As Banks in Cyprus Falter, Other Tax Havens Step In

While Cyprus and its rivals dislike being described as “tax havens” and prefer to be known as “offshore financial centers,” those now picking at Cyprus’ carcass trumpet their ability to keep money beyond the reach of tax authorities. A Swiss company, the Gonthier Group, last week sent e-mails to Cyprus firms working with foreigners, suggesting they offer their clients a Swiss alternative, namely an investment “vehicle which is extremely low-profile, not classified as a bank account or trust and thus very much under the radar of national fiscal authorities.”

Tilly Schneeberger Gonthier, the head of the Montreux-based company, said on Sunday by telephone that her pitch was “absolutely not” an invitation to evade taxes, but merely an offer of a secure alternative to Cyprus-based investment vehicles. She denied wanting to hurt the Cypriot financial services industry.

“We are trying to help them,” Ms. Gonthier said. “They have a lot of unhappy clients.”

She said that nobody in Cyprus had yet taken up her offer, but added: “This doesn’t happen very fast. It takes time.”

Mr. Papadopoulos, the parliamentary finance committee head, said he didn’t begrudge competitors in other locations trying to lure away clients rattled by his own country’s troubles. With Cyprus and dozens of other havens chasing the same limited pool of clients, he said, competition is fierce: “This is a zero-sum game.”

Echoing a widespread view here, he complained that Cyprus had been unfairly singled out as a haven for shady money by the European Union even as others, including fellow members of the 27-nation bloc, provide much the same services.

“We have made mistakes, but the whole point of seeking help from the European Union was to get fair treatment,” he said, referring to Cyprus’s request for a 10 billion euro lifeline from its European partners and the International Monetary Fund. “We now see that we are still a long way from being a union in which the same rules apply equally.”

A central demand of a bailout package announced early last Monday in Brussels, the headquarters of the union’s bureaucratic apparatus, is that Cyprus dismantle its finance-dominated economic model. Just a few years ago, this model produced growth rates of 5 percent or more but is now crumbling amid the rubble of its reckless and destitute banks.

Cypriot banks gorged for years on deposits from overseas, especially Russia, and spewed out loans at such a rate that the banking sector ended up dwarfing the rest of the economy. Its total assets — now mostly loans of uncertain worth — grew to be eight times larger than the whole country’s economic output.

But this imbalance is no worse than that in Malta, where the banking sector is also about eight times gross domestic product. And it is far less severe than in Luxembourg, where banking assets are more than 22 times G.D.P. Both Malta and Luxembourg, each a member of the European Union, last week loudly insisted they were very different from Cyprus — while their own financial service providers rushed to court Cyprus’s clients.

How much success those countries have had at getting Russians and others to decamp is still unclear, although many lawyers here acknowledge that they have already helped a number of foreign clients open new bank accounts outside Cyprus. The country’s own banks, closed for nearly two weeks to prevent depositors from withdrawing all their cash, reopened last week but are now caught up in a web of capital controls that make most normal transactions all but impossible.

Vasilis Zertalis, the chief executive of Prospectacy, a Nicosia corporate services company, said he understood that foreigners with companies and investment vehicles registered in Cyprus now needed to find banks elsewhere. But he is outraged by the efforts of rival centers to profit from Cyprus’s pain.

“When somebody is down, you should not try to push them further and give them a final blow,” said Mr. Zertalis. “I believe in capitalism, but there should be certain ethics. It is not proper to try and steal our clients and take advantage of this country’s misery.”

As Cypriot authorities last week unveiled plans to shut down Cyprus’s second biggest bank, Laiki, and worked out a strategy to preserve the Bank of Cyprus, the country’s biggest financial institution, by effectively confiscating 60 percent or more of deposits over 100,000 euros, a financial services company in the Cayman Islands made a particularly transparent grab for business.

“It has been very interesting in your part of the world recently,” Bateman Financial said in an e-mail sent to Mr. Zertalis and other Cypriots in the same line of work. “Given the inherent pressure banks will be placed under in Cyprus, your firm may see a need to consider other jurisdictions when consulting clients. The Cayman Islands can offer the stability that is currently desired.”

(Read More: Cyprus Bank Controls to Last a Month: Minister)

As Banks in Cyprus Falter, Other Tax Havens Step In