Wealth travels wherever wealth is treated best. And for decades, Russian wealth was treated well in Cyprus. The tiny island-state has long been the largest destination for Russian capital and largest direct investor in Russia.
According to Global Financial Integrity, the financial-watchdog group, Russians invested $199.7 billion in Cyprus in 2011, while Cyprus sent $128.8 billion into Russia. That's about five times the annual GDP of Cyprus.
Analysts estimate that about $20 billion, or a third or more of the deposits in Cyprus banks, come from Russia.
The Russia-Cyprus ties have come under the spotlight as Cyprus considers a tax on bank deposits as part of a financial bailout. The country has proposed and a 9.9 percent levy on deposits of more than $100,000.
While Cyprus is a unique case, the bail-out terms have sent a shudder through the world of wealth management and the multi-trillion dollar world of offshoring.
According to the Tax Justice Network, at least $21 trillion in private financial wealth was owned by wealthy individuals through tax havens in 2010. That's equal to the size of the economies of the United States and Japan combined.
That number is growing rapidly, according to John Christensen, director of the Tax Justice Network.
"Right now, wealth is cascading offshore," he said. "There's no question that it's accelerating. Wealth is concentrating in the hands of a tiny elite. And that elite is moving money offshore at a faster rate than we've ever seen."
He added that rising tax rates in many countries – from the United States to France and Britain – have driven more of the wealthy to seek shelters.
Americans don't offshore at nearly the same rates or volume as the wealthy in emerging-markets or many Europeans. The IRS is getting increasingly aggressive about hunting down offshore wealth and new regulations will make it more difficult for overseas financial firms to hide assets for U.S. clients.
According to Congressional researchers, the most popular offshore havens for Americans are in the Caribbean: the Cayman Islands, Virgin Islands, and Turks and Caicos. Bermuda and Panama are also popular.
Unlike Cyprus, the Caribbean countries have a history of British law and relatively stable banking systems.
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Still, wealthy U.S. families that have or are considering offshore accounts are watching Cyprus closely.
"I think families are suddenly looking under the hood of these countries more closely," said Stephen Martiros, a Boston-based, independent consultant to individual investors and family offices. "People want to do a real scrub down in all these jurisdictions to make sure they understand the risks."