Cyprus comes in from the cold as tax havens feel the heat

Russia will take Cyprus off its offshore blacklist after it agreed to expose tax cheats, with other tax paradises set to follow suit.

Tiny Cyprus is officially the third largest foreign investor in Russia. That's almost entirely Russians who've registered firms there. But after Nicosia pledged to open tax books for Moscow police, spooked nationals are expected to send millions of dollars home. Yaroslav Lissovolik, Chief Economist at Deutsche Bank Russia, says it could have a major effect.

“40% of inflows of FDI into Russia came from places like Cyprus or Virgin Islands. If this capital flows back into the country there could be also pressure on the Rouble even to appreciate.”

Lawyers are now gearing up for Cyprus-style deals with offshore hosts across the globe. Roman Dashko, Partner at Dewey and Leboeuf LLP thinks it’s the start of a wave.

“These amendments show the trend, and I can't exclude that the next step would be to amend the double taxation evasion treaties with other countries, for example the Netherlands.”

Brussels and Washington are drawing up sanctions on the havens who hold out, arguing economic meltdown sprang from bank secrecy. But offshores are fighting back. Prince Alois von und zu Liechtenstein, a principality legendary for its secrecy in protecting the assets of the wealthy from scrutiny, claims that "privacy is more protected in the USA", and they should put their own houses in order.