Cyprus crisis: Russia will not compensate its citizens who lost money in banking crisis

The Russian government has announced it will not compensate its citizens who have lost money in the Cyprus banking crisis.

Russian citizens are believed to have billions of euros in Cypriot accounts and deposits above 100,000 euros ($128,200) in the two biggest banks (Bank of Cyprus and Laiki) could be reduced by as much as 60%.

Such losses would be “a great shame”, First Deputy PM Igor Shuvalov said, “but the Russian government won’t take any action in that situation”.

Cyprus now restricts cash withdrawals.

A 10 billion-euro bailout from the EU and IMF – required to keep the debt-laden Cypriot economy afloat – will only be granted if Cyprus itself raises 5.8 billion euros, most of which looks likely to come from depositors with more than 100,000 euros in Bank of Cyprus and Laiki (Popular Bank).

Laiki, the second largest bank, is being wound up and folded into Bank of Cyprus, the biggest bank.

Speaking on the Russian state TV channel Rossiya 1, Igor Shuvalov said Russian money in Cyprus included some that had been taxed and some that had not.

The Russian government would still look at cases where there were “serious losses, involving companies in which the Russian state is a shareholder”, he said. That review would take place in Russia, and “for this it would certainly not be necessary to help the Republic of Cyprus”, Igor Shuvalov added.

Many of the large-scale foreign investors in Cyprus are Russian – and in many cases they have taken advantage of the island’s status as an offshore tax haven. Some politicians have accused Cyprus of acting as a hub for Russian money-laundering – an allegation rejected by Cypriot officials.

After years of large-scale capital flight from Russia there is now a Kremlin drive to repatriate Russian money. The government has introduced tighter monitoring of foreign bank accounts held by Russian state employees.

Bank of Cyprus depositors with more than 100,000 euros could lose up to 60% of their savings as part of the bailout, officials say.

Cyprus’ central bank says 37.5% of holdings over 100,000 euros will become shares.

Up to 22.5% will go into a fund attracting no interest and may be subject to further write-offs.

The other 40% will attract interest – but this will not be paid unless the bank performs well.

The fear is that once the unprecedented capital controls – which are in place for an indefinite time – are lifted, the wealthiest will rush to move their deposits abroad.

Cyprus has become the first eurozone member country to bring in capital controls to prevent a torrent of money leaving the island and credit institutions collapsing.

President Nicos Anastasiades has said the financial situation has been “contained” following the deal.

The president has also stressed that Cyprus has no intention of leaving the euro, stressing that “in no way will we experiment with the future of our country”.