Cyprus: Hub for Russian Influence, Money Laundering, and Sanctions Evasion
Cyprus: Hub for Russian Influence, Money Laundering, and Sanctions Evasion
Aynur Kerimu
AI-generated image. (Source: DALL-E)
Executive Summary:
Cyprus has been deeply influenced by Russian interests over the past 30 years, becoming a hub for Russian oligarchs and the country’s financial sector to launder money and avoid Western sanctions.
While the European Union has imposed restrictions on Cyprus, the island’s division has allowed the unrecognized north to become a grey zone for financial activity, which wealthy Russians have been taking advantage of for years.
Much of Cyprus believes in Russian propaganda narratives, specifically regarding the Kremlin’s war in Ukraine. The degree to which Russian media and propaganda have influenced local views reflects the extent of Russia’s soft power on the island.
During my recent visit to Cyprus, it became clear how deeply the island has been influenced by Russian interests, particularly in financial sectors that enable money laundering and sanctions evasion. While the southern part of Cyprus, as an EU member, faces certain restrictions, the unrecognized Republic of Northern Cyprus operates in a legal grey zone. This division has allowed Cyprus to become a focal point for Russian oligarchs, sanctioned individuals, and those seeking to evade financial oversight. Notably, the abundant presence of cryptocurrency shops with signs in Cyrillic—visible in several towns—underscores how deeply these modern financial tools are now intertwined with illicit activities. Combined with the island’s geopolitical significance and a long-standing history of Russian influence, Cyprus today represents a growing concern for Western countries.
Russian Influence in Cyprus
The ties between Russia and Cyprus date back centuries, cemented through their shared Orthodox Christian faith and reinforced during the Soviet era by close political and cultural cooperation. Starting in the 1980s, Russia and Cyprus established a strong relationship, formalized through more than 50 agreements, including treaties and memoranda of understanding (Russian International Affairs Council RIAC, June 20, 2017). Shortly after the collapse of the Soviet Union, Cyprus became one of the few countries that Russians could visit without a visa in an agreement that lasted from 1994 to 2003 (Mid.ru, December 2003). Cyprus’s Mediterranean charm and cosmopolitan appeal made it an accessible and attractive destination for Russian wealth, particularly during the turbulent post-Soviet transition. For many coming from “cold Mother Russia,” the appeal of warm Mediterranean waters was irresistible (see EDM, May 7).
In conversations with locals, I was struck by how much Russian propaganda permeates their understanding of the ongoing war against Ukraine. In general, on the island, the Kremlin’s narrative regarding the war has been widely accepted. Many believe the North Atlantic Treaty Organization (NATO) and the United States provoked the conflict, echoing typical Russian narratives. They believe Russia had no choice but to defend itself by attacking Ukraine. The degree to which Russian media and propaganda have influenced local views reflects the extent of Russia’s soft power in Cyprus.
The ‘Cyprus Model’
The “Cyprus Model” refers to the island’s role as a gateway for Russian wealth entering the West, primarily through its banking sector. This model gained significant momentum with the introduction of Cyprus’s golden passport program, launched in 2007 and expanded in 2013, which granted EU citizenship to wealthy foreign investors, particularly Russians, in exchange for large financial investments. The program, which peaked in the mid-2010s, issued thousands of passports, including to 2,869 Russian nationals, allowing them free movement across Europe. Rising concerns over corruption and the facilitation of illicit financial flows, however, led to the program’s termination in 2020 under EU pressure (International Consortium of Investigative Journalists, November 13, 2023).
Russian money has also been funneled through Cypriot banks, such as the Bank of Cyprus and RCB Ltd., both of which have been implicated in money laundering scandals involving Kremlin-linked oligarchs. At one point, Russian-owned companies were estimated to control up to 80 percent of the wealth in Cyprus, earning the island the nickname “Moscow on the Mediterranean” (Center for Study of Democracy, October 15, 2020).
As the European Central Bank (ECB) began to take a closer look at Cyprus’s banking system, especially following the 2013 financial crisis, it was pushed toward reform. Despite these efforts, Russian oligarchs maintained significant influence over Cyprus’s major financial institutions. After the 2013 “bail-in,” Russian depositors became the largest shareholders in the Bank of Cyprus. The continued presence of figures tied to Russian President Vladimir Putin’s regime—such as Viktor Vekselberg, a now-sanctioned Russian oligarch who became the largest shareholder in the Bank of Cyprus, and Vladimir Strzhalkovsky, a former State Security Committee (KGB) colleague of Putin who joined the bank’s board—underscores how deeply entrenched Russian interests remain on the island (International Consortium of Investigative Journalists, November 13, 2023).
Illicit Financial Flows and Cryptocurrency
One noteworthy observation during my visit was the proliferation of cryptocurrency shops, especially in towns with a significant Russian presence. Cryptocurrency has emerged as a popular tool for illicit finance, including money laundering, due to its anonymity and decentralized nature. Russian and Iranian nationals, particularly those residing in Northern Cyprus, have increasingly turned to cryptocurrency to evade sanctions and obscure the movement of assets.
This trend aligns with Russia’s broader strategy of using cryptocurrency to bypass Western sanctions. In August, Putin signed legislation that formally legalized cryptocurrency mining in Russia, allowing Russia to use cryptocurrencies for international trade. The new law enables businesses to conduct transactions through cryptocurrency, furthering Russia’s efforts to circumvent sanctions imposed after the invasion of Ukraine. Russian banks and private interests have also been developing Digital Financial Asset technology to settle international payments, which has potential ripple effects for countries like Northern Cyprus, where oversight is limited (see EDM, September 24).
The use of cryptocurrency in illicit financial activities ties into Russia’s long-standing practice of using Cyprus as a hub for sanctions evasion. Shell companies, often managed by Cypriot financial firms, have been employed to facilitate the transfer of assets from Russia to Europe, as evidenced by leaked documents from the “Cyprus Confidential” investigation. [1] In March 2022, PwC Cyprus helped transfer ownership of a major Russian asset to a family member of a sanctioned individual just days after sanctions were imposed (International Consortium of Investigative Journalists, November 13, 2023).
European Union vs. Northern Cyprus
While Cyprus, as an EU member, faces increasing scrutiny and regulation, Northern Cyprus is recognized only by Türkiye and remains outside of the European Union’s jurisdiction. These circumstances have turned Northern Cyprus into a haven for illicit activities. This legal grey zone has attracted a growing number of Russians and Iranians seeking to avoid international sanctions. Reports indicate that the number of Russians moving to Northern Cyprus has surged, as evident by the skyrocketing real estate sales to Russians escaping the country to avoid being mobilized in Putin’s war against Ukraine. Some Russian organizations in North Cyprus are pushing for direct flights between Russia and the unrecognized territory—a move that would further solidify the region’s role as a hub for sanctions evasion (Anadolu Agency, December 16, 2022).
The lack of EU oversight in Northern Cyprus allows for unchecked financial flows and the proliferation of businesses catering to the Russian diaspora. This environment has led to concerns that Northern Cyprus may have already become a staging ground for illicit Russian financial activities that are harder to trace and regulate.
Geopolitical and Structural Factors
Cyprus’s geographic location, straddling Europe and the Middle East, has historically made it a crossroads of trade and power. The division between the Greek Cypriot south and Turkish-controlled north, however, adds a layer of complexity to the island’s governance and financial systems. The lack of alignment between the two regions enables corrupt practices to thrive, especially in the north.
The corrupt political environment in Cyprus, particularly its history of accommodating Russian wealth, is another significant factor. Even after the closure of the golden passport program, Cyprus continues to host vast amounts of Russian capital, much of it linked to individuals under Western sanctions. The political class, heavily intertwined with financial service providers, has been slow to enforce meaningful reforms. Even when pressured by the ECB and Western governments, Cyprus’s leadership has often deflected responsibility, as evidenced by former President Nicos Anastasiades’s defense of his administration’s role in the banking sector (International Consortium of Investigative Journalists, November 13, 2023).
Conclusion
Cyprus’s entanglement with Russian money laundering, sanctions evasion, and illicit financial flows represents a growing concern for the West. While the European Union has imposed restrictions on Cyprus, the island’s division has allowed the north to become a grey zone for financial activity. As Russian influence continues to dominate the island’s economy, Cyprus has become a vital point in the broader geopolitical struggle between Russia and the West.
Addressing this issue requires a multifaceted approach that targets the financial institutions facilitating these activities and the political structures enabling them. Without significant reforms and greater coordination between the European Union and Cypriot government, Cyprus will likely remain a critical nexus for illicit finance and Russian influence.
Notes:
[1] “Cyprus Confidential” is a journalistic project launched in November 2023. The International Consortium of Investigative Journalists (ICIJ) and partners led the effort to investigate how Cypriot financial services helped Russian billionaires evade sanctions. Their research revealed that 67 of the 105 Russian billionaires on the 2023 Forbes Billionaires List used Cypriot firms to hide their wealth following Russia’s invasion of Ukraine (The Irish Times, November 15, 2023; International Consortium of Investigative Journalists, accessed October 7).
This article was originally published in Jamestown Perspectives. Check it out here!
Aynur Kerimu is currently an analyst at The Jamestown Foundation. She is a recent graduate of Georgetown University’s Walsh School of Foreign Service.