From Der Spiegel (Nov. 5, 2012):
German Intelligence Report: Aid to Cyprus Could Benefit Russian Oligarchs
Cyprus could soon seek aid from the European Union's bailout fund. But according to a secret report by Germany's BND intelligence service, the aid might mainly benefit Russian oligarchs who have parked illegal money in bank accounts in Cyprus, SPIEGEL has learned. Russian deposits there total $26 billion.
Corbis
A luxury hotel in Cyprus. Some $26 billion in Russian money is parked in Cypriot banks.
The German foreign intelligence agency, the BND, has written a report suggesting that the European Union aid that may soon be paid to Cyprus could mainly benefit Russians who have deposited illegal income in accounts on the Eastern Mediterranean island, SPIEGEL has learned.From Global financial Integrity's February 2013 report "Russia: Illicit Financial Flows and the Role of the Underground Economy":
In a confidential report, the BND said Russians have deposited $26 billion (€20.25 billion) in Cyprus banks, an amount greater than the island's annual gross domestic product. These deposits will be guaranteed if European bailout money is paid to shore up the island's banks. The BND also accused Cyprus of still providing opportunities for money laundering....MORE
...Let us consider a case involving the transfer of illicit capital involving the “misrepresentation of export earnings, particularly in the energy sector”, as noted by Loungani and Mauro (2000).For some reason the name Gunvor comes to mind.
Say Company A in Russia exports oil to its Subsidiary B in the Netherlands. The transaction is undervalued at a price significantly below the world market price. The invoice for the transaction does not, however, accompany the shipment. Instead, the invoice goes to a reinvoicing company in Cyprus owned by the Russian exporter and there is repriced at something more accurately reflecting the world market price.
Customs administration in the Netherlands has no reason to question the invoice since the price is in line with prevailing norms. Subsidiary B turns around and sells the oil to another country in Europe at the world market price. Upon payment, it transfers the total revenues to the Cyprus reinvoicing facility, reaping a huge profit flowing into that account in Cyprus, a tax haven. At a later time, the illicit capital in Cyprus may be round-tripped back to Company A in Russia as recorded foreign direct investment.
This stylized flow of goods and capital resulting from the under-invoicing of oil exports and related illicit and licit financial flows finds considerable support in recorded FDI flows between Cyprus and Russia. According to the Coordinated Direct Investment Survey (CDIS) data reported by Russia to the IMF, Cyprus was its largest source and destination of FDI over the period 2009-2011.
The position (stock) data reported as of end-December 2009-2011, show that FDI from Cyprus was valued at US$129.9 billion, US$179.2 billion, and US$128.8 billion respectively while the FDI positions of Russians in Cyprus amounted to US$119.7 billion, US$153.9 billion, and US$121.6 billion respectively. It is unlikely that Cyprus, with a GDP of around US$23 billion can manage to make such large investments in Russia unless those investments were financed through illicit assets from Russia. The recorded FDI positions merely reflect the round-tripping of prior illicit deposits from Russia into Cyprus. The role of Cyprus in facilitating money laundering by Russians was also recently highlighted by Wolfgang Schaeuble, the German Minister of Finance....
HT on the two sources: Testosterone Pit.
Earlier:
What the Hell Just Happened In Cyprus
The Economic Knock-on Effects of the Cyprus Bailout
The Cyprus Cramdown: A Look at the Numbers
Cyprus: "Cash machines are now online with a personal limit of up to €600 for withdrawals."
