Cypriot banks must clear concerns to receive bailout -Finnish PM

BRUSSELS Wed Jan 16, 2013 8:33am EST

BRUSSELS Jan 16 (Reuters) - Cyprus needs to open its books to euro zone countries and quell speculation that its banks may have been a conduit for money-laundering before it can receive aid, Finnish Prime Minister Jyrki Katainen said on Wednesday.

"I think everybody needs the full truth on whether it is true that there has been money laundering in Cyprus or not," he said in an interview in Brussels.

"It is (self-evident) that all the countries in the euro area, or all the countries who participate in a probable package, need to know how the banks are behaving and that everything goes like it is meant."

Cyprus applied for financial aid last June after its banks suffered huge losses following an EU-approved writedown of Greek debt, but some euro zone states like Germany are uneasy about bailing out a country they say has murky financial transparency.

Cyprus says it has been extensively audited and there are no indications its banking system has been used for money-laundering. It says it complies with international rules and that its low corporate tax rate and a tax treaty with Moscow give it a competitive edge.

Russia has close historical ties with Cyprus and many Russia businessmen either live or operate business from the island.

"We cannot afford for this kind of speculation -- we need the truth. It is clear that this is one of the issues which must be clarified," Katainen said.

Katainen added that Cyprus, which holds presidential elections next month, needed new a government before negotiations over bailout, whether with the EU, IMF or any other countries, could start in earnest.

Asked if Russia, a major investor in Cyprus, could be involved in a bailout, Katainen did not dismiss the idea.

"Why not? The IMF has been involved... shareholders of the IMF, so why not individual countries? And Russia is one of the individual countries."

Russian President Vladimir Putin said last year that his country could provide support for Cyprus, but only after the eurozone has defined the terms of its assistance package.

It is estimated that Cyprus needs 15-17 billion euros to recapitalise its banks and put the economy back on a stable footing. That amount is equal to the entire output of the Cypriot economy, meaning any bailout may not be sustainable.

Under the rules governing the ESM, the euro zone's 500 billion euro assistance fund, a country's bailout must be 'sustainable' before aid can be disbursed, which leaves a question mark hanging over how to help Cyprus.

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