In the seven years since she arrived in Cyprus as a penniless, unskilled immigrant from the former Soviet Union, Galia has carved out a lucrative niche in the island’s sprawling financial services sector.
Galia, who does not want her full name to be used, is the director of a Russian-owned company and, with the help of a local bank official, she helps a Russian government official bank money in Cyprus. The transfers arrive at irregular intervals, each amounting to about $1m, says the 35- year-old Nicosia resident, now a Cypriot citizen.
Yet Galia, and thousands of others employed in the sometimes dirty business of transferring money from Russia to the Mediterrean island with a low corporate tax rate and lax financial regulation, could soon find herself out of business.
Cyprus faces intensifying pressure to tighten regulation of its financial services sector as a condition for a bailout worth up to €17bn being negotiated with the EU and International Monetary Fund.
Finance ministers will meet in Brussels today to discuss aid for Cyprus with the aim of thrashing out the terms of a rescue by the end of March. Even if they reach a deal, it could still be blocked by Germany’s parliament where suspicion of Cyprus over money laundering is strong.
Under particular scrutiny are €25bn of deposits in Cypriot banks controlled by Cyprus-based Russian companies, almost one-third of total Cypriot banking deposits. The scale of Russian-owned deposits, along with huge two-way flows of “hot money” between Russia and Cyprus, have triggered suspicions of money laundering and tax evasion, prompting the IMF to push for a “haircut” on depositors.
The IMF and Germany want to force losses on bank depositors to help reduce the size of the bailout and make the island’s debt sustainable.
Cyprus attracted $119.7bn of Russian “investment” in 2011 while itself transferring $129.9bn to Russia the same year, equivalent to more than five times the island’s annual output
, according to Global Financial Integrity, a US-based money laundering watchdog. Raymond Baker, GFI’s director, said the amounts reflected “round-tripping” of illicit funds exported from Russia to companies based in Cyprus. The funds then flowed back as legitimate investment.