What the international financial press has missed in this frenzied geopolitical comedy is how intimately tied up the Cyprus-Russian financial nexus is with the unraveling nightmare in Syria. According to the Wall Street Journal, one of the most vulnerable Russian financial institutions to be affected by a possible Cypriot default is VTB, the second largest bank in Russia. Splintered off from the USSR’s Russian State Bank (Gosbank), VTB is today 75 percent state-owned with a presence in 19 countries. In 2011, it took in the equivalent of 712 million USD in deposits from French and German pensioners, making it a rather significant retirement fund for Western Europe. It is also the only main Russian bank to have a licensed subsidiary in Cyprus, the Russian Commercial Bank, which controls some 5 percent of VTB’s total assets. This is why VTB’s shares fell 6.5 percent on Monday, after the news of the announced bailout package hit.
In recent years, VTB has been dogged by a host of international lawsuits featuring allegations of internal corruption (at worst) or extremely lax standards of due diligence (at best). Critics say it operates as little more than Putin’s ATM, or charitable voting-buying trust. In 2007, for instance, when the bank went public on the Moscow Stock Exchange, Putin decided to offer ordinary Russians the chance to become minority shareholders in what he termed a “stable” investment. The so-called “People’s IPO” was a people’s disaster; the stock prices dropped the day after the IPO, then plummeted a year later in the maelstrom of the global economic crisis. Last year, just as he was set to return to the presidency, Putin offered to buy back the original IPO investors at the original stock price they paid, with a ceiling of 500,000 rubles (16,200 USD) worth of shares per shareholder. This prompted fury from institutional investors who, not subject to this act of state largesse, were subsequently asked to part with 385 million USD to satisfy the Kremlin’s demagogic impulse, a fact well worth keeping in mind in light of Putin apparent displeasure with “unfair” terms of troika. (You can read all VTB’s history of scandals in a report I edited, available here.)
Subsequent to the Syrian uprising, Assad’s former fiance minister Mohammed al-Jleilati praised Moscow for having “given us a hand, especially in the financial sphere.” It won’t surprise you to learn that VTB was one of the banks offering fraternal assistance. In 2005, it signed a Cooperation Agreement with the Central Bank of Syria for “developing and strengthening mutually reinforcing cooperation between the banks, including direct contacts in trade finance and investment without any other bank being involved.” The Central Bank of Syria has since been sanctioned by the EU, but, according to the Financial Times, VTB and other state-controlled banks are still happily trading with it. Moreover, several months ago Bivol, a Bulgarian news outlet, produced what it claimed was a hacked communique between a Syrian security branch and Sergey Avakov, a VTB executive. The message, which is undated, appears to show Damascus raising its deposits to over 2 billion Euros. (VTB never responded to Bivol’s written request to verify the authenticity of this communique.)
Last June, I discovered another Russian-Cyprus connection with immediate impact on events in Syria. Just as the Houla massacre was getting underway, a Russian ship called the Professor Katsman was pulling into the port at Tartous. This vessel, which Western diplomats alleged was transporting arms to the Assad regime, was owned by a Russian-Dutch outfit called Universal Cargo Logistics Holdings (UCL), which itself is owned by Vladimir Lisin, Russia’s second wealthiest businessman, with a net worth of 15.9 billion USD, if Forbes is to be believed. Lisin was also the vice president of Russia’s Olympic Committee for last summer’s games in London, a title that came with diplomatic status. Like many Russians who prefer to earn at home and play and spend abroad, Lisin owns several expensive properties in the United Kingdom, including a castle in Scotland. Yet his ownership of the Professor Katsman wasn’t so transparent: UCL Holdings controlled the ship through a Matryoshka doll-like series of offshore shell companies. One of these was based in Cyprus. Syrian opposition figures who have since petitioned the EU to investigate whether or not the Katsman, and by extension Lisin or his company, might have violated sanctions were met with indifference, I’m told. Lisin has denied he did anything wrong. In a semi-legible press release, UCL Holdings claimed that “[a]t the moment we don’t have any prove [sic] that Profesor [sic] Katsman had delivered to Syria anything of a military nature that can be used against civilians.” Though here it’s worth noting that for the first year or so of the Syrian revolution, a main contention of the Russian Foreign Ministry was all materiel being delivered to Syria was not for use against civilians; this included, in the Russian definition, attack helicopters.
It may be going too far to say that bankruptcy for Cyprus would only tighten the economic noose around Bashar al-Assad’s neck, but whatever ultimately happens, “debt restructuring” affords an excellent opportunity for finding out who’s been up to no good in ‘Limassolgrad’ and facilitating barbarism a few points of longitude away, right under the EU’s nose.
