As Cyprus struggles, rivals seek its bank clients

Cyprus must shrink its bank sector; big depositors will pay much of a bailout’s cost.
Katia Christodoulou/EPA
Cyprus must shrink its bank sector; big depositors will pay much of a bailout’s cost.

LIMASSOL, Cyprus — Bloodied by a bailout deal that drives a stake through the heart of its oversize financial industry, Cyprus now faces a further blow to its role as offshore tax haven: The vultures from competing countries are circling.

With e-mails and calls to lawyers and accountants who make a living helping wealthy Russians and others avoid taxes, rivals in other financial centers are promoting their skills at keeping money hidden.

‘‘We are aware of the economic problems facing Cyprus at the moment,’’ read one such message, sent by a law firm in Malta. “We would like to propose an avenue of action for your consideration: offering corporate relocation to Malta,’’ continued the pitch, trumpeting Malta’s low taxes.


Similar unsolicited offers have originated in havens like Switzerland, Luxembourg, the Cayman Islands, Dubai, and Singapore. Even the northern part of Cyprus, controlled by Turkish Cypriots, has joined the frenzy, promoting its banks over those run by Greek Cypriots in the crisis-racked southern part of the divided island.

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Particularly successful at luring Russians, Cyprus has built up a large infrastructure of lawyers, accountants, and other professionals schooled in the arts of tax avoidance. Its corporate registry now has 320,000 registered companies, a staggering number for a country with 860,000 people. Most are shells set up for foreign firms and wealthy individuals.

Even if new controls in Cyprus make it impossible to move much capital elsewhere for the moment, rival havens are nonetheless intent on luring businesses that might be more than happy to relocate.

Mounting a counteroffensive is the Cyprus Fiduciary Association, an industry group.

“The banking sector is finished, but the service industry can survive,’’ said the group’s secretary, Andreas Marangos Russians will open accounts elsewhere but can be persuaded to stick around for other offshore services, he predicted.