Money laundering is the process of concealing the origin, ownership, or destination of illegally obtained funds or assets. It poses a serious threat to the integrity and stability of the financial system, as well as to the security and welfare of the society. Therefore, combating money laundering is a priority for the international community and for individual countries.
Cyprus, as a member of the European Union and the Eurozone, has adopted a comprehensive and robust anti money laundering (AML) regime, in line with the international standards and best practices. The AML rules in Cyprus aim to prevent and detect money laundering activities, to facilitate the prosecution and confiscation of the proceeds of crime, and to protect the legitimate interests of investors and businesses.
The AML rules in Cyprus have a significant impact on the investment environment, as they impose certain obligations and requirements on the financial institutions and the professionals that provide services to investors. These include, among others, the identification and verification of clients and the beneficial owners, the due diligence and ongoing monitoring of the business relationships and transactions, the reporting of suspicious activities, and the implementation of internal policies and procedures.
The Legal Framework of AML in Cyprus
The main legal instrument that regulates the AML regime in Cyprus is the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007, as amended (the AML Law). The AML Law transposes the relevant EU directives and incorporates the recommendations of the Financial Action Task Force (FATF), the global standard-setter for AML. The AML Law applies to a wide range of persons and entities that are involved in the provision of financial or other services to clients, such as banks, investment firms, insurance companies, lawyers, accountants, auditors, real estate agents, trust and company service providers, and others. These persons and entities are referred to as “obliged entities” under the AML Law.
The AML Law is supplemented by various directives, circulars, and guidelines issued by the competent authorities that supervise and regulate the obliged entities. These authorities include the Central Bank of Cyprus, the Cyprus Securities and Exchange Commission, the Cyprus Insurance Companies Control Service, the Cyprus Bar Association, the Institute of Certified Public Accountants of Cyprus, and others. The directives, circulars, and guidelines provide more detailed and specific rules and instructions on how the obliged entities should comply with the AML Law and the international standards.
The Impact of AML on Investments in Cyprus
The AML rules in Cyprus have a direct and indirect impact on the investments in Cyprus, as they affect the obligations and responsibilities of the obliged entities and their clients. The main aspects of the impact are the following:
- The obliged entities have to conduct client due diligence (CDD) measures before establishing a business relationship or carrying out a transaction with a client. The CDD measures include the identification and verification of the client and the beneficial owner, the collection and assessment of information about the purpose and nature of the business relationship or transaction, the risk profiling of the client, and the ongoing monitoring of the business relationship or transaction. The obliged entities have to apply enhanced CDD measures in cases of higher risk, such as when the client is a politically exposed person, a non-resident, or a person from a high-risk third country. The obliged entities have to apply simplified CDD measures in cases of lower risk, such as when the client is a public authority, a listed company, or a person from a low-risk third country. The obliged entities have to keep records of the CDD measures and the transactions for at least five years.
- The obliged entities have to report any suspicious or unusual activities or transactions to the Unit for Combating Money Laundering (MOKAS), which is the national financial intelligence unit of Cyprus. The obliged entities have to report any activity or transaction that they know or suspect, or have reasonable grounds to know or suspect, that it is related to money laundering or terrorist financing, regardless of the amount or the nature of the activity or transaction. The obliged entities have to report the suspicious activity or transaction as soon as possible, and without tipping off the client or any other person. The obliged entities have to cooperate with MOKAS and the law enforcement authorities in any investigation or inquiry related to money laundering or terrorist financing.
- The obliged entities have to implement internal policies and procedures to ensure compliance with the AML Law and the directives, circulars, and guidelines of the competent authorities. The internal policies and procedures include the appointment of a compliance officer, the provision of training and awareness to the staff, the establishment of internal controls and audits, the adoption of risk-based approaches, and the implementation of measures to prevent the misuse of new technologies or products. The obliged entities have to review and update their internal policies and procedures regularly, and to report any deficiencies or breaches to the competent authorities.
The impact of the AML rules on the investments in Cyprus can be positive or negative, depending on the perspective and the situation of the investors and the obliged entities. On the one hand, the AML rules can have a positive impact, as they can enhance the reputation and credibility of Cyprus as a safe and attractive destination for investments, as they can protect the investors and the obliged entities from the risks and costs of money laundering and terrorist financing, and as they can facilitate the access and cooperation of Cyprus with the international financial markets and institutions. On the other hand, the AML rules can have a negative impact, as they can increase the administrative and operational burden and costs of the investors and the obliged entities, as they can delay or complicate the establishment or execution of the business relationships or transactions, and as they can create uncertainty or confusion about the interpretation and application of the AML Law and the directives, circulars, and guidelines of the competent authorities.
Conclusion
The AML rules in Cyprus are an integral and essential part of the legal and regulatory framework that governs the investment environment in Cyprus. The AML rules aim to prevent and combat money laundering and terrorist financing, and to align Cyprus with the international standards and best practices. The AML rules have a significant impact on the investments in Cyprus, as they impose certain obligations and requirements on the obliged entities and their clients. The impact of the AML rules can be positive or negative, depending on the perspective and the situation of the investors and the obliged entities. Therefore, it is important for the investors and the obliged entities to be aware and informed of the AML rules, and to comply with them in a timely and effective manner.
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.