“Whoever controls the Bank of Cyprus controls the island,” said Andreas Marangos, a Limassol lawyer whose clients include many Russians.We mention this for two reasons. First, the story itself is interesting. The first three paragraphs give the flavour:
"When European leaders engineered a harsh bailout deal for this tiny Mediterranean nation in March, they cheered the end of an economic model fueled by a flood of cash from Russia. Wealthy Russians with money in Cyprus’s sickly banks lost billions.The story isn't quite as simple as these paragraphs suggest, of course: among other things, the "Russian" ownership stake seems to be fairly dispersed, at least at this point. But there's another issue we want to point to, which is the main point of this blog. It's that this provides yet another example of the extreme forms of 'state capture' which we have seen, again and again, in small islands with large financial sectors: tax havens. The NYT story continues:
But the Russians, though badly bruised, are now in a position to get something that has previously eluded even Moscow’s most audacious oligarchs: control of a so-called systemic financial institution in the European Union.
“They wanted to throw out the Russians but in the end, they delivered our main bank to the Russians,” said the Cypriot president, Nicos Anastasiades, in a June interview."
"Despite its wobbly condition, the Bank of Cyprus still holds a uniquely influential position in the economic and political affairs of a sun-swept nation that sits on potentially large reserves of natural gas and straddles strategic fault lines between East and West.Particularly thanks to David Officer and Yiouli Taki at the University of Nicosia, we already had plenty of information of the "capture" of Cyprus by the offshore financial services sector - see here and here and here. This blog is a reminder, and a confirmation, of one of the most important political-economic phenomena in the modern global economy.
President Anastasiades, in a June letter to the European Central Bank that pleaded for help to keep the Bank of Cyprus afloat, described it as a “mega-systemic bank” that, if it failed, could bring down the entire Cypriot economy. With 5,700 employees and around half of all the island’s deposits, it dwarfs its rivals and reaches into every corner of the country."
Let's not forget, whoever has this kind of influence will be able to change the laws, to turn Cyprus into whatever kind of tax haven or secrecy jurisdiction that they want.
Much more on this broad issue in Treasure Islands and in our Finance Curse e-book.