Russia’s booming underground economy and “endemic corruption” with its dizzying flows of illicit money, fed largely by oil and gas, is at the core of an 84-page report by Global Financial Integrity (GFI). The non-profit in Washington, D.C. is advising the Russian government on how to tackle this problem. But buried deep inside is a gem: the amounts and flows of Russian “black money” into and out of Cyprus.

Cyprus is broke. Its banks carry on their books €152 billion in decomposing assets, about 8.5 times the country’s GDP of €17.8 billion. Of these “assets,” €23 billion are nonperforming—130% of GDP! The banks also sit on €26 billion in Russian “black money,” according to a “secret” report by the German version of the CIA, the Bundesnachrichtendienst (BND), leaked last November.

Now Cyprus needs a bailout of €17.5 billion—100% of GDP—of which €12 billion would go to the putrid banks. It’s the first Eurozone bailout that is so unpalatable that the German parliament might actually refuse to nod it through, which would scuttle it.

But the GFI report isn’t about Cyprus. It’s about Russia. And for Russia, as it outlines remedies that the Russian government might want to pursue. And in doing so, the report fingers the transfer of illicit Russian capital. The most common mechanics: “misrepresentation of export earnings” via “endemic misinvoicing of trade,” a form of “trade-based money laundering,” aided and abetted by a “weak customs administration,” primarily involving Russia’s crucial energy sector. And that’s where Cyprus comes into play.

The report explains how it works: Company A in Russia sells oil to its Subsidiary B in the Netherlands at way below market price. But the invoice doesn’t go to the Netherlands. It’s sent to Cyprus to a “reinvoicing company” that Company A owns. That outfit re-prices the shipment at market price and sends a new invoice to Subsidiary B in the Netherlands.

Dutch customs officials glance at the invoice and, as the price is in line with prevailing market conditions, rubber-stamp it. Now Subsidiary B sells the oil to some company in Europe at a normal price, gets paid, and in turn pays the reinvoicing company in Cyprus for the invoiced amount, thus transferring most of the proceeds of the sale to tax haven Cyprus.

The reinvoicing company is “reaping a huge profit.” The illicit money sits in one of the Cypriot banks that are now cratering—though that hadn’t been part of the plan. Whenever convenient, it’s “round-tripped back” to Company A in Russia, where it is officially recorded as foreign direct investment, or FDI. The loop is closed. And the amounts are enormous.

According to data reported by Russia to the IMF, tiny Cyprus was not only Russia’s largest destination of FDI but also its largest source. The peak year for this racket was 2010 when the sky was still blue in Cyprus. That year, FDI from Russia in Cyprus amounted to $153.9 billion. Conversely, FDI from Cyprus in Russia amounted to a breath-taking $179.2 billion—7.8 times the size of the entire economy of Cyprus!

Explains the report: “The recorded FDI positions merely reflect the round-tripping of prior illicit deposits from Russia in Cyprus.” And by facilitating this process, Cyprus has become “a major money laundering machine for Russian criminals.”

Alas, the gravy train derailed. By 2011, money flows into and out of Cyprus plunged 28% and 21% respectively. The party was over. Cyprus was going bankrupt. Russian “black money” got scared. So the Russian government stepped in and bailed out Cyprus temporarily late that year with a loan of $2.5 billion, apparently worried that the oligarchs behind these companies might lose too much money.

The report warns about the “serious security aspects” for Russia that are associated with these money flows and urges the Russian government to accord them “the highest priority.” But the hapless taxpayers in the Eurozone—and in the US through US participation in the IMF, which is part of the bailout Troika—are left wondering why on earth they should be forced to bail out these Cypriot banks, or rather their investors, counterparties, and shady account holders. But as always, there is never an alternative to a bailout.

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