Cyprus: Country Update-Cyprus: AML

Last Updated: 30 July 2019
Article by Kyriaki Stinga

Member of Financial Action Task Force? No, but it is a member of MONEYVAL.

On FATF blacklist? No.

Member of Egmont? Yes.

Money laundering background

The financial services and international business sector in Cyprus is one of the vital pillars of the Cyprus economy. That said, Cyprus aims to be in full compliance with the AML European framework, and in this respect constantly implements changes in its local laws to align with EU Directives and Regulations.

Cyprus has been assessed by Moneyval twice. In March 2013, in the course of the negotiations regarding financial support for Cyprus after the invitation of the President of the Eurogroup Working Group, Moneyval assessed whether Customer Due Diligence (CDD) measures are implemented effectively within the Cypriot banking sector, and then assessed again in May 2019.

Moneyval's assessment after the 2013 appraisal was positive for Cyprus. Moneyval noted that: "In general, the banks interviewed demonstrated high standards of knowledge and experience of AML/CFT issues, an intelligent awareness of the reputational risks they face and a broad commitment to implementing the customer due diligence requirements set out in the law and in subsidiary regulations issued by the Central Bank of Cyprus. Implementation of CDD measures, as described by the banks, appeared strong under most headings."

Deloitte, the international accounting firm, in the context of an evaluation conducted in 2013, described Cyprus' compliance requirements as being 'more rigorous and consistent in comparison to those of many other jurisdictions that had sought to implement the Third Money Laundering Directive', an assessment which has undoubtedly strengthened Cyprus' records in relation to AML business.

Moneyval's 2019 assessment report is expected to be delivered by December 2019. A positive appraisal in relation to compliance is significantly important for Cyprus, since it is likely to affect its international image and the way it is being perceived by investors and grading agencies.

It is important to note that on November 13, 2018, Cyprus published the first National Risk Assessment of Money Laundering and Terrorist Financing Risks (NRA). The Advisory Authority against Money Laundering and Terrorist Financing, which is the advisory body to the Council of Ministers in this field, comprising of the competent supervisory authorities, the Financial Intelligence Unit - FIU, the relevant Government Ministries/Departments and the private sector, decided to conduct Cyprus' first NRA in 2015. The NRA project had a duration of two years.

The NRA falls within the actions undertaken by the Cypriot authorities in order to identify, assess and understand the country's money laundering and terrorist financing threats and vulnerabilities. This was also in compliance with the relevant Recommendations of the Financial Action Task Force, as well as the provisions of the 4th EU AML/CFT Directive, which have been transposed into domestic legislation. Relevant specific risk- mitigating actions have been drawn up by the Cypriot authorities on the basis of the findings of the assessment, aimedi at strengthening the risk mitigating factors of the system. Implementation of these actions commenced at the beginning of 2018 and are being followed up by the Advisory Authority.

It is worth noting that Cyprus is also one of the 45 countries on the OECD's "white list" of "largely compliant" jurisdictions that have implemented internationally agreed standards relating to taxation, and was an early adopter of the organisation's Common Reporting Standard, which helps to fight tax evasion and improve international tax and financial transparency.

Legislation on prevention of money laundering activities

Cyprus's first anti-money laundering legislation was the Prevention and Suppression of Money Laundering Activities Law (61(I)/1996), which implemented the recommendations of the Vienna Convention of 1988. In 2007 this law was replaced by the Prevention and Suppression of Money Laundering Activities Law of 2007 (188(I)/2007) as amended from time to time (the "Cyprus AML Law" or the "Law"), which implemented the Third Money Laundering Directive, (Directive 2005/60/EC of the European Parliament and of the Council of October 26, 2005) and the 40+9 recommendations of the FATF. Law 13(I)/2018 amending the Cyprus AML Law transposed the EU's Fourth AML Directive (Directive 2015/849) which broadens the scope of AML oversight under Directive 2005/60/EC, to include new areas such as external threats to domestic markets and introduces more rigorous rules regarding ultimate beneficial ownership.

Objectives of the AML Laws

The principal objectives of Cyprus's AML Law are to prevent the laundering of proceeds of serious criminal offences ("predicate offences"), including terrorist financing and related activities, to detect and prosecute money laundering activities and to provide for the restraint and confiscation of illicit funds. The law makes money laundering or assisting in it a criminal offence and establishes a Unit for Combating Money Laundering (MOKAS).

According to the Law, no person shall, in the course of a financial business that he carries on in or from Cyprus, form a business relationship, or carry out a one-off transaction with or on behalf of another, without applying the prescribed procedures with regard to identification, recordkeeping and internal reporting as set out in the law, and such other procedures of internal control and communication as may be appropriate for the purposes of forestalling and preventing money laundering. Persons who transact relevant business must also keep their employees informed about these procedures and about the legislation that relates to money laundering.

Entities under scrutiny

A number of financial institutions, organizations and professional bodies, whose profession or business encompass a high risk of being involved in money laundering offences, such as banking institutions, cooperative societies, investment firms, stockbroking firms, accountants, insurance companies, real estate agents, advocates, trust and company service providers, money transfer services and dealers in precious metals and precious stones as well as casinos (referred to as "sensitive professionals") fall within the ambit of the Law.

The Law details what constitutes "Financial Business" and "Other Business" which are subject to its provisions. These are obliged to operate effective procedures for customer identification, recordkeeping and internal reporting and to appoint an appropriate person as money laundering compliance officer.

The law also contains powers to confiscate the assets of persons who are convicted of a predicate offence and to restrain the assets of such persons and of persons who are reasonably suspected of involvement in money laundering activities.

Regulatory authorities

Prevention of money laundering falls within the ambit of the respective regulatory body (for example, the Central Bank of Cyprus for credit institutions, the Cyprus Bar Association for lawyers, the Institute of Certified Public Accountants of Cyprus for lawyers and the Cyprus Securities and Exchange Commission for capital markets). In addition, the Unit for Combating Money Laundering (MOKAS) is the second-tier body responsible for preventing, investigating and prosecuting money laundering and terrorist financing across all relevant businesses and professions.

To view this article in full, please click here.

Originally published by Thomson Reuters Accelus Regulatory Intelligence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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