NICOSIA - Russians now have a say in key lender Bank of Cyprus because of European reluctance to fully bail out Nicosia, fearing that would safeguard oligarchs' ill-gotten gains, analysts believe.
"Unlike all the other bailout countries the Eurogroup did not want to give Cyprus a full bailout, largely because of media hysteria about alleged money-laundering," finance analyst Fiona Mullen told AFP.
She said six Russians being appointed to the 16-member board of Bank of Cyprus last week should not surprise anyone because it was a natural consequence of the harsh bailout terms.
"Russians running the biggest bank in Cyprus is a consequence of that (bailout), so the answer to eurozone leaders is 'you get what you pay for'," she said.
During its arduous and long drawn-out bailout negotiations with international lenders, Cyprus was portrayed, especially by Germany, as a laundromat for dirty Russian money.
Local banks were accused of asking no questions when rich oligarchs wanted to park their cash - which is why Cypriots suspect international lenders ensured Cyprus was the only eurozone member where uninsured depositors were forced to contribute.
Despite vehement government denials, the mud stuck and Cyprus was made to pay dearly for mishandling its economy and allowing a juggernaut banking system to veer off the rails.
In return for a 10-billion-euro (S$16.4 billion) bailout secured in March, international creditors demanded the winding up of the country's second largest banker Laiki and a haircut on deposits over 100,000 euros in its largest lender Bank of Cyprus (BoC).
Ironically, the consequences of the 23-billion-euro bail-in/bailout package has led to the six Russian members of the new BoC board.
They were voted in following an historic shareholders' meeting of those who had received a deposits haircut to help Nicosia secure EU rescue aid.
For the first time in its history the island's largest financial institution has non-Cypriots managing it - the same big savers who got burnt when the bloated banking system was saved from collapse.
However, the Central Bank of Cyprus must approve the newly elected BoC board members.
Cypriot Christis Hassapis, an academic, was voted chairman and Vladimir Strzhalkovskiy became vice chairman.
The Russian, reportedly a former KGB official and close friend of President Vladimir Putin, is also former CEO of Norilsk Nickel, the world's largest nickel and palladium producer.
Russians now 'deeper in than ever before'
Economy lecturer at Nicosia's European University Alexandros Apostolides said if international lenders wanted to nullify the Russian influence in Cyprus they should not have opted for a bail-in.
"Forcing Russian depositors to become shareholders puts them deeper in than ever before - the only person more tied to a country than a depositor is a shareholder," he said.
"The bail-in has locked in the Russians for years to come. If they wanted to punish the Russians by taking their money and putting it into shares you have only managed to make them stay," Apostolides added.
He argued that having Russians involved is positive because they have an interest in the bank holding their money becoming profitable.
The view closer to home is that Russians have saved Cyprus from the abyss by not abandoning it.
In an interview with Russia's Itar-Tass news agency last week, President Nicos Anastasiades thanked the Russian community for sticking it out.
"Our friends have remained our friends," said Anastasiades, also pledging to partly compensate Russian investors who received a severe haircut in the bailout.
The BoC board is now tasked with ensuring a rigid restructuring which will see the number of branches and staff drastically downsized.
The final haircut for uninsured BoC depositors was 48.5 percent, a majority of whom were foreign, most of them Russians who received bank shares in the trade-off.
An unprecedented eurozone "haircut" on deposits forced the government to close the island's banks for nearly two weeks in March and impose draconian controls when they reopened.
Cyprus is still the only eurozone member to impose capital controls.
The largest BoC shareholders, at 18.1 percent, are depositors in wound-up Laiki, while the next largest are Russian and Ukrainian businessmen with 12-15 percent.
BoC's share capital is 4.7 billion euros, 81.4 percent of which is owned by 21,000 depositors-turned-shareholders because of the bail-in decision demanded by international lenders.
Old shareholders are limited to a 0.5 percent stake.
The government concedes that without a healthy Bank of Cyprus the recession-hit economy will struggle to recover.
But nobody knows the exact extent of the damage to the BoC as no financial results have been published including year-end 2012 figures.
Apostolides said what really matters is keeping the bank afloat.
"We have no idea if the bank can be saved as we haven't seen the accounts. We don't know how bad the finances are."