David R. Henderson  

Worstall on Cyprus and Russians

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In response to my post earlier today, Tim Worstall wrote me. He quoted this from my review:

We have examples of highly extractive governments even in the modern world. One shocking one, to me at least, is the case of Uzbekistan.

Then he added:
This brought a wry smile. I've been arguing for a week or so that the Russians in Cyprus story isn't about dodging Russian taxes which are, legally at least, quite low. Rather, it's about escaping an extractive state. The extra legal exactions which both those in power and the mafia make upon those with money in Russia. Far from fleeing a tax jurisdiction Russian money in Cyprus is looking for an honest legal jurisdiction.

He makes the point in more detail here.



COMMENTS (9 to date)
david writes:

Perhaps the people who have billions of dollars to move out of Russia are those who have used their power and mafia status to extract money...?

David R. Henderson writes:

@david,
I would bet that the problem with your sentence is your first use of the word "the." If you substitute "some of the," you could b right.

gwern writes:

And on the other hand, there's no honor among thieves.

Tim Worstall writes:

To continue David R's correction of david.

Those who individually have billions wouldn't have been using Cyprus as anything but a staging post. Billions gets you right into the major financial centres of the world, you really don't need to be using a small island in the Eastern Med.

It's the third and fourth tier people, those with a few hundred thousand say, who would really use the Cypriot system. The bourgeois made good (many of whom have done it entirely legally) rather than the oligarchs.

Shayne Cook writes:

I couldn't help but notice that Tim Worstall's description of the Greek extractive expedient, and to some extent the Russian extractive expedient, reads remarkably like the suggested/proposed Speed Bankruptcy expedient.

Kitty_T writes:

That had been my thought on the "tax haven" talk as well - in a past life I had the opportunity to work on a few transactions with Russians, and Cyprus was a not uncommon financial base. When I asked I was told flatly that if any Russian bank employee, government official or other record keeper found out money was changing hands, licenses and permits would suddenly be lost, tax assessments on unrelated assets would arrive and people's children would start going missing.

These guys weren't mobbed up, FSB-fronted oligarchs, they were just (more or less legitimately) sucessful business people trying to reduce their exposure to the baloney at home.

David R. Henderson writes:

@Kitty_T,
Interesting. Thank you.

Scott Sumner writes:

Did you mean Cyprus? (not Cypress)

David R. Henderson writes:

@Scott Sumner,
Oops. Yes. Thanks Scott. I've lived near Pebble Beach for way too long. :-) Correction made.

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