The Bailout Of Russian “Black Money” In Cyprus

Wolf Richter's picture

Wolf Richter

Timing couldn’t have been worse. Or more opportune. A “secret” report by the German version of the CIA, the Bundesnachrichtendienst (BND), bubbled to the surface, asserting that the pending bailout of Cyprus would use the money of taxpayers in other countries, particularly in Germany, to bail out mostly rich Russians who have over the years deposited their “black money” in Cypriot banks that are now collapsing.

Not that the bailout of this tiny speck of land with 840,000 people isn’t in enough trouble. Admitted into the Eurozone in 2008, Cyprus veered towards bankruptcy in 2011 but was temporarily bailed out last November by a €2.5 billion loan from Russia. That money didn’t last long. In June, it asked the Troika, the austerity gang from the EU, the ECB, and the IMF, for a full-fledged bailout. So Troika inspectors have been combing through the financial rubble to determine a bailout amount and needed structural reforms.

On Thursday, Finance Minister Vassos Shiarly was still optimistic. He hoped that negotiations with the Troika would conclude before the November 12 meeting of Eurozone finance ministers. On Friday, he admitted that a number of issues were still unresolved, including privatization of state-owned enterprises and elimination of Cost of Living Adjustments for wages, both of which have hit a wall of resistance. But then, a Troika report that Reuters “obtained in Berlin” considered Cyprus’ latest proposal for structural reforms “insufficient” and urged the government “to cooperate with the Troika.”

Shocked and appalled, government spokesman Stefanos Stefanou added to the confusion over the weekend by quibbling with the word “insufficient” and by denying that the government knew anything about that report. Alas, just then, the revelation that a bailout would mostly benefit rich Russians who had their “black money” stashed away in Cyprus’ failed banks slapped Germany’s taxpayers, who’d have to foot a large part of the bill, in the face.

The BND report concluded that this “black money” amounted to €26 billion—about 150% of the country’s GDP. Money that the banks had plowed into Greek sovereign bonds and the housing bubble that came with a nationwide title-deed scandal of phenomenal proportions [ Another Eurozone Country Bites the Dust ]. And now the banks need at least €10 billion to stay afloat.

The BND report also lambastes Cyprus for creating a fertile ground for money laundering. While some laws have been passed and some institutions have been created to combat money laundering, they’re apparently just decoration; rules are simply not enforced. Money laundering is further facilitated by the ease with which rich Russians can obtain Cypriot nationality—and thus freedom to establish themselves financially anywhere in the EU, which according to the BND, 80 Russian oligarchs have already done.

There are over 40,000 mailbox companies in Cyprus. Many have large subsidiaries in Russia, and profits are siphoned off in Cyprus. To accede to the EU in 2004, Cyprus had to clean up its act a bit. But only on the surface. Finance activities strengthened, particularly when Cyprus became part of the Eurozone: at the peak, according to the BND report, financial services and banks accounted for up to 70% of the country’s economy. So much so that Cyprus, in turn, has become the largest foreign investor in Russia [ read.... Bankrupt Cyprus and the Russian Connection ].

Taxpayers in other countries, including those in the US—via the US contribution to the IMF—will be asked to step up to the plate to bail out that system. Even tiny Cyprus cannot be allowed to default and exit the Eurozone, and even “black money” investors from Russia must be bailed out. Otherwise, Cyprus would be the first domino to topple, as the cliché goes, or the second, if Greece were allowed to go first, with mega-consequences that would ultimately take down the entire universe.

That logic has been proffered as rationalization for all bailouts. There is never an alternative! But as these bailouts have shown, including those of Wall Street by the Fed and the Treasury, they not only prop up but propagate deeply corrupt systems.

For rich Russians, Cyprus, with its 10% corporate income tax, is not only a tax haven; as an EU member, it’s a safe haven from their own government, something they have learned to appreciate. Cyprus tried to play Russia, and its double-edged anxiety, against the Troika in order to negotiate better bailout terms. But now Russia is letting Cyprus twist in the wind, as banks are in worse condition than imagined, and as bailout amounts jumped once again. For that whole debacle, read... The Incredibly Ballooning Bailout Of Cyprus.

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steve from virginia's picture


Once on the debt treadmill, there is no getting off. BTW: the bailout costs for Cyprus are more like €200 bn not €20 bn ... just not all at once.


Meanwhile, back at the ranch, the rest of Europe (ROE) needs €4 trillion and it needs that all at once. This must be new money, not just recycled crud by way of the ECB.


Listen carefully and you can almost hear the rivets on the mighy Eurozone breaking  ... and the water rushing in ...


luckylongshot's picture

The entertaining part of watching the tide go out unexpectedly is you get to see who isn't wearing swimwear.

viahj's picture

and, whose hand is up whose ass.

Scalaris's picture

There was a frontpage, around a week ago, in one of Cyprus main newspapers, essentially saying "Give us more oil & gas fields, and screw Troika's loan", which was Russia's/Gazprom statement, a rather expected position given that nobody expected the "delicate" negotiations of the currrent imbecilic government to yield any results whatsoever, and anyone with a modicum of logic anticipated that Russia would demand a hefty 'quid' for its 'quo' offering.

Naturally, in order to assume a political position, one must excel at gross cronyism, as well as moronism.

shovelhead's picture

The Russians, at least,  have access to the famous Turkish tobacco of Latakia.

What do they get with Cyprus?

Exploding Iranian munitions confiscated on their way to Syria?

Not a great deal.

Invest in Assad. Screw Cyprus.

The Troika won't fail to bail. It's what they do. They have no choice.

falak pema's picture

At least Testo armpit, Wolf, is now barking up a true tree, singing a sensationalist ragtime song, about dirty money; its more atuned to our time's real REnaissance chimes than talking about phoney nationalisations. 

Following the dirty money trail is like watching the Renaissance Popes use indulgences to save their role as Saviour of world, all the while they wear iron chain mail, under their red hats n robes, and make war like any other potentate to save their own hold on humanity. God/religion had become the MEANS clearly of hoodwinking people not the AIM of eternal salvation that it was supposed to be. It was blatant to all those who read Gutenberg's press and Luther/Calvin/ERasmus's written words as they knew it in their minds as they did in their suffering sinews, fighting and dying like canon fodder in the fields of Italy.

In today's age the new God is the Almighty MARKET, and the kleptocratic oligarchs of all folds bow to it in name like a Papal Curia all dressed in billionaire's scarlet, while they rape and maim people of all nations. And it is misused and abused in exactly similar fashion five centuries later, while people die in the roads of the ME as in the back alleys of every continent as the age of famine and food scarcity will emerge big time.

What we see today is a sea of fiat filth rising to the surface of an illusionary economy whose hold on Man is his very real chain of monetary servitude, in Athens as in Spain, coming our way more and more every day. We are victims of our own definition of what illusionary wealth; aka salvation; means. It only enrichens the already rich! 

How did it play out then? We had the Reform and the Emergence of new values : "free will" and nation states. Universal God was dying in Rome but he "died politically" during a two century continental fight of blood and guts  spilt in every street of Europe until the Enlghtenment emerged.

Buckle down, as Renaissance chimes of debased global Pax Americana order, and its interplay with rival Oligarchs, bring in the new age of religious wars and a new world order, of which the FIRST expression then, as today, was the UNIVERSAL monarchy of Charles Habsburg; morphed continuator of the Pope's centuries old Catholic dual Holy Emperor/Pope order, reinstated under Charles and Consorts in blatant Inquisitorial repression worldwide; aka Pax Americana's new Oligarchy, red/blue crony construct and institutional hold today. We know how THAT ended and we know how that raped the halls of Montezuma, like the vaults of black ME gold today...Just read History and you'll know what is up ahead, in Cyprus as elsewhere, like in Malta or Tunis then. Its a long winding road, that of History, never a straight and narrow one!

And it does follow the same denouement each time, responding to man's fatal impulse of putting himself inevitably in his  self-built Cul-de sac; his oligarchical hubris, once he achieves his aim of being king of the heap... The harder the fall!

Nemesis and Karma will wash out the Augean stables every time! The circle of life spares no political construct.

The only true unknown today is our collective will to destroy irremediably our own ecosystem.

Now that is beyond what Charles of Habsburg's legacy spelt out in History. Its a true conundrum like no other.

Maybe we should consult the Dinosaurs on that! 


gmrpeabody's picture

Got a lot of spare time on your hands..., eh Falak?

Treason Season's picture

Especially considering that epic novel he's writing.

The Reich's picture

alternativlos, bitchez

billsykes's picture

i love it.  a beautiful deleveraging.

Joe A's picture

So let these banks bankrupt and you get rid of a lot of dirty Russians. But alas, we are not living in a world where there is justice or else the wolrd would have let faulty banks to default anyway. They may not like each other but corrupt elites will bail each other out and pass the bill onto the taxpayers.

Grill Boss's picture

What if the russians (govt) told the other russians (govt oligarchs) ((Pretty much themselves talking to themselves)) they would bail out the russians (themselves) with govt money (other peoples) and let cyprus die and all non-russians (everyone else) deal with it?

Financial espionage? Sure gas and oil sales would drop... but somehow syria would be involved in this mess and some other cronyism... Red Dawn or Pre-Dawn Raid, red lobster, red rooster, campaign booster, punky brewsters millions, troika trillions and so on?

falak pema's picture

you sound like grilled bass! I'll have some of that! With sparkling white. 

Navymugsy's picture

The new Russian/Chinese pasttime is to buy properties here on Cyprus in order to gain Cypriot citizenship (EU citizenship) via the backdoor. All you have to do is spend 300,000 euros and you're in like Flynn! This is an extremely corrupt, backwards nation. The weather is great though...if I was an Oligarch I'd pony up 300K euros to have an outlet to avoid Putin's gulags and keep my tan working.

Vigilante's picture


Cyprus is doing a great job 'offshoring' itself.

I would exit the fuckin euro is I was running the country

JOYFUL's picture

Top notch stuff Wolf...

but since 'quibbles' are the order of the day, here's a small one....

use of the term "rich Russians" provides the reader a false understanding of the dynamics in play here. Of course you are referring to dual-citizened Khazarian pillagers, who, just like their uber-successful models in the USSA, hold their illicit gains offshore from where they conduct their depredations...

dual-citizened Russian mafiya khazarian sionists...wherever you go, there they are!

I am looking forward to the 'take down of the entire universe' and the masters of as to allow us to re-align with that parallel universe of the really real...where no "bankers" boldly go!

DeadFred's picture

I'll bet if the natural gas lines from Russia to Germany suddenly have safety issues forcing them to be shut down the Germans would bail out the banks without any fuss.

Joe A's picture

From Russia with love...or rather, not from Russia with no love.

q99x2's picture

If Germans have people working then of course they should be made to pay the rich. In America we quit working and are making the banksters pay for our telephones, rent, education and cars. Germans should quit working too or pay the consequences.

Davalicious's picture

How many of these Oligarch are Jews?

Wakanda's picture

So the BND is lighting the fuse with this leaked report?  With the US elections entering the final stretch, Europe can finally take care of business - by going bankrupt.

Stuck on Zero's picture

Instead of bailing out one group, one country, or one bank at a time why doesn't the EU simply hand everyone 10 trillion Euros and call it even?


Bansters-in-my- feces's picture


23 Lettes in that BND word thingamajjiggy.

No saying this BND word during drinking games.

flacorps's picture

No wonder the ECB is whistling past their own gaping grave as they diss tiny (but significant) BitCoin.

forexskin's picture

if Greece were allowed to go first, with mega-consequences that would ultimately take down the entire universe.

That logic has been proffered as rationalization for all bailouts. There is never an alternative! But as these bailouts have shown, including those of Wall Street by the Fed and the Treasury, they not only prop up but propagate deeply corrupt systems.


but deeply corrupt systems need some love too! :(

ebworthen's picture

Russian Mob, Wall Street Mob, Washington Mob, Banker Mob - same difference - the world is run by organized crime; some private individuals who are gangsters and some public officials who are their henchmen.

Dead Canary's picture

Well, that's no way to talk mister gloomy pants! Obomney will save us.

carbon's picture

SAVE US, i ust copy that, That rule is slippery because it would purport to effectively ban new 


coal-fired plants, with a stated cost of zero because natural gas is 


presently so cheap that new coal capacity isn’t being built. But it would 


also create the predicate for litigation that would shut down existing 


coal plants, cementing as Obama’s legacy his promise to bankrupt coal 


and make electricity prices skyrocket.

StychoKiller's picture

Someone has a bad case of the Mondaze!

bank guy in Brussels's picture

With the rudeness of the US-Nato and their European poodles to Russia, it is not surprising Putin is willing to let Cyprus be the match that lights the EU-Nato bonfire

Says above:

« Even tiny Cyprus cannot be allowed to default and exit the Eurozone ... Otherwise ... mega-consequences that would ultimately take down the entire universe. »

Mr TesticlePit above speaks of the corruption of the bailouts ... true enough ...

But as Jim Sinclair - no friend of banksters - warns:

« The economy is a drug addict. ...  You go cold turkey on money creation, you unleash the economic wrath of hell in the entire Western world. It all comes down in one great implosion. ... You have to wean a drug addict off the drug in order to not kill him in recovery ... the mishandling of any situation due to dogmatic beliefs can set off a nuclear explosion. I would walk the Western World Financial System back to sobriety, not try to blast it back which would fail miserably. »

Otherwise it could be just like Charlon Heston at the end of the original classic 1968 'Planet of the Apes':

"Oh my G-d! ... They finally really did it!
G-d damn you!
G-d damn you all to HELL!"

Ned Zeppelin's picture

Bank Guy is either a MDB comedian or a shill. 

caustixoid's picture

I'm voting shill, although it IS a good analogy -- western banks and governments as smack addicts.  Anyone who's ever dealt with a drug addict knows they're always bullshitting about getting "one last fix and then I'm quitting for sure.  C'mon man, you gotta help me, I'm DYING here.  Just one hit and I SWEAR I'm done." 

So Bank Guy, "just one more bailout to get over the hump" eh?   Yeah, THAT'S going to end well.

disabledvet's picture

I was thinking this more interesting from the standpoint of Russian Oligarchs saying this. There are few American billionaires being minted these days...I highly doubt they'll be "doubling down on Greece" even if we were minting new ones as the Russian variant has to their chagrin. No...the San Francisco Giants were ordered to win the World Series for a reason: most of the money in the world is now there. And of course "they have the housing bubble to prove it." What's going on in Belgium these days anyways? Amstel Light is big over here...