If you’ve been following the bank crisis in Cyprus, you know that the initial deal — which would have required a “levy” of a certain percentage of all deposits in Cypriot banks — was scrapped, in favor of a levy on certain deposits in certain banks. Only accounts with balances over the €100,000 deposit-insurance limit would be affected.
During the period when all banks in Cyprus were supposedly closed, Russian oligarchs, Cypriot politicians, and other depositors — who just happen to be extremely wealthy and influential — were somehow able to spirit their assets out of the country before the levy kicked in, leaving medium-sized depositors, mostly entrepreneurs, to bear the brunt of the “haircut”.
Events in Cyprus are being closely followed by observers in other parts of Europe, especially Germany. JLH has translated three recent articles from the Griechenland-Blog, a German-language site that specializes in Greece.
The first article:
Germans Scramble for the Illegitimate Money From Cyprus (I)
March 29, 2013
Bankers from all over the world — especially Germany — are scrambling to transfer the allegedly dirty Russian money from Cyprus to their institutions.
In his interview of March 26, 2013 with Austria’s Wiener Zeitung, the head of the union of bank employees of Cyprus (ETYK), Loizos Chatzikostis, makes the strongest recriminations against Germany. The Germans, he says emphatically, pursued and achieved the destruction of the Cypriot business model and now they are “scrambling” to transfer the “illegitimate Russian money” from Cyprus to their banks.
Mr. Chatzikostis maintains that the decision of the Euro group represents a heavy blow to the banking sector and the development of the Cypriot economy. He remarks, “We gave others the opportunity to plunder us. The Germans wanted to destroy our business model, and they have done so.”
Dirty money becomes clean money in German banks
The head of the ETYK remarks trenchantly: “For Berlin, apparently, the ‘dirty money’ is magically cleansed of its sins in the air on its trip from Cyprus to Germany and suddenly becomes ‘clean’.” He further criticizes the decision of the Euro group on the splitting of the Laiki into a “good” and a “bad” bank, since the bank in his opinion can survive. He also emphasizes in regard to the Cyprus Bank that it can also survive, despite having to assume the €9 billion debt of the Laiki Bank.
Loizos Chatzikostis simultaneously expresses his unease at the possible wave of firings of bank employees, and notes that no study of the effects of the Euro group’s decisions on Cyprus had come from any quarter before the action. At any rate, he adds, the union of Cyprus bank employees insists that there be no firings and the reduction of personnel occur in a socially acceptable manner by voluntary departures, as was the case in the Greek postal bank.
Demand for exemption of pension accounts from the compulsory levy
He says that the ETYK demands that the forced levy not apply to the pension accounts for bank employees,, since, for example, that specific account has more than 350 million euros, to which 3,500 employees have claim, and he calls to mind that Cypriot President Nikos Anastasiadis, as well as the president of parliament, Giannakis Omirou, have promised that the employees’ pension account would not be compromised.
In his opinion, mistakes were made in the past by the Cypriot banks, since the entire system was not on a stable foundation. And meanwhile, the Greek crisis had serious consequences for Cyprus, because Cyprus’s share of the Greek debt “haircut” cost the banks 4.5 billion euros.
The second article:
Germans Scramble for the Illegitimate Money From Cyprus (II)
March 29, 2013
Foreign bankers “besiege” Russian depositors in Cyprus
Representatives of European banks are canvassing en masse, hoping to make a profit from the losses of Cyprus.
For Fedor Mikhin, the flood of telephone calls began Wednesday, just a few days before the EU’s first proposal about placing a levy on the Cypriot bank assets. At the other end of the phone line were two Andorran bankers who offered to open accounts for his Cyprus-based enterprise. After that , there were Swiss, who announced their intention to send representatives to the island on Tuesday — the day when the banks on Cyprus would presumably open — to “pick up” Russian customers.
In the past week, many Russians or their representatives came to Cyprus to examine their accounts and “consult” with officials. Then there was another wave of visitors — the European bankers who were hoping to benefit from the losses of Cyprus.
A Cypriot lawyer with Russian clients claims he has been “contacted” by European bankers from places like Latvia, Switzerland and Germany. Some of them pledged that they could open accounts in less than an hour. The lawyer of a Russian “oligarch” in Nicosia describes a telephone call from a large Swiss bank which offered to open accounts for all the employees of his firm.
Although it is not yet clear how the Russian entrepreneurs will be affected by the “bail in,” most of them seem to have one foot out the door and are investigating how and under what circumstances they can move their businesses.
Why is it money laundering in Cyprus and business in London?
“The Cypriots killed their own country in one day,“ says Mikhin, referring to the day the €5.8 billion proposal was laid before Nikos Anastasiadis, the president of Cyprus. What concerns Mr. Mikhin, the owner of a shipping business, is not the levy itself. What he is worrying about is the loss of faith in the Cypriot financial system. It makes him uneasy: “The Cypriots have to understand — when the money leaves, the people who buy cars and real estate also go. The resources for the survival of the Cypriots will disappear. They are claiming that we laundered money, but they lived with this money for ten years, and they had forgotten that.“
“The Russians call up and are nervous. But what can we do? We can’t stop them from leaving,” explains Andreas Neocleos. the lawyer for several of the richest persons of Eastern Europe, and adds: “The worst thing is the hypocritical way the EU is dealing with Cyprus.“ Most of his clients also do business with large European law firms and, in the event Cyprus collapses, might move to European countries. Another lawyer expresses his astonishment at the fact that, “what is money laundering in Cyprus is an absolutely respectable business in London.”
Nonetheless, not all the Russians are preparing to leave Cyprus, since there is also the problem of double Russia/Cyprus taxation. “If the avoidance of double taxation is rescinded, we have no reason to stay in Cyprus,” says the lawyer of a Russian oligarch.
Mikhin laments that the Cypriots have not valued the degree to which the Russians have supported their economy and he wonders: “If we leave, who will stay in the $500/day rooms? Angela Merkel?“ And yet, there are signs that the natives understand how dramatic a mass exodus of Russian firms would be. Characteristic of this is an ad that shows a huge Russian flag, and under it: Brat’ya ne predaite nas! — Brothers, do not betray us!”
The third article:
Cypriot Businesses Say: Thanks for Ruining Us!
March 31, 2013
Entrepreneurs from Cyprus: We thank Ms. Merkel and company for destroying us!
One of the phony arguments “justifying” the confiscation of cash in Cyprus was that this seizure primarily affected rich tax dodgers and Russian oligarchs. However, information about the flight of capital from Cyprus during the time when the banks were closed to ordinary people leads to the conclusion that this category of people may be the very ones who are affected least by the “haircut.”
On the contrary, it becomes ever more obvious that those affected by the “cut” are the uninsured savers and the small-to-large entrepreneurs who had clearly parked their cash in Cyprus as working capital. This has to do with entrepreneurial liquidity, which is now gone forever and henceforth can no longer be used to finance entrepreneurial activities like loan payments, purchases and overhead.
This is explained by an anonymous Cypriot entrepreneur in a post on the (coincidentally?) digital money platform BitCoin, aka Bitcoin Forum, and includes a screenshot of the checking account of his firm at the Laiki Bank.
We are moving to the Caribbean…
Most of the money from our account is blocked. More than €700,000 in appropriated money will be used toward redeeming the country’s debt. Possibly in 6 or 7 years we may recover 20% of it.
I am not a Russian oligarch. I run a medium-sized European information company. It is definitely ruined; all employees on Cyprus will be let go. Thousands of other firms on Cyprus are in the same situation.
We are moving to a country in the Caribbean where the authorities have more respect for the people’s wealth. We are also considering the use of Bitcoin for payment of loans and for payments between our businesses.
Our special thanks to:
- Geroun Ntaiselmploun
- Angela Merkel
- Manuel Barosso
- The rest of the public servants on the commission
Devastating regulations for customers of the Laiki and Cyprus Banks
In addition, let it be noted that — in accordance with the last decrees of the Cypriot Central Bank on March 29, 2013 — all assets of natural and legal persons secured by deposit insurance of up to €100,000 were transferred from the Laiki Bank to the Cyprus Bank, effective on March 26, 2013. All assets beyond this remain in the “bad bank,” Laiki, and most likely 100% of them will be lost.
Thereafter, if the total assets of a natural or legal person — after consideration of possible financial obligations — exceeds €100,000, the following shall apply:
- 37.5% of the assets will automatically be transformed into 1st class stock of the Cyprus Bank with voting rights and claim to dividends.
- A further 22.5% will remain frozen temporarily and, at the latest within 90 days of the conclusion of the evaluation of the Cyprus Bank, will be transformed completely or in part into stock for the purpose of re-capitalizing the bank — if in part, the remaining amount will be converted back into assets.
- The other 40% will for the present be frozen as regards liquidity, but continue to earn interest and not be employed for the re-capitalization of the bank.
The practical result of this regulation is that uninsured assets are 37.5% lost, another 22.5% used to “sanitize” Cyprus Bank or — in a best-case-scenario — more or less added to assets. The other 40% will stay frozen for the foreseeable future.
Customers of Laiki Bank will therefore most likely lose all capital not covered by deposit insurance. Further details will follow shortly.