Out-Law News 2 min. read
18 Mar 2013, 5:16 pm
A delayed vote on whether to accept the deal will take place in the Cypriot Parliament on Tuesday afternoon. Under the terms of the agreement, all resident and non-resident people and businesses with bank accounts in Cyprus will have to pay an "upfront one-off stability levy" as a percentage of their savings.
Yuri Botiuk, head of the Russia and Ukraine desk at Pinsent Masons, the law firm behind Out-Law.com, said that if approved, the levy would have a particular impact on Russian businesses and savers. Both corporate and private savers have deposited substantial amounts in Cypriot banks since the collapse of the USSR in 1991, he said. According to the BBC, Russian banks alone had placed $12bn in Cypriot banks at the end of 2012, with corporate deposits at $19bn.
"Russian wealth, both corporate and private, will be looking for a new, more stable home if the bailout proceeds as agreed," Botiuk said. "Indeed, it would be prudent for any savers with money in other at-risk Euro economies such as Spain, Portugal or even Italy to begin examining alternative holdings, such as banks in the UK and US or investments in the London property market."
"According to press reports, Germany refused to agree to a bailout without including a tax on savings as they did not want to be seen to be bailing out oligarchs, and there were unsubstantiated allegations of money laundering. Such generalisations mean that many innocents get caught up in the crossfire, and begs the question of why the EU did not crack down on alleged money laundering if they believed that it was happening," he said.
However, Eurozone leaders insisted that the terms of the levy had been decided between the Cypriot Government, the European Central Bank (ECB) and the European Commission. The ECB's Joerg Asmussen told the press that Cyprus had the option to change the levy providing that the country's "financial contribution of €5.8bn remains".
Russian President Vladimir Putin has called the proposed levy "unfair, unprofessional and dangerous", according to press reports from the region. His spokesman, Dmitry Peskov, told the media on Monday that the proposed arrangement "looks simply like the confiscation of other people's money".
Under the currently agreed terms of the arrangement, depositors with less than €100,000 held in Cypriot accounts would have to pay a one-time tax of 6.75%, while those with savings about that threshold would have to pay 9.9%. Depositors will be compensated with the equivalent amount in shares in the bank.
The one-time charge will apply to both resident and non-resident accountholders, although those holding accounts with offshore subsidiaries of Cypriot banks would not be affected. Bank of Cyprus UK said on its website that it was a "separately capitalised UK incorporated bank" and that eligible depositors were protected by the UK's Financial Services Compensation Scheme (FSCS).
In a televised speech on Sunday evening, Cyprus President Nicos Anastasiades said that the country was "in a state of bankruptcy".
"The [deal] is a very difficult but controllable and manageable condition that will eventually lead to the stabilisation of the economy and to recovery," he said. "The solution that we have reached is certainly not the one we wanted, but it is the least painful under the circumstances because, above all, it leaves the management of our economy in our own hands."