Meltdown of Russia’s Offshore Banking Haven in Cyprus

Author: Pavel Felgenhauer

The Cypriot financial meltdown has rocked Moscow.

Russia provided Cyprus in 2011 with a 2.5 billion-euro ($3.2 billion) low interest loan and believed the European Union and the International Monetary Fund (IMF) should join in the bailout of a euro-zone member nation.

Until now, the Russian authorities apparently did not see any immediate danger, recently announcing an intention to press the Cypriots to disclose information about Russian bank accounts as part of President Vladimir Putin’s announced policy of “deoffshoreization” of the Russian economy to curtail corruption and illegal capital outflow (Kommersant FM, March 11).

Over the weekend (March 15–17) the entire Cypriot banking system was closed down and will continue to be closed at least until next week, as the local parliament rejected a bailout package negotiated by the EU Commission and the IMF that involved an up-to-ten-percent levy on bank accounts and deposits, including those from Russia. Putin and Prime Minister Dmitry Medvedev accused the EU of acting irresponsibly and unilaterally, without consulting with Moscow, and of attempting to confiscate Russian property (RIA Novosti, March 18).

The Russian business community was equally irritated. Multi-billionaire turned politician Mikhail Prokhorov demanded that Russia must be an equal partner with the EU in deciding the future of Cyprus’s financial system and that the Russian Commercial Bank (RCB) of Cyprus (a fully Russian-owned subsidiary of the state-controlled banking giant VTB) must become the backbone of a revived Cypriot banking system. (Vedomosti, March 20).

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