Spoiler: Cyprus has been a haven for Russian money for many years. Putin’s oligarchs have been pouring money into Cypriote banks and properties. And they used to be welcome. Russians invested in Cyprus mainly to launder their dirty money. They could also get a golden VISA, one for permanent residency and one for citizenship.
That door is closed now. Russia’s borders are still open. Russians with money and assets abroad are fleeing while they can.
A Cypriot citizenship could by attained through an investment programme. An investment of €2.0 million in real estate was required, plus a donation of €100,000 to the Cypriot Government’s R&D fund and €100,000 to the Land Development Organisation. A Cypriot passport allows the bearer the freedom to work, travel, study and live anywhere within the EU. Al Jazeera has a good report on this. More than one thousand Russians obtained a Cypriot passport through the scheme.
Al Jazeera revealed tis after an investigation of more than 1,400 leaked documents, the Cyprus Papers. The Cyprus Papers consist of 1,471 applications, containing the names of 2,544 people who received a Cypriot passport between late 2017 and late 2019.
Cypriot banks and Russian money are also frequently mentioned in the Panama Papers. Cyprus is mentioned more than half a million times. Documents from the Panamanian offshore law firm Mossack Fonseca shows over $2 billion in sweetheart deals for associates of Russian President Vladimir Putin passing through Cyprus.
Cyprus became a haven for dirty Russian money after the collapse of the Soviet Union. While regulators in most other countries were suspicious about the Russian money, Cypriot regulators looked the other way. In 2013, Moody reported that Russian money was deposited in Cypriot banks, and a amounted for roughly a third of all deposits in Cypriot banks.
These financial transactions are only part of the transactions from Russia to Cyprus and further on. I doubt that most of the transactions are of the kind that are registered in the capital accounts for Cyprus and Russia.
However, the door is closed. Cyprus is like the rest of the EU sanctioning Russian money.
And the Golden VISA scheme is shut down.
I think “temporarily” is a bit optimistic by the service provider.
Although Russian money to a large extent have may have been unrecorded in the balance of payments, some of it have found its way into Cyprus’ national accounts. GDP can be calculated as adding industry value-added. Compared to other countries’ Russian value-added accounts for quite a substantial share of Cypriot domestic final demand of the Financial and Insurance Services’ products. Russian value-added accounted for almost ten percent of final demand for these services in 2018, c.f. Figure 1.
Figure 1. Russian shares of final domestic demand of financial services in 2018 (%).
Source: OECD database. Trade in value added indicators. Note: the information in the figure is based on “Indicators based on the origins of Value Added in Final Demand” https://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm
But why did the Russians move their money out of Russia in the first place? Because of fear. Fear of having their assets and cash expropriated or plainly stolen by Putin. The situation for Rule of Law has deteriorated significantly since Putin became president, c.f. Figure 2.
Figure 2. Rule of Law index for Russia.
Source: Varieties of Democracy . https://www.v-dem.net/graphingtools.html
The graph above shows the extent to which Russian laws are transparently, independently, predictably, impartially, and equally enforced, and to what extent the actions of government officials comply with the law. As I showed in this post two years ago, Putin has destroyed the Russian judiciary system so much that the Rule of Law is almost absent there.