Money Laundering Haven in Cyprus : A Myth - By Phoebe Cleridou


By Phoebe Cleridou

Since 1996 Cyprus has gone a long way when it comes to anti-money laundering policies. One of our proud achievements was the Financial Task Force mission in 1997 that classified Cyprus as a priority country in the FATF External Relations program. Later followed national legislation ammendments and further implementation of EU Directives on the subject.
Reports on money laundering adopted by the EU dated from 1998 until today have only emphasized in enthusiasm and laudatory terms about Cyprus' achievements in fighting money laundering.

The International Narcotics Control Strategy Report of the US State Department also applauds Cyprus' efforts against money laundering adding that the Government has taken important measures in this area including strengthening and enforcing of the relevant laws as well as action taken by the Government against money laundering.

Cyprus enacted the appropriate legislation and has taken effective regulatory and other measures by putting in place suitable mechanisms for the prevention and suppression of money laundering and terrorist financing activities. Our country is committed to apply all the requirements of international treaties and standards in this area and especially those deriving from the EU Directives.

In 2007 the former Laws on the Prevention and Suppression of Money Laundering Activities of 1996-2004 were substituted after being revised by the Parliament. The result was the creation of “The prevention and suppression of money laundering activities law” which came into force in 2008 making Cyprus a fully harmonised state with the Third EU Directive on the prevention of the use of the financial system for the purpose of money laundering and
terrorist financing.

The Central Bank of Cyprus being the competent supervisory authority for persons engaged in banking business has also the responsibility of supervising and monitoring the compliance of banks and money transfer activities according to the legislation thus preventing the use of the financial system for money laundering and terrorist financing activities.

Since 1997 the Central Bank of Cyprus has issued several directives to banks and money transfer businesses which determine the practice and procedures that should be implemented by those entities for the effective prevention of such financial crimes as well as achieving compliance with the legislation requirements.

The work of the Central Bank of Cyprus continues and evolves according to our economy making it necessary for the revision of such Directives that will add new revised policies and procedures with upgraded and enhanced measures always in line with the FATF standards and the EU Directives. The Central Bank of Cyprus encapsules a very important role in the financial sector and this is furthered by our legislation making its directives both binding and compulsory for all financial institutions.

Since 1997, a special unit for Combating Money Laundering has been set up at the AG Office which is responsible for the receipt and analysis of suspicious transaction reports and money laundering investigations. This unit can apply to court and obtain an order for the disclosure of info to anyone as well as freezing and confiscation orders of funds and property suspected to be derived from money laundering.

The Moneyval Committee of the European Council and the FATF have evaluated Cyprus several times in the past years and have consistently concluded that Cyprus has implemented in a generally sound and comprehensive manner measures against money laundering and terrorist financing in line with international standards and has put in place a very comprehensive legal framework to that effect.

Further adding to the argument that Cyprus' should not be regarded as a money laundering haven and anyone discrediting the island is only basing his claims on pure myth.
In its latest report, Cyprus was rated with very good results for its level of compliance against the 40+9 Recommendations of the Financial Action Task Force against money laundering and terrorist financing.
The FATF took the initiative to identify which countries are “non-cooperative countries and territories” in the international fight in 2000 and recognised that Cyprus system is in line with international standards and excluded it from the list of “non-cooperative countries and territories”

In 2001, the IRS of the United States officially approved Cyprus' “Know-Your-Customer” rules which form a basic part of Cyprus' anti-money laundering system. As a result, Cyprus' Banks wishing to acquire US Securities on behalf of their customers are eligible to enter into a “withholding agreement” with the IRS and become qualified intermediaries.

An offshore company in Cyprus used to be the default option for foreigners keen to avoid taxes. But the Mediterranean island has cleaned up its offshore sector to improve its eligibility for the European Union, which it joined in 2004.

Foreign business poured into Cyprus in the 1990s attracted by a secure banking system,  a flat tax of 4.25 percent on offshore firms, and a lax regulatory environment, analysts say. It was a popular base for shell companies to buy state assets at way below market prices and then siphon off hard currency profits during the fire sale privatisations of 1995-6. Until recently, most of the island's 14,000 or so offshore companies were Russian , the majority of which had no physical operations here and opaque ownership structures.

Without doubt, Cyprus has done well out of foreign business. Offshore firms have hired lawyers and accountants, bought and rented offices and villas and invested in the stock market.  But Cyprus has had to fend off persistent accusations of being a tax haven and money-laundering centre. But Cyprus became keener than ever to clean up its image. The island now boasts one of the world's toughest anti-money laundering laws. It has been excluded from an international money-laundering black list.

The Cyprus Bar Association has issued Money Laundering Guidance Directive based on the Prevention and Suppression of Money Laundering Activities Law as well as being in line with Directive 2005/60/EC.
The Cyprus Bar Association is the Supervisory Authority for lawyers, designated by the Council of Ministers which enforces the anti-money laundering regulations. The need for guidelines is extended to professionals such as lawyers where professional requirements related to avoidance, recognition and reporting of money laundering and terrorist financing activities.  It creates an obligation and responsibility to implement it. Professionals such as lawyers are at risk because their services could be of value to the successful money launderer or terrorist financier.

MOKAS has developed an educational program for lawyers and accountants.

Client due diligence requirements are described in the Guidance Notes issued by the Cyprus Bar Association including when it must be undertaken by lawyers.

There are specific relevant provisions for certain types of clients as politically exposed persons contained in the new AML Law as well as simplified measures for i.e listed companies.

Lawyers have a responsibility to report directly to the FIU of Cyprus (MOKAS) suspicious activities that they know or suspect to be connected with criminal activities and that come to their knowledge in the course of undertaking their professional activities.

Lawyers are not bound to disclose “privileged information” and according to legislation “privileged information” means:
Communication between an advocate and a client for the purpose of obtaining professional legal advice or professional legal services in relation to legal proceedings whether these have commenced or not, which would in any legal proceedings be protected from disclosure by virtue of the privilege of confidentiality under the law in force at the relevant time; provided that a communication between an advocate and a client for the purposes of committing a prescribed offence shall not constitute privileged information; provided that a communication between an advocate and a client for the purposes of committing a prescribed offence shall not constitute privileged information.

Furthermore, reporting entities have immunity from any claim for breach of any duty of confidence. This immunity extends to the initial disclosure of the suspicion and to the information on which it is based.

Tipping-Off is prohibited as in many EU countries and is punishable with imprisonment for up to five years.
“Tipping off” is defined in the AML Law as:
“Any person who discloses that information or other relevant material regarding knowledge or suspicion of money laundering has been submitted to the FIU or makes a disclosurewhich may impede or prejudice the interrogation and investigation carried out in respect of prescribed offences or the ascertainment of proceeds, knowing or suspecting that the said interrogation and investigation are taking place, shall be guilty of an offence punishable by
imprisonment not exceeding five years.”

Although Cyprus is not a member of the FATF. It is a member of the Moneyval Committee of the Council of Europe, which is an associated member of the FATF. Cyprus’ anti money laundering system has been assessed three times by the Moneyval Committee and the findings for lawyers are that there is compliance with the FATF 40+9 Recommendations.

The Council of Europe (Moneyval Committee) assessed three time the Cyprus’s anti-money laundering system in April, 1998, September, 2001 and April 2005. All subsequent evaluation reports concluded that Cyprus has implemented in a generally sound and comprehensive manner measures against money laundering and terrorist financing in line with international standards and has put in place a very comprehensive legal framework to that effect.

Further evidence that accusations of Cyprus being a money laundry haven is only a myth is that recently Cyprus received a White listing from the OECD's report issued on 2 April 2009 as a jurisdiction which has complied fully with all the requirements for the effective exchange of information on tax issues.

During the recent G20 Summit in London, leaders of the world’s strongest economies classified
Cyprus as a financial center that has substantially implemented the internationally agreed tax standard.

The Organisation for Economic Co-Operation and Development (OECD) has issued their report on the progress made by financial centres around the world towards implementation of  internationally agreed standards on exchange of information for tax purposes and Cyprus is officially included as a jurisdiction that has “substantially implemented the internationally agreed tax standard”, and is therefore on OECD’s ‘White List’.

Cyprus reinforces its status as one of the world’s most attractive financial centres. More specifically :
-The Cyprus tax system is in line with EU requirements and also within the OECD requirements against harmful tax
-The Cyprus tax system has the lowest corporate tax rate in Europe and also contains many favourable tax provisions.
-Cyprus has a wide and continuously growing Double Tax Treaty (DTT) network

Following an amendment in the legislation, Cyprus has enabled the lifting of bank secrecy and exchange of information with foreign tax authorities for non-Cyprus resident persons.

Thus, Cyprus is expected to further strengthen its competitive advantage and image as a reputable and attractive financial centre. This will attract new foreign investments and enable Cyprus to have a wider appeal as one of the best jurisdictions in international tax planning; especially through the use of the Cyprus Holding Company.