxes

Mark Galeotti, an international affairs professor at New York University, tracks Russian money movements. He explains why some Russians have chosen to place their money in Cyprus banks. "It's been the den for all kinds of dirty money, criminal money, but also money just avoiding tax in Russia. Secondly, it has been a turntable for a lot of Russian oligarchs. Rich Russians move money out of Russia and then reinvest it to take advantage of a lower corporate tax rate,” he said.

For Russia's ultra rich, Cyprus was a key to minimizing taxes. Galeotti said Cyprus also emerged, though, as a safe banking haven for Russia's new middle class.

“It is a place where you can go, and enjoy a nice holiday and perhaps also stash a little bit of your money, so you feel you have something safely outside of Russia, just in case,” he said. “There was a sense that Cyprus gave you security, as well as a suntan."

All that ended this week with the Cyprus banking crisis, and the decision to slap 40 percent taxes on all deposits over $130,000.

Protesting taxation on deposits

In Cyprus, protesters chant in Greek. But the street protests also have been sprinkled with Russian flags - and protest signs in Russian.

Maxim Mokeyev, executive director of Evans Property Services, a Moscow real estate company, said Russians see the tax as a hostile act.

"People take it very personally,” Mokeyev said in Moscow. “It is a trust issue that is completely gone. Because they have confiscated 40 percent of the deposits."

He said Russians believe that currency controls could last for years, and that the oligarchs are fighting to get their money out now.

"The almost hourly flights to Cyprus were almost full of Russian businessmen trying to do it the Russian way, to use their connections, do whatever they can, to try to be different, to get their money out,” he said.

Mokeyev predicts that values for Cyprus vacation homes could drop by 50 percent as Russian buyers stay away.

"Cyprus has completely lost any trust from any investor or anyone who wants to park their money anywhere," he said.

And so, while Cyprus may remain a safe haven for Russian tourists, it is no longer to be a safe haven for Russian investors.

James Brooke

A foreign correspondent who has reported from five continents, Brooke, known universally as Jim, is the Voice of America bureau chief for Russia and former Soviet Union countries. From his base in Moscow, Jim roams Russia and Russia’s southern neighbors.

You May Like

Multimedia Anti-Keystone XL Protests Continue

Demonstrators are worried about pipeline's effect on climate change, their traditional way of life, health and safety More

Thailand's Political Power Struggle Continues

Court gave Prime Minister Yingluck Shinawatra until May 2 to prepare her defense over abuse of power charges but uncertainty remains over election timing More

Malaysia Plane Search Tests Limits of Ocean Mapping Technology

Expert tells VOA existing equipment’s maximum operating depth is around 6 kilometers as operation continues on ocean bed for any trace of MH370 More

This forum has been closed.
Comment Sorting
Comments
     
by: NVO from: Cyprus
March 28, 2013 6:41 PM
Don’t be surprised when the global elite confiscate money from your bank account one day. They are already very clearly telling you that they are going to do it. Dutch Finance Minister Jeroen Dijsselbloem is the president of the Eurogroup – an organization of eurozone finance ministers that was instrumental in putting together the Cyprus “deal” – and he has said publicly that what has just happened in Cyprus will serve as a blueprint for future bank bailouts. What that means is that when the chips are down, they are going to come after YOUR money. So why should anyone put a large amount of money in the bank at this point?

Perhaps you can make one or two percent on your money if you shop around for a really good deal, but there is also a chance that 40 percent (or more) of your money will be confiscated if the bank fails. And considering the fact that there are vast numbers of banks all over the United States and Europe that are teetering on the verge of insolvency, why would anyone want to take such a risk? What the global elite have done is that they have messed around with the fundamental trust that people have in the banking system. In order for any financial system to work, people must have faith in the safety and security of that financial system. People put their money in the bank because they think that it will be safe there. If you take away that feeling of safety, you jeopardize the entire system.


by: Hovhannes from: Montevideo
March 28, 2013 3:23 PM
If values for Cyprus homes drop by 50 percent, it's the right time to move there and buy cheap houses.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Pet Kangaroo Helps Spread Environmental Messagei
X
Penelope Poulou
April 22, 2014 5:53 PM
Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pet Kangaroo Helps Spread Environmental Message

Children’s author Julia Heckathorn travels the world to learn about different ecosystems and endangered animals. She pours her knowledge into children’s books, hoping the next generation will right the environmental wrongs of our times. As in many children's books, the main character in Heckathorn's stories is an animal. Unlike those other characters, though, this one is real - a kangaroo, that lives in the author’s backyard. VOA’s Penelope Poulou has more.
Video

Video Pro-Russian Separatists Plan 'Federalization Referendum' in Eastern Ukraine

Pro-Russian separatists in eastern Ukraine say they plan to move forward next month with a referendum vote for greater autonomy, despite the Geneva agreement reached with Russia, the U.S. and Ukraine to end the political conflict. VOA's Brian Padden reports from the city of Donetsk in Eastern Ukraine.
Video

Video Pope Francis Hopes Dual Canonizations Will Reconcile Church

On April 27, two popes - John the XXIII and John Paul II - will be made saints in a ceremony at St. Peter’s Square. VOA religion correspondent Jerome Socolovsky says the dual canonization is part of the current pope’s program to reconcile liberals and conservatives in the Roman Catholic Church.
Video

Video In Capturing Nature's Majesty, Film Makes Case for Its Survival

French filmmaker Luc Jacquet won worldwide acclaim for his 2005 Academy Award-winning documentary "March of the Penguins". Now Jacquet is back with a new film that takes movie-goers deep into the heart of a tropical rainforest - not only to celebrate its grandeur, but to make the case for its survival. VOA's Rosanne Skirble reports.
Video

Video Boston Marathon Bittersweet for Many Runners

Monday's running of the Boston Marathon was bittersweet for many of the 36,000 participants as they finished the run that was interrupted by a double bombing last year. Many gathered along the route paid respect to the four people killed as a result of two bombings near the finish line. VOA's Carolyn Presutti returned to Boston this year to follow two runners, forever changed because of the crimes.
Video

Video International Students Learn Film Production in World's Movie Capital

Hollywood - which is part of Los Angeles - is the movie capital of the world, and many aspiring filmmakers go there in hopes of breaking into the movie business. Mike O'Sullivan reports that regional universities are also a magnet for students who hope to become producers or directors.
Video

Video Pacific Rim Trade Deal Proves Elusive

With the U.S.-led war in Iraq ended and American military involvement in Afghanistan winding down, President Barack Obama has sought to pivot the country's foreign policy focus towards Asia. One aspect of that pivot is the negotiation of a free-trade agreement among 12 Pacific Rim nations. But as Obama leaves this week on a trip to four Asian countries he has found it very difficult to complete the trade pact. VOA's Ken Bredemeier has more from Washington.
Video

Video Autistic Adults Face Housing, Job Challenges

Many parents of children with disabilities fear for the future of their adult child. It can be difficult to find services to help adults with disabilities - physical, mental or emotional - find work or live on their own. The mother of an autistic boy set up a foundation to advocate for the estimated 1.2 million American adults with autism, a developmental disorder that causes communication difficulties and often social difficulties. VOA's Faiza Elmasry reports.
AppleAndroid