Cyprus Calls in FBI to Investigate Russian Sanction Busters

Responding to criticism from the European Parliament and others for lax enforcement of sanctions against Russia, the Cypriot president has brought in FBI investigators to look into his country’s financial institutions and their alleged involvement with illegal Russian money.

In November the International Consortium of Investigative Journalists (ICIJ) published the findings of its research into the questionable behavior of financial institutes in Cyprus entitled “Cyprus Confidential.”

This report consolidated the findings of over 250 international journalists who had examined over 3 million documents relating to the flow of finances into the economy of Cyprus from the 1990s until the present day.

One of its key findings was the extent to which Russian President Vladimir Putin and his confederates were using Cyprus to conceal billions of dollars in assets, both before and after Russia’s 2022 full-scale invasion of Ukraine.

Cyprus has a sizeable Russian expatriate community, largely centered around Limassol on the south coast – called by many as “Moscow on the Med.” This led to a long-term Russian resident saying, “When the Russians came to Cyprus, they brought not only Russian corruption, they brought Russian organized crime, they brought Russian agents of the Russian intelligence services.”

The ICIJ report highlighted how Cyprus, a European Union member state, failed to prevent its banking system from accepting illicit money from Russian oligarchs, thereby undermining Western sanctions. It identified that, as Russia invaded Ukraine in 2022, Cyprus had itself become a clandestine financial battleground.

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The ICIJ dossier identified 25 Russians who had been placed under Western or Ukrainian sanctions following the illegal 2014 annexation of Crimea and a further 71 who had come under sanctions since the February 2022 invasion and had funds lodged with or handled by Cypriot financial institutions.

These lists included Russian public officials and those linked to state-owned enterprises and their relatives. Of 104 Russian billionaires identified by Forbes magazine in 2023, 67 were named in Cyprus Confidential documents as clients of the island’s financial services providers.

A 2020 report by Bulgaria’s Center for the Study of Democracy, said more than $200 billion had been invested by Kremlin-connected oligarchs in the island which allowed them to wield significant influence in the island’s political and financial affairs. The report said that Cyprus’ thriving financial secrecy industry provides a conveyor belt for Russian wealth to pass to the West.

In response to these revelations and heavy criticism of Cyprus’ lax enforcement of sanctions by the European Parliament, Cypriot President Nikos Christodoulides declared his government would have “zero tolerance” for sanctions breaches and pledged to investigate “[everything] that has come to light.” He later confirmed that he had sought help from overseas experts.

As a result, as ICIJ reported on Monday that a team of more than 20 US financial crime experts from the Federal Bureau of Investigation (FBI) and the Financial Crimes Enforcement Network (FinCEN) had arrived on Sunday in response to Christodoulides’ request for help.

According to The Guardian one of the cases being examined is that of Russian steel, mining and banking magnate Alexei Mordashov who attempted to transfer over $1 billion of shares in the TUI travel company shares on the day he was placed under sanctions apparently with the assistance of the Cyprus bureau of the PricewaterhouseCooper (PwC) accounting firm.

According to the ICIJ investigations, PwC and a separate company, called Kiteserve, set up by former PwC employees who still share premises with the larger company have retained financial links with many of the sanctioned individuals.

Meanwhile, PwC, while declining to comment on specific cases said its Cyprus office had “pivoted to a new economic model fit for the future, transforming its business” with its  September 2023 figures showing a “significant contraction” in business as it further implemented the global sanctions policy.

The Cyprus Central Bank said earlier this year that authorities closed 43,000 shell companies and 123,000 “suspicious” bank accounts since 2018 and that only 2.2 percent of all bank deposits on the island currently belong to Russians.

Michael Sarris, Cyprus’ former finance minister told the Guardian: “The government needs to show the political will to challenge the [special] interest groups who have benefited financially from the fact that so many people were operating on the margins of legality. To my mind, our problem is not so much the lack of technical know-how but the will to get things done.”

Christos Andreou, the chief spokesperson of the nation’s police force, said Cyprus’ financial crimes group was investigating almost 30 cases of potential financial impropriety relating to international sanctions violations, many of which were very complex. He welcomed the arrival of the US team in the hope that these cases could be speedily resolved.

These efforts are seen by many commentators as a belated but necessary effort to rebuild and safeguard Cyprus’ credibility as an international financial center.