Policy Alert #47 | March 29, 2013

The banking crisis in Cyprus has generated a fierce outcry in Russia, while also highlighting the problem of tax havens in a globalized economy. This post examines Russian and Indian commentary on these questions. 

RUSSIA

In Russia, the EU-Cyprus agreement to seize a part of large deposits in its two main banks, including those belonging to Russian nationals, was decried as grossly unfair to Russian interests.  Russian companies and individuals reportedly hold over $30 billion- about a third of all deposits– in Cyprus’ banks.

• Russian Prime Minister Dmitri Medvedev heavily criticized the bailout, stating that “the stealing of what has already been stolen continues.”

• “Rescuing someone at the expense of robbing depositors is something new,” tweeted Alexei Pushkov, head of the State Duma’s International Affairs Committee. “If they ‘rescue’ like this again, all the money will pour out of Europe and the European Union will collapse.”

• Characterizing the bailout as “legalized theft,” Yury Pyanykh, president of the Association of Russian Businessmen in Cyprus asserted that “this violates a number of fundamental international treaties” and threatened to take legal action.

• “The European Union…is beating up on the Russians, who have no voice in Europe, and on Cyprus because it has friendly relations with Russia,” wrote Dmitry Afanasiev, chairman of the law firm Egorov, Puginsky, Afanasiev and Partners.

• “It is difficult to imagine the EU proposing to confiscate part of bank deposits in any other country,” said Fyodor Lukyanov, editor-in-chief of Russia in Global Affairs. “But the presumption that “dirty” Russian money allegedly constitutes the bulk of Cyprus’s assets encouraged the EU to insist on that unprecedented measure. Europe claimed that foreign crooks, rather than honest Europeans, would suffer as a result. This is a vivid example of dirty political technologies being put to use.”

INDIA

Besides underscoring the global interconnectedness of financial markets, the crisis in Cyprus is prompting comparisons to the role of Mauritius in India’s economy.

• As a commentary in the Economic Times points out, “Cyprus is to Russia what Mauritius is to India – an offshore financial haven for Russian companies and wealthy individuals to avoid high corporate taxes at home and legalise billions obtained in kickbacks and unaccounted deals.”

• In fact, when Indian stocks tumbled earlier this month in response to signs of government plans to  crackdown on tax evasions, a Hindustan Times analysis noted that Cyprus, a tax haven also for Indian wealth, is the 7th largest contributor of FDI to India.