How Money Oozed out of Cyprus during Negotiation of Bailout Deal

And almost everyone thought that the public’s money froze in Cyprus as ATMs went out of cash and banks were officially closed while local politicians haggled with unelected eurocrats for a bailout deal which was concluded right before the deadline.

Well, reports say that money had oozed out of Cyprus during the weekend.

From Reuters: (bold mine) 

In banknotes at cash machines and exceptional transfers for "humanitarian supplies", large amounts of euros fled the east Mediterranean island before and after Cypriot lawmakers stunned Europe by rejecting a levy on all bank deposits.

EU negotiators knew something was wrong when the Central Bank of Cyprus requested more banknotes from the European Central Bank than the withdrawals it was reporting to Frankfurt implied were needed, an EU source familiar with the process said. "The amount the Cypriots mentioned... on a daily basis was much less than it was in reality," the source said.

Confusion over just how much money was pulled out of Cyprus' banks is illustrative of the confusion surrounding the negotiations as a whole. Representing just 0.2 percent of the euro zone economy, Cyprus nevertheless threatened to reignite the bloc's debt crisis. Cyprus' problems began in Greece - it is heavily exposed to the euro zone's first bailout casualty.

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

Companies that had to meet margin calls to avoid defaulting on deals were granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

Chris Pavlou, who was vice chairman of Laiki until Friday, said while some money was withdrawn over a period of several days it was in the order of millions of euros, not billions.

German Finance Minister Wolfgang Schaeuble said the bank closure had limited capital flight but that the ECB was looking closely at the issue. He declined to provide figures.

Two angles here. 

One, people always search for alternatives by exploiting on legal or regulatory loopholes. As indicated above, some took advantage of the London branches of Cyprus banks to withdraw their money.

On the other hand, aside from the controversy where the Cyprus president warned his friends of the imminence of the crisis, in the world of politics, there will always be exceptions to the rule. This applies most especially in favor of the politically connected. What would be needed are "valid" justifications for such actions.

As George Orwell once wrote in Animal Farm: All animals are equal, but some animals are more equal than others