German Pot, Meet Cypriot Kettle

January 16th, 2013

flickr / …Tim

Over the last few months, an aid program (read: bailout) for Cyprus’ banks put together by EU rescuers has met mounting resistance among Europeans. The reason? Money laundering… and the alleged ties of Russian oligarchs to Cyprus’ banks.

There does seem to be a questionable relationship there. Last fall, Der Spiegel reported on Germany’s Federal Intelligence Service’s (BND) secret report on money laundering in Cyprus. According to Der Spiegel, the report finds that the people who would benefit most from a European bailout of Cyprus banks are Russian oligarchs, mafiosi, and businesspeople who have parked illegal earnings in the small Mediterranean nation. Even the simplest of facts are pretty compelling: the list of Russian investors in Cyprus is almost identical to the list of the country’s richest men and almost every well-known oligarch in Russia has at least one offshore company in the nation.

The reports have thrown the future of an aid program that would deliver $22.7 billion to Cyprus’ failing banks into confusion and uncertainty. On the one hand, Cyprus really does need the money. If the plan doesn’t pass, it would be a bit of a disaster, at least for the island nation, and likely also for its neighbors. On the other hand, opposition to bailing out tax evading Russian oligarchs is mounting.

Many EU member states oppose the plan. So do many Germans. Opposition parties German Social Democratic Party (SPD) and the Green Party have announced their disapproval to the plan. SPD chairman, Sigmar Gabriel, said it’s inconceivable that Germany is considering saving “Cypriot banks whose business model is based on facilitating tax evasion.”  Rainer Brüderle, a member of the German Free Democrats party, has also expressed concern any part of an aid deal would go to Russians money launderers. As he put it: “If the impression exists that German taxpayers are to be liable for dirty money, the aid would not be manageable or acceptable.”

The juiciest irony about all of this is that Germany actually has a worse record on AML than Cyprus. No really.

Pot? Meet Kettle.

In defense of his country, Cyprus’ Finance Minister, Vassos Shiarly, did point out just this in an interview with Der Spiegal. “Money laundering exists everywhere,” he said, “in Cyprus and in Germany alike. The point is to fight it resolutely.” Although Shairly is far from impartial, his perspective is based in the facts. According to Financial Action Task Force (FATF), the world’s anti-money laundering watchdog, evaluation reports for all 17 countries in the eurozone Cyprus does,  in fact, do a better job of AML than Germany does. The report shows that Germany is non-compliant in five of the FATF-recommended areas, while it is completely compliant in five. Cyprus, meanwhile, has zero areas of complete noncompliance and 12 areas of complete compliance.

This is not to say that the scrutiny on Cyprus is completely misplaced. The fact does remain that Cyprus has AML weaknesses and improvements can be made. Yet the fact that Germans are hinging a discussion of whether or not Cyprus’ banks deserve a bailout on their AML controls is ironic, to say the least. When it comes to money laundering, we should scrutinize. We should hold a magnifying glass up to the laws, regulations, and procedures of our FATF members. That’s how prevention will work. But let’s also be rational and consistent about that scrutiny. If Cyproit banks deserve this level of inquiry and criticism, then so do German banks. So do U.S. banks, for that matter.

AttributionNoncommercial Some rights reserved by ….Tim

Written by Ann Hollingshead

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