Moneyval's report- No Money Laundering in Cyprus Banks

Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus

Last Monday 17th of June, the team of International Experts under the auspices of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) has published its “Special Assessment of the Effectiveness of the Customer Due Diligence Measures in the Banking Sector in Cyprus”. The report was conducted on behalf of the Troika institutions in order to assist the decision-making process in respect of Cyprus request for financial assistance from the Euro area.

What derives from this special assessment is that the danger of money laundering in Cyprus is extremely minimal. This conclusion also adopted by the Council of Europe which in a recent announcement highlights that “The assessment, which was submitted to the Troika institutions and the Cypriot authorities on 24 April 2013, is unique as no other jurisdiction has ever submitted to such an exceptional and focused evaluation covering the effectiveness of only one part of its system for combating money laundering and terrorism financing. It also notes that a much larger sample of banks was interviewed than is possible in a regular anti-money laundering and combating financing of terrorism evaluation. The Council recognizes in parallel that, according the assessment, the Cypriot authorities have taken a range of legislative and other measures, in line with Financial Action Task Force (FAFT) and European Union standards in order to minimize the risk of money laundering and Financing of terrorism.

The most significant Conclusions 

According the Special Assessment, the MONEYVAL team selected 13 of the 41 banks for an interview which represent the 71 per cent of the deposits and 76 per cent of the loans in the banking sector. As already mentioned, this is a much larger sample of banks than would be interviewed in a regular MONEYVAL evaluation.

Regarding the legislative and other measures which Cyprus Authorities have taken against the risk of Money Laundering and Financing of Terrorism, the assessors positively note that sound preventive requirements have been in place for years at the levels of customer identification, identification of the beneficial owner, record – keeping and reporting of suspicious activities.

The report also recognizes 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 (CDD) requirements set out in the law and in subsidiary regulations issued by the Central Bank of Cyprus.

Furthermore, it is noted that the substantial international business conducted in and through the Cypriot banking sector (complex corporate structures, cross border transactions with counter – parties in various jurisdictions, trusts, etc.) are mainly tax – driven due to the special tax regime in Cyprus. However, the report stresses that these international businesses are not “intrinsically different from international banking business conducted by numerous other jurisdictions” worldwide.

Nevertheless, the assessors are concerning that the combination of a number of features associated with international banking business may in high risk cases bring cumulative level of inherent risk beyond a level that is capable of being effectively mitigated by the CDD measures being applied.

Finally, in light of the conclusions of the assessment a large part of the business is introduced to the banks by Cypriot lawyers, accountants and ASPs (Administrator Service Providers) rather than sourced directly. Consequently, banks in most cases do not establish a direct contact with the beneficial owner and the level of information of the customer is only good as the quality of CDD documentation and certification provided by the introducer.

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