Long regarded as a tax haven for rich foreigners, especially Russian oligarchs and the super-wealthy who use the island as a place to store, or hide, their riches, Cyprus has become near-dependent on the money that pours in.

So much from Russia that The Financial Times’ writer Michael Peel, in a feature on the phenomenon, called the island Moscow on the Med, a nod to a 1984 American film starring Robin Williams as a Soviet circus musician who defects while on a visit to the United States.

There’s so much Russian money it could be called obscene and not even having 45 percent of their accounts confiscated in a 2013 government raid on banks to prop up the economy and the institutions brought to near-ruin by bad loans to Greek businesses and big holdings in Greek bonds devalued 74 percent drove the super-rich away.

They’re still there and spending like there’s no tomorrow, which is just fine with Limassol jeweler Michalis Constantinou who said 20 years ago he found out just how important Russian money on the island was.

He said a Russian woman came into the store looking for an expensive Omega watch to wear while swimming and he told her it was too costly to be used for that, a 20,000 euro ($21,915) time piece.

“No, no, no, this is the cheap one, because I have a 150,000-euro ($164,362) Patek Philippe at home – I just forgot to bring it to Cyprus with me.” Lesson learned.

Cyprus has also been accused by anti-corruption groups of not properly vetting rich foreigners buying Golden Visas that come with EU passports, not sorting out those who may be laundering money at the same time the bloc’s major banks were caught in scandals filtering Russian money.

Cypriot President Nicos Anastasiades defended the program, before his government pulled back passports from 26 foreign investors after the news agency Reuters reported flaws in the Golden Visa program, seen by critics as another conduit for money from abroad.

Cyprus became a member of the EU in 2004 – the legitimate government – with the self-declared Turkish republic on the northern third occupied since an unlawful 1974 invasion a pariah in the world and unrecognized.

While Anastasiades said he’s changing the image, the island has been seen like an ATM for rich foreigners and as a place to stash their cash, lured by low taxes, soft regulations, and the alleged rule of law and depositor guarantees offered by EU membership that helped turn it into a haven for Russian investors after the USSR collapsed, the paper’s report said.

MONEY TALKS

By late 2012, Moody’s estimated Russian banks and corporations had $31 billion on deposit in Cyprus, more than the country’s entire annual Gross Domestic Product (GDP), while cross-border loans to Cypriot-based Russian companies totalled somewhere between a further $30 and $40 billion.

Much of it is invested not in the divided capital of Nicosia but the coastal city of Limassol, historically the center of the island’s Russian community, with numbers so vast that the sign boards at the international airport in Larnaca light up with destinations from Russia.

As the paper noted, Limassol’s streets are lined with offices of law firms and businesses that help Russians and other foreigners to live, do business, or stow wealth on the island. One company, Limassolgrad, promises clients who want to buy property that they will be able to move “instantly, no need to wait.”

The high life stalled in 2013 when the financial crisis hit and even the Russians were caught up in it, the government scrambling for a 10-billion-euro ($11 billion) international bailout that came with attached austerity measures and bank account seizures.

The measures hit rich Russians and Russian companies particularly hard. “Of course a lot of people suffered, because they lost a lot,” transplanted Russian Victoria Maltabar told the paper of that time. “And they still talk about it,” she said.

Tens of thousands of bank accounts linked to Russians were closed and company boards shaken up, although critics say the changes did not go far enough with international investor and anti-corruption campaigner Bill Browder saying Cyprus is holding dirty money from a tax fraud by Russian officials uncovered by his former accountant Sergei Magnitsky, who was arrested and beaten to death in a Moscow jail in 2009.

THE RUSSIAN GAMBIT

“The situation in Cyprus is still a mess when it comes to dealing with Russia,” he says. “The reason for that is that they have such a conflict of interest because so many Russian individuals and companies base themselves there to invest in Russia. So there are numerous lawyers, company-formation agents, real estate brokers and others who are making money off the Russians. And the unfortunate thing is some people in government are making money out of this, or have family members who do.”

Russian investors and their families accounted for nearly half of the 3,153 golden passports awarded between 2013 and February 2018, according to a government answer to a parliamentary question.

Stelios Orphanides, a Cypriot investigative journalist, told the paper that the citizenship scheme has both deepened Russian links and opened up others. “Now you also get influence from billionaires from other countries,” he says. 

Under pressure from the United States, Cyprus has made some moves to tighten anti-money laundering procedures and co-operated with American sanctions on Russia but a report by the Moneyval committee of the Council of Europe said cited “various major shortcomings.”

The report found that authorities were “not yet sufficiently pursuing money laundering from criminal proceeds generated outside of Cyprus, which pose the highest threat to the Cypriot financial system”.

Jeweler Constantinou’s main shop in Limassol has reopened after a six-week lockdown aimed at preventing the spread of COVID-19 and most of the first customers back were Russians ready to spend wild.

“Most of the people here in Cyprus have the feeling that Russians come back very quickly compared with others,” Constantinou told Peel. “This is what they have done in the past. Hopefully, they will repeat it now.”