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A Visit To The Island Nation Of Cyprus, Europe's Dodgy New Fiscal Haven

Banking, Cyprus-style
Banking, Cyprus-style
Cerstin Gammelin

NICOSIA - The moment you arrive in Cyprus you sense something about the little eastern Mediterranean island that sets it apart from its European neighbors. There are an unusual number of men in suits carrying briefcases. And the bright billboards on the streets leading from the airport have Cyrillic writing on them.

Some of the billboards advertise Russian funds and other Russian bank products for Russian clients, but others – also in Russian – advertise holidays on the sunny beaches in the southern part of the island. Here and there among all the ads in Russian are some in Chinese – China has discovered Cyprus, and one company has already bought several hectares of land to build a “vacation paradise.”

Take a walk through the streets of the capital Nicosia and one look at the brass plaques on the doors of office buildings leaves the impression there are a lot more plaques than actual offices. In fact a walk through Nicosia feels like a John Le Carré thriller.

And it’s precisely for that reason that some European countries are hesitant when it comes to bailing Cyprus out and saving it from bankruptcy. The head of Germany’s Social Democratic Party (SPD), Sigmar Gabriel, has said publically that he could not imagine "German tax payers saving Cypriot banks whose business model is based on aiding and abetting tax fraud." Without SPD votes, Federal Chancellor Angela Merkel might not be able to get the parliamentary majority she needs to be able for help to Cyprus to go ahead.

In the euro group, Gabriel’s remark was a source of much head shaking – for several reasons. For one thing, there is no official proof that Cypriot banks are encouraging tax fraud. Independent auditors as well as the International Monetary Fund have issued certificates of good behavior, and a report by the BND (the German secret service) provides no information to that effect.

Diplomats and public officials have expressed some wonderment at Gabriel’s naiveté. A high-level EU diplomat explains why: ask yourself the question, he says, who is reallybeing rescued if the euro countries grant Cyprus the 12 billion euros it needs?

The answer is simple: the creditors. And the move would stabilize the Cypriot financial system. If no money flows to Cypress from the rescue fund, then sometime early this summer Cyprus’s banking system will collapse. Theoretically that would mean that millions of investments would be wiped out.

But only theoretically. Because by then – and euro experts unanimously agree on this – investors would have already long removed their money. "As soon as they get a whiff of danger they’re out of there, that’s perfectly clear," says the diplomatic source. "If the euro countries don’t help, they’re not hurting Russian or Chinese or other millionaires – they’re risking total crisis in Cyprus."

Oversized banking sector

The experts also point out that it is impossible when undertaking a bank rescue to distinguish between squeaky-clean “good” investors and the black sheep.

At the same time, hardly anyone would dispute the fact that Cyprus is not entirely innocent in all of this. Cyprus has a long tradition of attracting business people from around the world and it has done everything to increase their numbers. Its large banking sector, which is completely oversized in regard to size of the country, is no exception. Cypriot and Greek banks were heavily interwoven and when the crisis hit in Greece, the Cypriots lost nearly 5 billion euros, which is to say about a fourth of gross national product.

Cyprus also has unusual citizenship laws. For example, any foreigner who invests at least 10 million euros each year directly in the country, or 15 million euros over five years, has the right to apply for a passport.

British company law applies in Cyprus, which makes it easy for business people to create companies and do business without having to divulge who the real benefiting owner is. It also makes it relatively easy to hide the real provenance of money.

Yet the experts warn against criticizing Cyprus for being Europe’s biggest money laundering venue – take a look at London first, they say, where of course British company law also applies and where it would also be comparatively easy to create certain companies without having to divulge benefiting owners.

A high-level EU official describes the system this way: rich Russians invest a lot of money in Cyprus, found companies, live in Cyprus part of the time, some even apply for citizenship. Then they move on to London, open another company, and take out some loans.

And then either because they’re homesick, or because it is allegedly easier to make profits in Russia’s corrupt economy, they decide to invest in Russia. So they transfer money from London to Cyprus, and from there invest it in Russia. It is this flow of money that makes Cypriots the largest direct investors in Russia.

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Is Disney's "Wish" Spreading A Subtle Anti-Christian Message To Kids?

Disney's new movie "Wish" is being touted as a new children's blockbuster to celebrate the company's 100th anniversary. But some Christians may see the portrayal of the villain as God-like and turning wishes into prayers as the ultimate denial of the true message of Christmas.

photo of a kid running out of a church

For the Christmas holiday season?

Joseph Holmes

Christians have always had a love-hate relationship with Disney since I can remember. Growing up in the Christian culture of the 1990s and early 2000s, all the Christian parents I knew loved watching Disney movies with their kids – but have always had an uncomfortable relationship with some of its messages. It was due to the constant Disney tropes of “follow your heart philosophy” and “junior knows best” disdain for authority figures like parents that angered so many. Even so, most Christians felt the benefits had outweighed the costs.

That all seems to have changed as of late, with Disney being hit more and more by claims from conservatives (including Christian conservatives) that Disney is pushing more and more radical progressive social agendas, This has coincided with a steep drop at the box office for Disney.

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