Two-way investment flows between Russia and Cyprus create suspicion that money laundering may be behind the transactions, German Finance Minister Wolfgang Schaeuble said on Monday.

“Suspicion arises – and it’s plain to see – because Russian investment in Cyprus is so high and at the same time Cypriot investment in Russia is high,” Schaeuble said on Germany’s ARD television “2+Leif” program.

“You may ask why Cyprus is the second-largest foreign investor in Russia and we need clear answers to that.”

Comments on Monday by Schaeuble and Luxembourg Prime Minister Jean-Claude Juncker underline calls for Cyprus to take action on money laundering as a condition for potential aid.

A German secret service report on Cyprus that was sent in November to federal lawmakers said Russians deposited 26 billion euros – more than the size of Cyprus’s economy – in Cypriot banks over an unspecified time frame, according to Priska Hinz, a Green party lawmaker, who read the secret report.

While a report on the financial health of Cyprus by the so-called troika – the European Commission, the European Central Bank and the International Monetary Fund – and a February election in the country are set to delay decisions on aid, Germany is already outlining caveats it views as necessary conditions, including bank transparency and the primacy of first-stop help from Cypriot banks’ creditors and the government over aid from euro-area funds.

Cyprus needs to “play by the rules we have on money laundering in Europe, sign the same rule book,” said Michael Meister, the ruling Christian Democrats’ finance spokesman in parliament, in an interview on Monday.

“Only if bank creditors and the Cypriot state are unable to help can the euro area step in.”

Schaeuble said Russia needs to tighten its financial market rules that have fostered money laundering, saying that he had asked Russian Finance Minister Anton Siluanov to consult with President Vladimir Putin over such a move.

Russia may be asked to contribute to a Cypriot bailout plan, Schaeuble told German lawmakers last Tuesday.

[Bloomberg]