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the Eurozone and the Cyprus government whereby Cyprus would get 10 billion Euro on
condition that it would shut down its second largest bank (the Laiki Bank—also known
as the “bad bank”—composed mostly of Russian individuals and corporations). The
good news is that depositors with bank funds less than 100,000 Euro would not be
penalized; however, those depositors with balances in excess of 100,000 Euro could lose
40 percent of their money. At press time, final conditions for the bailout were to be
announced in April.
The Cyprus banking system was unsustainable and Greece was nothing more than the
trigger of a loaded gun.
Make no mistake—there were warning signs that Cyprus was headed in the wrong
direction. In 2009, the Cypriot economy contracted 1.67 percent and unemployment
began to rise (largely due to decreased tourism). Then, in 2011, the credit rating of
Cyprus was downgraded by all major credit rating agencies. In fact, since January 2012,
Cyprus has been kept afloat courtesy of a 2.5 billion Euro emergency loan from Russia.
(Since you are probably wondering why Russia would try to save the Cyprus banking
system, it’s important for you to know that Russian businesses represented approximately
50 percent of Cyprus deposits and use Cyprus as a tax haven.) Finally, in March 2012,
Moody’s lowered Cyprus’s credit rating to “junk status.”
Please keep in mind that my summary of what has transpired in Cyprus is meant to
be just that, a summary. A complete and detailed account of what occurred would take a
few thousand pages more than the 1-2 pages that I am allocated by AVN. As is stands
today, this situation is ongoing and things could change with limited to no notice.
For those of you with assets located at the Laiki bank or those of you with assets in
Cyprus, greater than 100,000 Euro, you are most certainly in harm’s way and I
LEGALNEWS | By Mark Kernes
encourage you to contact an attorney licensed to practice in Cyprus. While it is unlikely
that any attorney can stop the Cyprus plan, you need to re-evaluate your entire
corporate structure and banking relationships immediately.
My clients have been very fortunate in that they were able to escape the mess in
Cyprus. Over the years prior to this event, I worked with local Cyprus attorneys and
financial experts in order to share some of the warning signs that were becoming more
evident with my clients. No matter where you establish your banking relationships and
where you decide to keep your money, you need to be cognizant of local and global
economics and politics. Saving 20, 30 or 40 percent on your taxes is always nice, but it’s
pretty awful when your money is gone overnight.
For most business owners, avoiding or lowering tax liabilities is always a good thing.
After all, it’s your hard-earned cash, so why would you want to turn it over to the
government? If this is your business mentality, I have a hunch that if you had deposits in
Cyprus banks, your business mentality may have drastically changed.
Setting up entities overseas can be a great strategy for your business but you must
ensure that you have consulted with proper legal and financial advisors before making
any decisions. This will not be the last time that a country’s banking system nears
collapse, and it is equally important that you are constantly up to date on the latest
political and economic developments for wherever you intend on keeping your assets.
This article does not constitute legal advice and is provided for your information only.
Transmission of the information contained in this article is not intended to create, and the
receipt does not constitute, an attorney-client relationship between sender and receiver. ||
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