One of the most alarming aspects of the proposed “deposit haircut” being touted in the past week is that it seems to come from thinly veiled hostility of many west Europeans towards Russia.
The somewhat ropey logic is that Russian inflows led the banks to be flush with liquidity, he banks invested this in Greek government bonds, so since the Russians caused the crisis, they should be pay for it with a cut in their deposits.
With sweeping statements that border on the racist, the German and, to some extent, the British media have implied that every cent that comes in or out of Russia is “dirty”–the result of laundering or tax evasion.
Russia supplies 25% of the EU’s gas. So if this were true, then all of those enormous gas supply contracts between Gazprom and Germany or Gazprom and the UK must be the product of a state-owned entity’s attempt at tax evasion. This does not make sense.
What does make sense is that Russia is a difficult place to do business, so Russians, including Russian state-owned entities, have long found it easier to use a secure place with a sound legal system and a good double taxation treaty to conduct their business.
And, like all international companies all over the world, they pick their jurisdictions to maximise tax efficiency. So whereas American multinationals may choose Ireland, Russian corporates choose Cyprus.
This is not to say that Cyprus cannot do better in tackling money-laundering. Of course it can. It is already ahead of Germany, if you measure it according to the compliance with the Financial Action Task Force (FATF) recommendations.
But it is not yet top of the class. That place is taken by our rival for international business, Malta.
But if Cyprus wants to keeps its position as an international business centre, it should to take the lead in tackling money-laundering.
Professionals should not only implement the rules but, most importantly, be seen to be implementing them. This might mean less self-regulation and more whistle-blowing than we have had in the past. It also means we should publicise prosecutions, rather than hiding them out of some sense of shame.
Becoming the world leader against money-laundering is our best defence against knee-jerk opinions about Russia.
It will also attract new clients from elsewhere, helping to reduce our overdependence on one market that has made us so vulnerable to attack in the first place.