The Kremlin’s initial outrage over developments in Cyprus – and the island’s shocking expropriation of billions of dollars held by Russian companies and citizens – has given way to mild indifference. “If somebody gets caught and loses money at the two largest [Cypriot] banks, it’s a shame,” First Deputy Prime Minister Igor Shuvalov recently stated, “but the Russian government isn’t going to do anything about it.”
It turns out that the European Union settlement that left Cyprus’s banking sector in shambles has done Moscow a big favor. Not only did the EU take down a major offshore banking center, it helped President Vladimir Putin’s campaign to return to Russia any money stashed away in offshore bank accounts.
This seemingly technical financial issue also reveals a potential sea change in the rules of the game for Russian business.Instead of seeking shelter abroad, Russian companies and financiers may finally have a stake in fighting to protect their money at home
Putin had first talked about his policy of “de-offshorization” in a December 2012 state-of-the-nation speech. He criticized the lack of transparency of offshore tax havens and complained that Russian companies were escaping domestic law by selecting foreign jurisdictions to settle commercial disputes.
Within two months, Putin proposed a ban on government officials from holding overseas bank accounts and owning foreign-issued stocks or bonds. This draft legislation was followed by an April 2 decree requiring that government employees submit reports on income and expenditures to the presidential administration by the beginning of July ‑ including all information regarding foreign bank accounts, securities and property. The Russian media immediately speculated that several government officials would resign before this July deadline.