Russians prepare to quit Cyprus

By Courtney Weaver in Limassol

For Fedor Mikhin the deluge of overseas phone calls began on Wednesday, just five days after the EU first proposed the ill-fated tax levy on Cypriot depositors.
There were the two Andorran bankers who called offering to open bank accounts for the Cyprus-based businessman in the Pyrenees, and then Mr Mikhin’s Swiss bank, which announced it would be sending representatives to Limassol to
poach Russian clients on Tuesday, the day Cyprus is due to reopen its banks for the first time in over a week.
While last week saw dozens of well-heeled Russians and their representatives fly down to Cyprus to check on bank accounts and confer furiously with Cypriot officials, they are being closely followed by another wave of visitors: the European bankers who hope Cyprus’s loss will be their gain.
One Cypriot lawyer with Russian clients said he had already been approached by half-a-dozen European banks in locales ranging from Latvia to Switzerland to Germany, some of them promising they could open new bank accounts for his clients in under an hour.
In Limassol, a lawyer for a Russian oligarch described receiving a call from the tycoon’s Swiss bank, which offered to open bank accounts for all the oligarch’s Cyprus-based employees as a favour, as well as emails from a dozen local Cypriot consulting firms imploring him to use their services when opening new accounts abroad.
While it remains to be seen how Cyprus’s many Russian businessmen will be affected by the proposed bailout and what comes after, most appear to have one foot out the door already. They are now considering to which jurisdiction they will move their businesses and how.
“The Cypriots killed their country in one day,” says Mr Mikhin, referring to Friday March 15, when President Nicos Anastasides accepted the EU’s proposal to seize €5.8bn in emergency funds from Cyprus’s local and foreign depositors.
What concerns Mr Mikhin, the owner of an international shipping business, is not the levy itself. It will not touch his foreign bank accounts. But he is worried about the destruction of trust in Cyprus’s financial system, a move he says has spooked Russians and Russian business.
“The locals should understand: as soon as the money leaves, the people who go to restaurants, buy cars and buy property leave too. The Cypriots’ means of living will disappear,” he says.
“They are saying we laundered all the money, but they lived on that money for 10 years and forgot about it.”
The impending exodus has become a source of worry and anger for the thousands of lawyers, secretaries and auditors who serve Russian clients and may soon lose their jobs along with employees from the country’s two biggest lenders, Laiki Bank and Bank of Cyprus.
“[The Russians] are calling us, they are worried. But what can we say? We can’t force them to stay,” says Andreas Neocleous, a Limassol-based lawyer for some of eastern Europe’s richest men.
Worse, he argues, is the hypocrisy with which the EU is treating Cyprus. Most of his clients also do business with Europe’s most prestigious law firms, and are likely to move their business to these same European countries if Cyprus’s financial system collapses.
“Success breeds envy and jealousy. That is what we are facing,” he says angrily. “Out of the big cake of eastern European, Russian business, Cyprus receives 0.5 per cent, 0.6 per cent. And now Europe wants to deprive us of that as well.”
Says another Nicosia-based lawyer: “I don’t understand why it is money laundering when it’s in Cyprus, when in London it’s a perfectly respectable company.”
Not all Russians are packing up shop yet, with some, including Mr Mikhin, waiting to see what happens when Cypriot banks reopen, and if Russia and Cyprus’s double tax treaty remains in place despite a lightly veiled threat by Dmitry Medvedev, prime minister, last week to dismantle it should the ultimate bailout be unfavourable to Russia.
“If the double-taxation treaty is lifted there will be no reason for us to stay in Cyprus,” an oligarch’s Russian lawyer says bluntly.
Mr Mikhin complains that the Cypriots do not appreciate the extent to which Russia has propped up the local economy. “When the Russians leave who is going to stay at the Four Seasons for $500 a night? Angela Merkel?”
But there are signs that a growing number of locals realise how drastic a mass emigration of Russian business would be.
Over the past week, a new billboard has sprung up on the highway between Limassol, the palm-treed beach town favoured by the Russians, and Larnaca International Airport.
Drawing on Russia and Cyprus’s shared Orthodox faith and deep political ties dating back to the Soviet era, the advertisement displays a massive Russian flag, with a desperate plea in Russian underneath: “Brat’ya ne predaite nas!”
“Brothers, don’t betray us!”
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