HUNDREDS of Russians have deposited millions of dollars in cash in the Mediterranean island of Cyprus in what local bankers suspect has been a giant scheme to launder the profits of covert Middle East arms sales and the proceeds of Moscow's mafia.
Foreign and local banking officials have told the Independent that over the past two years Russians have arrived at their offices in Limassol and Nicosia with suitcases containing up to dollars 15m ( pounds 10m) in one-hundred-dollar bills, opened accounts and then transferred funds to Switzerland, Germany and Britain.
Although the Cyprus Central Bank insists that strict financial controls by the Greek Cypriot administration prevent any 'bad' money coming into the island, local bankers say that Russians have deposited millions - sometimes carrying the money to the banks in taxis direct from Larnaca airport - with only nominal inquiries from banks about the sources of the money. 'Let's speak frankly,' one Cypriot banker said in Nicosia. 'Russia is bankrupt and can't generate this kind of cash. All money that's coming from Moscow is illegal because of Russia's exchange-control regulations. But we're talking of millions and that can only come from illegal arms sales, most probably to Iran and Iraq.'
Russians on the island, who have also been buying several million dollars' worth of property around the coastal city of Limassol, are unwilling to discuss details of their work with bankers, let alone journalists. At least two have told Limassol offshore banks that they work for the Russian Central Bank. One Russian, who openly identified himself as an arms-trader, was staying at a Limassol hotel last week, departing and arriving in a chauffeur- driven limousine. A Limassol banker said that he believed two former Russian army generals were among those who had made substantial cash deposits locally.
So concerned were the major offshore banks by the landslide of Russian money into Cyprus that more than a year ago two of the largest - Barclays and Banque Nationale de Paris - issued new and tougher guidelines from their head offices, demanding a depositor's introduction from third parties, computer checks on names for criminal backgrounds and proof of the money's provenance. But, as one Cypriot banking official said, 'Our onshore banks have been milder in their checks - we tell the Central Bank of all cash deposits over dollars 10,000 ( pounds 6,500) but the money went on arriving in suitcases and we went on taking it.'
These large sums are not reflected in recent total cash deposit statistics issued by the Central Bank. In March, 1994, for example, the bank registered 73 transactions in both onshore and offshore banks, totalling only dollars 10.2m, dollars 1m of which was money in transit from Lebanese banks to New York. When I asked how many of the other depositors were Russian, however, a Bank official replied, 'We never release this kind of figure because we are never sure it is exactly correct and we don't know whether we should do it.'
According to bankers in both Limassol and Nicosia, the Russian money-flow has fallen over the last seven months. 'They are coming in with smaller sums now, often in cheques from foreign banks,' an official in one of the Nicosia banks said. 'Of course, this money might be clean - but all the money-launderers like to put their funds through as many transactions as possible, so cheques are no guarantee that the original cash isn't dirty.'
Eighteen months ago, bankers noticed that some of the cash was brought to them by Russians in wads of dollars 10,000 still enclosed in US Federal Reserve Bank wrappers. 'We concluded it must have been given to the Russians directly by Arab government representatives rather than through banks - which is how some Middle Eastern countries pay for illegally purchased weapons,' one of them said.
Two officials of the Cyprus Central Bank visited Moscow last month for talks with their opposite numbers at the Russian Central Bank. The Russians - who claim they lost up to dollars 25bn in gold at the time of the coup against Mikhail Gorbachev - asked if Russian money was being laundered through Cyprus. 'We told them they must enforce their own exchange controls,' a bank source commented. 'It is up to them to control the outflow of money from Russia.'
The Central Bank says that the monthly figures for the total liabilities of onshore and offshore banks suggest the size of Russian deposits has been exaggerated. Between February and March, 1994, for instance, liabilities for offshore banks rose by only dollars 20m. 'But this is an end-of-period figure,' a Nicosia banker for a Cyprus financial institution noted. 'I can see the same figure on my computer. But the weekly figures within this four-week period zig-zag up and down on my computer screen. The overall figure doesn't represent the movement of funds passing through Cyprus at speed.'
Kyriacos Bagdades, a manager in the Cyprus Central Bank's supervision department, says that the island has repeatedly tightened its regulations over the past four years and that the last money- laundering warning went out to banks in November 1993. 'Don't believe that the Russians are bringing in millions - it's untrue,' he said. 'We believe that Cyprus is stricter than most other countries, in all regulations.'
This has certainly applied to Serbian money. Cyprus onshore and offshore bankers estimate that around dollars 50m in Serbian funds arrived on the island at the beginning of the Balkan crisis.
But following UN sanctions, Cyprus froze between dollars 300m and dollars 400m in Serbian accounts which were linked to the authorities in Belgrade. Private Serbian investors have recently transferred large sums to Switzerland.
'The Russians and the Serbs don't like Cyprus only as a 'way- station' for their money - they also feel their money is safer among a people who are of the same Orthodox religion as themselves,' a Limassol offshore banker commented. But it was the Russian depositors who made the biggest impression on him.
'I remember a couple of years ago, a Russian chap arrived from Larnaca airport in a car with some friends, all Russians, one of whom was a customer of ours; so we had to accept his recommendation for the newcomer,' the same banker recalled. 'He had flown into Larnaca on a private jet and said he had stopped over in Athens, although we had no way of checking that. I saw him getting out of the car outside the bank with this huge suitcase and later I saw my staff counting out the dollars. The case had an ordinary leather top with normal locks. When I went downstairs, I found our staff had stopped counting at dollars 15m ( pounds 10m).'
An official in one of the six Russian offshore banks - who are not being entrusted with large deposits by their own countrymen - threw his hands in the air when I asked where he thought Russian money was coming from. 'Guns? The mafia in Moscow? You know, it is chaos in Russia now - absolute anarchy. Even we don't know what is going on. Moscow says it lost dollars 25bn in gold. Who knows what is the source of this money?'
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