UKRAINE'S ORANGE BLUES - EU'S DOUBLE STANDARDS DON'T COME CHEAP IN CYPRUS

10.04.13


WORLD AFFAIRS. If you’ve been following the ongoing banking crisis in Cyprus, I bet you’ve experienced a twinge of Schadenfreude upon learning that the Russian oligarch money stashed away in the island-state’s financial institutions may be hit the hardest.

According to the BBC, “It is estimated that about one half to a third of all Cyprus bank deposits are of Russian origin. The ratings agency Moody’s estimates that there is about $31bn (£20.3bn) of Russian money in Cypriot bank accounts—$12bn from banks and $19bn from businesses and individuals.” Der Spiegel, meanwhile, reports that “In 2011 alone, some $80 billion flowed out of Russia and much of that money had been channeled through Cyprus, according to the BND [the German foreign intelligence service]. Russians have deposited $26 billion in Cypriot banks, says the BND. That is well above the annual GDP of Cyprus.” Whatever the exact amount, it’s pretty clear that vast sums of Russian money have been deposited in or passed through Cyprus.

It’s also largely undisputed that a lot of that cash represents the ill-gotten gains of Russian oligarchs and crooks who, wisely, have taken advantage of Cyprus’s lax tax laws to park their money beyond the reach of the Putin regime’s claws. As Der Spiegel points out: “The Russians don’t just love Cyprus for its great climate. The shell companies here are conveniently anonymous, the banks discreet and the taxes are low. Dirty money bestowed a lasting boom on Cyprus.” The Guardian’s Stefan Meister is more generous: “For years, Russia’s biggest companies have been using Cyprus as an offshore business hub, as the island enjoys unique tax rates and legal conditions in Europe. But that doesn’t necessarily mean Russian tycoons are illegally burying their money in Cyprus—they may just be using it as a perfectly legal transition center for dealings with Europe.” Whichever your preferred interpretation, you can’t blame Russian thieves for preferring a European safe haven for their money, beyond the reach of Russia’s fascistoid regime. That’s a no-brainer.

Roman Olearchyk of the Financial Times argues that Ukrainian oligarchs have suffered far less than their Russian counterparts in the crisis, because the Ukrainians apparently use Cyprus as a channel for getting their money into Europe proper. Olearchyk cites Jorge Intriago, a partner at Ernst & Young in Ukraine, as saying: “I really doubt that Ukrainian funds are being caught up by the one-off Cypriot levy on deposits. In my view Cyprus is not an investment destination in which Ukrainian investors keep large amounts of funds. For Ukrainian business the whole purpose is to use Cyprus as a conduit to repatriate funds out of Ukraine and into other jurisdictions in a tax-efficient manner.”

There’s another term for “a conduit to repatriate funds out of Ukraine and into other jurisdictions in a tax-efficient manner”: money-laundering.

Now I can’t imagine that Ukraine’s oligarchs and crooks have figured this out but Russia’s haven’t. So if the Ukrainians are using Cyprus to sneak their money “tax-efficiently” into Europe, so too are the Russians. And you can well imagine that the sums involved are likely much greater than those in Cyprus banks. Small wonder that the European Union has taken so kindly to this, er, conduit.

According to the BND, “Formally, the island nation sticks to all the rules on combating money laundering laid down by the EU and other international agreements, the agency said. The country had passed the necessary laws and set up the required organizations. But there were problems when it came to implementing those rules, it added. They weren’t being applied properly. The Cypriots, the BND said, sign everything, pledge a lot, but keep few of those promises.”

Call me an unreconstructed cynic, but I suspect the EU’s financial watchdogs have been fully aware of what was going on in Cyprus. Likewise, it’s a safe bet that Germany’s watchdogs, which supervise Europe’s watchdogs, have been well aware that Russian and Ukrainian mobsters have been washing their money through Cyprus before it flowed into their own countries.

The problem for the EU is that such venality directly contravenes everything the European Union claims to stand for: rule of law, honesty, integrity, human rights, democracy, and all that other stuff Brussels continually intones. Logically and morally, you can’t have it both ways: you can’t support dirty money at home and criticize it abroad. By trying to have it both ways, the EU behaves no differently than President Viktor Yanukovych and his crooked Regionnaire pals. Small wonder that Yanukovych thinks he can pull a fast one on the Europeans. If we know that the EU welcomes billion-dollar inflows from dubious Russian and Ukrainian sources, so does Yanukovych. If we know the EU tolerates corruption on a vast scale, Yanukovych has figured that out, too. So why shouldn’t Yanukovych think that Europe’s insistence on Ukraine’s adherence to rule of law as a precondition of any Association Agreement with the EU is a joke? 

Alexander J. Motyl's blog



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