How Cyprus's start-up economy was shaken by the war in Ukraine
InvestigationCyprus is home to thousands of digital companies, most of them of Russian origin. Since the war between Russia and Ukraine broke out, the country's economy has been disrupted, for better or for worse.
At the exit of Cyprus's international airport in Larnaca, a gigantic billboard greets arrivals. The billboard features neither a wild sheep nor a dove, the two national symbols of this small European country, but the main character of Hero Wars, a video game best known for its misleading advertising on social media. Welcome to Europe's paradise for companies specializing in new technologies.
Ridiculously low taxes, close proximity to Israel and its high-tech companies, pleasant living conditions and the historic presence of a large minority of wealthy Russian investors: For a decade, Cyprus has been a hub for start-ups and technology companies, which form an important part of an economy mainly focused on finance, logistics and tourism. Le Monde, as part of the International Consortium of Investigative Journalists, has worked on the Cyprus Confidential investigation looking into Cyprus's business interests.
An opaque financial center, a haven for Russian money, a grey zone for the cyber economy: The Cyprus Confidential investigation tells the story of how Cyprus, a small Mediterranean island, has allowed itself to be overwhelmed by its offshore industry, and has become the European Union's weak link in the fight against dubious financial flows.
The investigation is based on the leak of 3.6 million confidential documents from six Cypriot financial services firms (ConnectedSky, Cypcodirect Corporate Services, DJC Accountants, Kallias & Associates, MeritKapital and MeritServus) and the i-Cyprus company register. The leaks were obtained by the International Consortium of Investigative Journalists, the Organized Crime and Corruption Reporting Project and the German investigative outlet Paper Trail Media, with the support of Distributed Denial of Secrets, a group of activists campaigning for transparency. The leaks were then shared with 69 international news organizations, including Le Monde.
For Russian and Israeli tech companies, Limassol, the economic capital in the south of the island, has over the years become the equivalent of Dublin for Big Tech: a gateway to Europe. However, unlike Ireland, Cyprus is home to a large number of small- and medium-sized companies, many of which specialize in the digital economy's "gray zone": porn sites, aggressive advertising networks, high-risk payment services, surveillance technology vendors and content farms.
Russian tech migrants
For almost two years now, however, life for start-ups on the island has been disrupted by an external event: the war in Ukraine. The Belarusian strategy video game giant Wargaming, which has been operating on the island since 2009 with subsidiary studios, for example, suddenly closed all its operations in Russia and Belarus in April 2022, and strengthened its presence in Nicosia, where it is based out of an imposing glass building. Over 10,000 Ukrainians have settled in Limassol since the start of the war, according to city estimates. The coastal city has also seen a major influx of Russian developers and engineers fleeing being called up to fight and the hardening of the regime.
"In the IT sector, companies have come to Cyprus by waves," said Alexey Gubarev, a serial entrepreneur who moved to the island from Russia 21 years ago, and co-founder of TechIsland, the interest group for companies in the sector. "Several companies came at the end of the 2000's, after the financial crisis, and then there were several waves in 2012 and 2018, notably in the video game industry. A community has emerged in 20 years, which makes installations easier. And then of course, there was a wave after the beginning of the war in Ukraine, in 2022, and after the mobilization decrees in Russia in September that year. Many young engineers realized they could be drafted." Gubarev explains that he relocated his employees from Russia to Cyprus; he has also given up his Russian passport.
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