By Santiago A. Cueto

Russia Cyprus attorney, Russia Cyprus international dispute, international arbitration russia cypru

UPDATE:  The Cyprus parliament unanimously rejected the proposed European bailout, raising the possibility of a messy default.


The firestorm over the Eurozone bailout of Cyprus, a small Mediterranean metropolis, continues to rock financial markets.

Under the terms of the bailout deal, everyone with a bank account on the island has to pay a one-time tax on their deposits — 6.75 percent on everything up to 129,000 and 9.9 percent on anything more.

Russians are particularly irate over the proposal as these articles illustrate: Why Russia is irate about the Cyprus bank tax, Russia Sees Cyprus Plan as ‘Unfair’ Plot to Seize Money of Its Citizens and Russian money in Cyprus: Why is there so much?

Russians have reason to be upset– they hold up to a third of all Cyprus bank deposits or an estimated $31 billion dollars.

Assuming most Russians are large depositors, a 9.9 percent tax would cost the Russians as much as $3.1 billion.

Russian president Vladimir Putin decried the proposal as “unfair, unprofessional and dangerous,” while Prime Minister Dmitry Medvedev called it “just like a confiscation of someone else’s money.”

Look to the Governing Bilateral Investment Treaty

Assuming the proposal is approved by the Cyprus Parliament, what action can a foreign investor take to recover their expropriated funds?

As with any investor-State dispute, the first thing to check for is whether there is a bilateral investment treaty (BIT) in place that may govern the dispute.

For illustrative purposes, I’ll focus on Russian investors here because they simply have the most to lose from the Cyprus bailout.

Bilateral Investment Treaty between Russian and Cyprus

Fortunately for Russian investors, there is a Bilateral Investment Treaty in force between Russia and Cyprus.

Like most BITs, the definition covering “investment” is very broad.

Under Article 1 of the Russia-Cyprus BIT, the term “investments” means “all kinds of assets invested by investors of one Contracting Party in the territory of the other Contracting Party in accordance with its legislation.”

The next provision to look out for in the BIT is the provision governing protection of investments.

In the Russia-Cyprus BIT, this provision is found in Article 2, and states:

  Article 2

Promotion and Mutual Protection of Investments

1. Each Contracting Party shall encourage investors of the other Contracting Party to make investments in its territory and admit such investments in accordance with its legislation.

2. Each Contracting Party shall guarantee, in accordance with its legislation, full and unconditional legal protection of investments made by investors of