ROBERT SIEGEL, HOST:
We're going to talk now about Russian money, specifically the millions in Russian bank deposits that made Cyprus the Cayman Islands of the Mediterranean.
Let's assume that the E.U.'s plan to bail out Cyprus succeeds, at least to the extent of shrinking that country's banking sector to a size more befitting a small Mediterranean island republic. It's estimated now Cyprus's financial sector accounted for 40 percent of the country's gross domestic product. Well, one question that shrinkage would raise is, what will so many Cypriots do without all those bank deposits from Russian oligarchs and other tax evaders? But another is, what will those Russian oligarchs and other tax evaders do with their money without Cyprus?
Joseph Cotterill writes for the Financial Times and joins us from New York. Welcome to the program.
JOSEPH COTTERILL: Hi there.
SIEGEL: First, I guess, in looking over the potential beneficiaries of the Cypriot financial sector's demise, we ought to ask what were its advantages. What made it attractive to Russian depositors?
COTTERILL: Yeah, you mentioned the Caymans of the Mediterranean. That's kind of what Cyprus was to the eurozone. You know, it's a bit like Puerto Rico or even Miami is to the U.S. It's a short hop on the plane away. It's hot. And most of all, its tax laws were very, very generous. There's kind of a script if you are a small country, which has just gained independence from her colonial power all around the world.
And it just so happened that Cyprus could fulfill that role, more or less, on the front door of the eurozone, but also on the back door of the Russian Federation. It was geographically really well-located. But, and this is like the (unintelligible). It had an English-based legal system. And that's what you really want when you want to move your money somewhere safe.
SIEGEL: OK. So we're looking for some possible alternatives to banking your money if you're a, well, a Russian or somebody else, in search of, you would say, reliable banking; minimal scrutiny of your deposits. Possibly a beach also is what you're saying. Well, what are some contenders for that role?
COTTERILL: Yeah. I mean, if you're looking for sunny places for shady people, another Mediterranean island you could go to is Malta. Its selling point is that it's in the eurozone, as well as Cyprus. So there's not a huge amount of chains if you're moving your money there. But, at this point in time, being in the eurozone is kind of a disadvantage because you can't get Germany to kind of backstop your banks.
SIEGEL: And Malta is off the book then. Yeah.
COTTERILL: Somewhere less sunny is Latvia, which is in the cold north of Europe. It's in the Baltics, but it's right next door to Russia. You don't even have to get a plane there. It's right across the border.
SIEGEL: Yeah, let's look outside the eurozone or the potential eurozone. Who might be a candidate to succeed Cyprus?
COTTERILL: People tend to think of offshore tax havens as these really kind of tiny islands or micro-states. But if I'm Russian oligarch, I would now be thinking of going to Britain, which is obviously quite a big island, but it has the unique selling point of any other tax haven, which is the city of London does not really ask questions about where your cashes come from, and its tax regime is fairly generous.
SIEGEL: Now, how important really is proximity? That is, why shouldn't the Cayman Islands for Russian oligarchs be the Cayman Islands?
COTTERILL: I think it comes down to what happens in a crisis. Because one of the silver linings of the Cypriot blowout is Russian depositors could least flyover, in a couple of hours, to actually check what was happening to their cash. It can actually come down to how long a flight time is from Moscow.
SIEGEL: Well, thank you for speculating with us about where very rich speculators might bank next, if they can't think anymore in Cyprus.
COTTERILL: Anytime. Thank you very much.
SIEGEL: It's Joseph Cotterill of the Financial Times. He spoke to us from New York. Transcript provided by NPR, Copyright NPR.