Thursday, April 21, 2011

Cyprus, Russian bankers and the oil price

A nice, if slightly involved, article from the Financial Times' Alphaville blog, quoting Standard & Poor's:

Non-resident deposits account for 144 per cent of Cyprus’ 2011 GDP. S&P says, when you include deposits from the subsidiaries of foreign companies channelling funds through the country for tax arbitrage purposes. In fact it seems to finance a good old chunk of the Cypriot current account.

No surprise there. But then there's an interesting graph, correlating nonresident deposits with oil prices. And it says:
More than anything else, what seems to drive nonresident deposit levels in Cyprus is the price of oil (see chart below); when oil prices are high, the levels of nonresident deposits in the Cypriot banking system increase. This link occurs through CIS [Commonwealth of Independent States] commodity-based shell companies that deposit transactional balances of their CIS-based legal subsidiaries engaged in oil, mineral, and metals exports, often involving transfer pricing and other tax minimization strategies. The Central Bank of Russia classifies Cyprus as the largest single source of FDI in the Russian Federation, with a total of $41.7 billion in cumulative inbound FDI into Russia’s non-financial sector between 2007 and 2010 (over 2.7x German levels)

Cyprus is also counted among the top FDI investing nations in several Central Asian countries (likely Russian capital reinvested via Cyprus, a process known informally as “round-tripping”).
Er, yes indeed, just as we have been saying - though it's nice to have fresh, hard data. (For some of the blood and guts of this, see here, for instance.) And it seems that FT Alphaville has noticed us saying it. The next part of the blog continues:
"Which rings a bell or two. On page 249 of Treasure Islands, Nicholas Shaxson’s excellent book on the global offshore tax system, we find this interesting nugget:

'Having gone out of its way to welcome wealthy Arabs in the 1980s and rich Japanese and oil-rich Africans in the 1990s, the City has more recently, with the help of conduit havens like Cyprus, aggressively courted Russian oligarchs, providing them with bolt-holes beyond the reach of Russian law enforcement. By April 2008 a hundred companies from the former Soviet Union’s Commonwealth of Independent States (CIS) were listed on the London stock exchange…'

Small world or what."

It rather seems so.

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