Russians responded angrily on Monday to the threat of a levy on bank deposits in Cyprus that could end the Mediterranean island's appeal as a safe haven for their money and cost them billions of euros.
Russians have stashed away huge sums in Cyprus since the Soviet Union collapsed in 1991, making the most of low taxes and light regulation to keep their money safe and, in some cases, to launder it.
But Russian banks, companies and individuals will be hit hard if Cyprus imposes the one-off levy on bank deposits as part of a European Union bailout, and some started withdrawing their money even before the weekend deal was agreed.
"Corporate clients have been calling and emailing asking what is happening and they are quite concerned to say the least, because they need to know what to do," said Thomas Keane, co-founder of Cyprus-based law firm Keane Vgenopoulou & Associates LLC, which has Russian corporations amongst its clients. "They are considering discussing looking at other jurisdictions."
Keane said that in the past ten days since rumors surfaced about such a move, Russian depositors had taken around 2 billion euros ($2.6 billion) out of Cyprus.
A Moscow-based adviser said: "People will start looking at London, Zurich, maybe the Far East, Switzerland."
Cypriot ministers were trying on Monday to revise the plan to seize money from bank deposits, which could amount to 9.9 percent on accounts holding more than 100,000 euros, but the damage has already been done in Russia.
Michael Pugh, partner at law firm Hogan Lovells in Moscow said he expected the move to provoke turmoil in the markets and could lead to people withdrawing their deposits, which in turn may destabilize Cyprus further.
President Vladimir Putin said the move was "unfair, unprofessional and dangerous" and Russians with money in Cyprus said they had lost confidence in the banking system of a country with which they share Orthodox Christian links.
"When I heard about it, my first thought of course was 'Oh God, I have money there.' And I got scared. Really scared," said a panicky customer who declined to give her name outside a branch of Uniastrum Bank in Moscow.
She poured scorn on an official statement by the bank that client deposits were secure.
Uniastrum, a bank best known for providing payments services, is controlled by Bank of Cyprus, in which Russian billionaire Dmitry Rybolovlev owns a minority stake.
There is no official sum available in Russia or Cyprus for the amount Russian banks, firms and individuals hold in Cyprus. But of almost 70 billion euros in deposits held there, a little less than half is held by non-residents and most are believed to be Russian.
One Russian bank, Alfa Bank, estimates that $70 billion of illegal capital flight from Russia in the past two decades may have found its way to Cyprus.
Moody's rating agency said last week Russian banks had about $12 billion placed with Cypriot banks at the end of 2012 and has estimated that Russian corporate deposits at Cypriot banks could be around $19 billion.
"We think that the $19 billion exposure is mostly wholesale - ie corporate," Eugene Tarzimanov, Senior Credit Officer at Moody's in Russia, told Reuters.
Some of Russia's largest banks have some credit exposure to Cyprus. VTB, Russia's second-largest bank by assets, had $13.8 billion in assets and $374 million through its Cypriot subsidiary, Russian Commercial Bank, at the end of 2011.
Shares in Russia's top lenders Sberbank and VTB both fell more than 3 percent in trading in Moscow.
VTB has said it is closely watching the situation and that it will evaluate the consequences after studying the law's text. Sberbank said it does not have its own funds in Cyprus and does not disclose information about customer accounts.
Although Putin criticized the levy, he has called for moves to clamp down on the capital flight - particularly as illegal transfers abroad deprived state coffers of almost $50 billion in 2012, central bank chief Sergei Ignatyev said.
"There is definitively a positive from the point of view of the government - in that the conditions of holding money in Cyprus are becoming tougher and less profitable," said Nikita Petrov, a professor at the Higher School of Economics in Moscow.
"This fits in with the idea of 'de-offshoring' which Putin has been calling for."
Ivan Tchakarov, Chief Economist, Russia & CIS at Renaissance Capital, said the moves were "obviously manageable from a macro perspective but will be very painful for individual depositors."
"Russians can ask a fair question - we have a deep relationship with Cyprus and have been helping them with loans ... In terms of the Russian reaction - they are not happy," he said.
As part of a package of support for Cyprus, EU officials expect Russia to extend an existing 2.5 billion euro loan by five years, until 2021, and reduce the interest rate.
But Finance Minister Anton Siluanov said a failure to coordinate with Russia on the bailout could affect Moscow's decision on the restructuring.
(Additional reporting by Katya Golubkova, Oksana Kobzeva and Maya Dyakina; Writing by Timothy Heritage; Editing by Giles Elgood)