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  Yuri Botiuk, head of the Russia and Ukraine desk at law firm Pinsent Masons comments.

It appears that the ‘haircut’ given to ‘Russian’ money is deliberate. The effect of this will destroy Cyprus as an offshore jurisdiction for the Former Soviet Union. Effectively, hobbling the Cypriot banking system a la the film Misery. The Cypriot president, Nicos Anastasiades, was elected on an EU integration ticket and is seems he is using the bailout to cut off as opposed to wean the ‘Russian’ position in the Cypriot economy. Russia has not allowed itself to prop up a mixed bailout (EU + Russia) for fear of becoming sucked into a series of bailouts (as the terms initially offered) did not appear to solve the problems but simply out them off for a period. Cyprus’ economy will contract but the long term future is bright with massive oil and gas reserves found. So Cyprus can be free of Russian influence when it finally exploits its resources.

Companies and people who lose money in Russia will remember who was behind this. It is therefore a good time for the non Euro UK to roll out the red carpet for the Russians. The true beneficiaries may be the Chinese and South Koreans who compete directly with Germany to sell the heavy machinery that Russia needs.

What is a Russian saver to do with up to 40% losses. Bilateral Investment Treaty Arbitration offers a solution. On the face of it, it will be possible for foreign companies and individuals affected by the terms of the Cypriot ‘bail out’ to file arbitration proceedings against the State of Cyprus on the basis of bilateral investment treaties (‘BIT’) ratified by Cyprus. BIT arbitration proceedings could be commenced on the basis of the two possible grounds:

1. Expropriation If assets are expropriated without compensation, even if the expropriation is for public interest.

2. Unfair and discriminatory treatment If foreign individuals or companies are in some way treated unfairly or differently from other foreign or local investors. According to the Russia/Cyprus Bilateral Investment Treaty, arbitral proceedings may be commenced after a period of 6 months of amicable negotiations. Either the UNCITRAL Rules or the Arbitration Rules of the Stockholm Chamber of Commerce would be applicable. Any potential dispute will be defined only after any proposed bail out will be implemented and third party litigation funds could be interested in financing the costs and fees of arbitral proceedings. Enforcement of arbitral awards could be sought against assets held by the host State (that is Cyprus) outside its own sovereign territory. Finding assets outside of the Cypriot jurisdiction can, at times, be challenging. Assistance from specialised investigative companies might be necessary.”

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