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28th Jul 2017

Investigation

Cyprus launches probe into Russian mafia money

Cyprus has opened an investigation into evidence that stolen Russian tax money linked to the murder of Sergei Magnitsky was laundered through its banks.

Mokas, its anti-money-laundering unit, in an email to EUobserver on Thursday (13 December), said: "At this point ... in Cyprus there is an open investigation on this matter." It noted: "Mokas is conducting the investigation, which functions within the office of the attorney general."

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  • Hermitage has has flight records showing visits to Cyprus by the Klyuev gang at key moments in the scam (Photo: Hermitage Capital)

It added that the probe already began some time ago.

But it went ahead with some reluctance.

Magnitsky, a 37-year-old Russian accountant, was killed in jail in 2009 after he exposed a huge tax embezzlement by a criminal gang - "the Klyuev group" - involving high ranking officials in the Russian interior ministry and its internal intelligence service, the FSB.

Lawyers for his former employer, the UK-based Hermitage Capital investment fund, submitted evidence to Cyprus' attorney general in July.

Its papers, including copies of financial transfers - seen by this website - show that $31 million of the tax money was moved out of Russia using five Cypriot banks: Alpha Bank, Cyprus Popular Bank, FBME Bank, Privatbank International and Komercbanka.

They also show that Dmitry Klyuev, the alleged ringleader, owns a Cypriot-based firm called Fungamico, has an account at the Bank of Cyprus and visited Cyprus with his associates at the time the money went missing.

But Cyprus in October said it must check with Moscow to see if the money was really stolen before it could move ahead.

The Magnitsky probe is unwelcome on many fronts.

No-questions-asked banking services for Russian clients are an important source of income for Cyprus, where Russians have stashed up to $26 billion, according to the German intelligence service, the BND.

The Magnitsky case also raises the question if Cyprus is a fit place for EU taxpayers to insert €11 billion of bailout money, in a deal currently in discussion with EU institutions and the International Monetary Fund.

Nikos Christodoulides, a Cypriot EU presidency spokesman, told EUobserver that even if the Russian mafia did use its banks "it does not mean there are problems with all the other [Russian] accounts."

He added that "the two issues [the bailout and money-laundering] are not related at all."

Another Cypriot spokesman, Costas Yennaris, added: "They [EU lenders] have focused more on the management of the banks than on the content of their work [in the bailout talks]."

For some European politicians, the issues should be linked.

Dominic Raab, a British Conservative Party MP, is one of four national parliamentarians - also from Finland, Germany and the Netherlands - who have urged their administrations to look into the matter.

"Britain should make every effort to ensure that its ... funds are not being used to bail out any country that cannot or will not prevent its financial system from being misused by the Russian mafia," Raab wrote to British finance minister George Osborne on 21 November.

Meanwhile, the news the EU presidency country has promised to lift the lid on Magnitsky comes at a tricky moment in EU-Russia diplomacy.

Russian leader Vladimir Putin is in Brussels on 21 December for an EU-Russia summit.

Magnitsky was already in the air because US lawmakers on 6 December passed a law forcing the state department to put a visa ban and asset freeze on Russian officials implicated in the affair.

If US President Barack Obama signs the bill in the coming days, as expected, it is likely to trigger Russian retaliation and to put extra pressure on the EU to do something as well.

For its part, the EU foreign service shows no sign of using its powers to propose EU-level sanctions, however.

Its spokeswoman, Maja Kocijancic, told this website also on Thursday that Magnitsky will not be a big feature of the Putin meeting because the case was already discussed by low-level diplomats at a "human rights dialogue" on 7 December.

She said Russia's own investigation into his death has been "very limited ... not adequate."

She also said Brussels has "noted" that the European Parliament and parliaments in the Netherlands, Sweden and the UK have called for EU action in non-binding resolutions.

But she added: "A decision on restrictive measures would be for member states to take in unanimity."

Cyprus seeks €11.5 billion bailout

Cyprus is reportedly seeking a €11.5 billion credit line from member states using the euro to help bailout its troubled banks and close its budget gaps.

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