"About 10 years ago, Russia took over the Cypriot banking system," he said. "There's a tax treaty between the two countries, and as a result, Russian companies, Russian oligarchs keep their money in Cyprus and use Cyprus banks."
Moreover, with all the money laundering that goes on in Russia, Cyprus has become a place for Russian criminals, Browder told "Squawk on the Street."
"Cyprus is essentially a part of Russia, not a part of Europe," he said, "That's why there's all this distaste about a proper bailout in Cyprus that wasn't in other countries. No one wants to bail out a bunch of criminals."
But Browder doesn't expect the Russians to come to the aid of the Cypriots. It's not clear what Russia would get for its 17 billion euros, he said.
(Read More: ECB Threatens to Cut Cyprus Funding on Monday )
Instead, he expects the Cypriots will accept the original offer with some modifications from Europe.
There are risks that the deal could save the Europeans 5 billion euros today only to cost them 100 billion euros down the road, Browder said, when depositors in other countries on the euro zone's periphery get nervous and start pulling money out of their bank accounts.
He added, "The reason the Russians are so upset is they don't want Cyprus to come back under the control of Europe. At the same time are they going to spend 17 billion euros to fix that?"
Browder has had his own brush with Russia's darker side. He has been accused of illegally buying shares in Russian energy giant Gazprom, and his lawyer died in a Russian prison.
Browder said his lawyer was murdered by the Russians after he uncovered corruption "and they're very, very angry." Browder is also pursuing sanctions against the Russians for the alleged murder, but faces a trial in Russia in absentia. His lawyer will be tried posthumously.
Asked if he fears for his life, Browder said, "I'm probably at greater risk than your average viewer, but I'm not letting that detract me from my activities."
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image: © Tax Credits