Rich Russians flock to Cyprus to salvage their investments

As the financial crisis worsens, big investors fly in to put pressure on island's leaders

PUBLISHED : Sunday, 24 March, 2013, 12:00am
UPDATED : Sunday, 24 March, 2013, 9:16am

They clustered in small groups on the plush couches dotted around the lounge of the Four Seasons hotel in the port city of Limassol. Nervous whispers and furtive glances revealed these were no ordinary tourists revelling in the sun on the Mediterranean island of Cyprus.

They were Russians, who have been flocking to the city for urgent meetings with lawyers and financial advisers, fearing for their personal finances, which range from the low thousands to hundreds of millions of euros and total more than US$32 billion.

"Everyone has flown in hoping to use contacts with locals to pressure the leadership, the deputies," says a man who identifies himself only as Vladimir. "We are all very worried, very scared."

The 45-year-old businessman refreshes his iPad incessantly, seeking news from the parliament in the capital, Nicosia. If the country's banks go bust, he stands to lose €58 million (HK$582.4 million) Where it came from, he declines to say.

Many Russians have grown amazingly wealthy since the Soviet collapse, buoyed by the oil boom at the turn of the century. How the money was obtained in a country plundered by corruption is often anybody's guess.

Well fed on graft at home, most of the wealthy choose to keep their money abroad, safe from rivals and over-zealous government officials seeking a piece of the pie. Cyprus has become their offshore haven of choice.

An EU plan, pushed strongly by Germany, to raise €5.8 billion towards its €10 billion bailout via a levy on accounts is widely seen here as a means of forcing Russians to pay for the luxury of keeping their ill-gotten gains safely inside the EU.

Vedomosti, Russia's leading financial newspaper, saw the charge going to the very top, citing President Vladimir Putin in all but name in an editorial published on Friday: "It's hard to believe, but it seems that European politicians are ready to take big risks to put pressure on a certain influential politician, who secretly harbours money in Cypriot banks."

In Cyprus, there are fears that the loss in confidence will prompt wealthy Russians to withdraw their cash en masse once transactions are allowed. Vladimir, the businessman, plays down those fears: "To take out a big sum and place it elsewhere - people will ask questions about where it came from. Everyone knows there's plenty of money here that smells bad."

Behind the billions, lies a solidly entrenched Russian community of about 50,000.

"We've lived here a long time, so we're taking it like Cypriots," says Olga, the co-owner of Afrodite Furs, one of four shops selling row upon row of fur coats in a city that lives in a near perpetual state of summer. "This is my second motherland."

But many of the year-round Russian residents are not wealthy and have spent several days queuing up alongside their Cypriot neighbours at automatic teller machines in a desperate bid to get at their cash before there is a bank collapse and they lose it all.