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Foreign direct investments and round tripping between Cyprus and Russia

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Abstract

Purpose This paper aims to look at the linkage of Foreign Direct Investments and Round Tripping in the Cyprus – Russian corridor. Design/methodology/approach The paper is divided into two chapters. The first chapter looks at the relationship between Foreign Direct Investments and Round Tripping in Cyprus and Russia. The second chapter discusses and combines statistical data from different sources about illicit financial flows from Russia and the linkage of Foreign Direct Investments and Round Tripping with Cyprus. Findings Evidence suggests that, despite the obviously numerous and varied legislative provisions and initiatives, the movement of vast amounts of capital to or through the Cypriot financial system is a phenomenon, which has absolutely not been removed. The illegal outflow of money seems to grow rapidly over the years instead of decreasing. What actually happens is that after a dramatic decline in the years 2013-2015 the Foreign Direct Investments of the Russians to and from Cyprus in 2016 returned to pre-crisis levels of 2013 and so far it seems the inflows-outflows system returned to "normal" levels. Cyprus ranks first in Inward Foreign Direct Investment and Outward Foreign Direct Investment with almost 35% of total flows from Russia. An element, that demonstrates the presence of round-tripping, is the sharp and rapid parallel increase of Inward Foreign Direct Investment and Outward Foreign Direct Investment and that the category of total deposits in Cyprus by non-residents, including Special Purpose Entity, recorded significant fluctuations due to the large size of deposits, but also due to the short time remaining in the banking sector. Russia ranked in the second position of largest average illegal capital outflows countries in the years 2004-2013. Movement of capital to exploit the particularly beneficial Cyprus tax system is still a tax backdoor for Europe and worldwide (hence the neologisms like Cyp-Rus), especially after the “de-offshorization” Russian law since January 1, 2015. Research limitations/implications - Practical implications Evidences presented in this paper are important for national and super-national supervisory anti-money laundering bodies and compliance authorities to understand bad practices between Russia and Cyprus financial transactions. Originality/value Evidences presented in this paper are important for national and super-national supervisory anti-money laundering bodies and compliance authorities to understand bad practices between Russia and Cyprus financial transactions.

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Offshore jurisdictions (including Cyprus), corruption money laundering and Russian round-trip investment
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  • World Bank
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