The Republic of Cyprus (hereinafter "Cyprus") has been the target of many European Countries due to it's allegedly lack of money laundering measures that damage the European Union. Is the reaction of these European Union Countries justified?
Cyprus, even before joining the family of the European Union had in place legislation as well as a body responsible for the supervision of monetary transactions within its jurisdiction.
The relevant legislation as drafted and proposed by the Parliament in 1996 was approved in 1997 as the Prevention and Suppression of Money Laundering Acts Law. Since then numerous amendments were made with the latest coming into force in 2012.
In addition, Cyprus ratified on 30 Nov 2001 the International Convention for the Suppression of the Financing of Terrorism.
The unit for Combating Money Laundering (MOKAS) was established to supervise the provisions of Prevention and Suppression of Money Laundering Activities Law. MOKAS gained the power to investigate any reports for potential money laundering and has therefore been structured and manned with a variety of professionals such as advocates, custom officers, financial analysts, police officers and many others, making MOKAS a powerful tool in the hand of the Attorney General against money laundering in Cyprus.
The adoption of the Prevention and Suppression of Money Laundering Activities Law 2007 has put Cyprus in line with the international conventions of the:
- United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention) 1988,
- Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime 1990,
- Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism 2005,
- Relevant European Union Council Directives,
- EU Council Framework Decisions and the 40+9 Recommendations of the FATF on ML&FT. It participates in the following organizations:
- Moneyval Committee of the Council of Europe,
- EU Committee on the Prevention of Money Laundering and Terrorist Financing,
- Camden Assets Recovery Inter-Agency Network (CARIN),
- FIU Net Task Force, the Asset Recovery Offices Forum and the FIU Platform.
Recent Measures for ASP's
Foreign investors use the services of local lawyers and accountants, who are qualified in implementing investor's corporate structures. It is vital to be in opposition to recognize which transactions may not be genuine in order to report them to MOKAS. Unfortunately, in the last few years a number of unqualified offices made their appearance in Cyprus, providing "corporate services" without having the necessary know-how and with limited knowledge of Cyprus Law. This inevitably caused problems to a number of investors who realized that the administration of their Company was not in line with Cyprus law. The Parliament of Cyprus, in an attempt to maximize the control over the corporate service market, has recently approved and adopted law 196(Ι)/2012 on Regulating Companies Providing Administrative Services and Related Matters (the "Law").
The Law has put the burden on the Cyprus Bar Association and Cyprus Securities and Exchange Commission to supervise those authorized under the Law and those that are already qualified to provide administrative services.
The Law provides for exempt persons, i.e. persons that are allowed to provide administrative services without applying to the Cyprus Bar Association and Cyprus Securities and Exchange Commission. Namely, the the Cyprus Bar Association and Cyprus Securities and Exchange Commission persons are:
- An advocates or an advocates' limited company (L.L.C.) as defined in the Advocates' Law, 42/1961 as amended and a general or limited partnership whose general partners are either lawyers or a lawyers' limited company regulated by the Cyprus Bar Association, in its capacity as regulatory authority for the Prevention and Suppression of Money Laundering Activities Law;
- members of the Institute of Certified Public Accountants of Cyprus and a general, limited partnership or a limited liability company whose majority of general partners or shareholders and directors, members of Institute of Certified Public Accountants of Cyprus, in its capacity as regulatory authority for the Prevention and Suppression of Money Laundering Activities Law; and
- a subsidiary company, either directly or indirectly, of any of the above persons;
It is therefore important that each investor makes sure that his companies in Cyprus are being administered by a licensed ASP company or by one of the exempt persons. It should be noted that persons that are in breach of the Law are subject to heavy fines by the regulatory authorities.
Reports and Incidents of Money Laundering
The Government of Cyprus has recently obtained two reports from Deloitte and Moneyval who they were instructed to review, among others, the Anti-Money Laundering (AML) procedures used by the Banks and service providers as well as the Customer's Due Diligence (CDD).
Both reports have shown that there is room for improvement but under no circumstances gives the right to any EU Country or otherwise to attack Cyprus as the money laundering jurisdiction of Europe.
We have seen in the near past money laundering scandals around the globe, but those countries haven't been "attacked" by the media and or foreign governments as much as they did with Cyprus.
Some examples of proved money laundering are:
- In 2013, Guaranty Trust Bank (UK) has been fined with a fine of £525,000 for inadequate anti-money laundering control in relation to high-risk customer, politically exposed.
- in 2012, HSBC Holdings Plc agreed to pay $1.92 billion in fines to U.S. authorities for not applying the anti-money laundering provision, allowing the institution to be used by Mexican drug lords for money laundering.
- In 2008, Commerzbank was ordered by the Frankfurt civil-court to pay €7.3 million, including confiscation of €6.3 million of profits derived from illegal activity
- In 2002 what has become known as the "Benex Scandal" which involves allegedly Russian mafia money being moved to the Bank of New York, among others. It has been estimated that $7 to $9 billion was laundered through the Bank of New York accounts.
It should further be noted that a study published by the Tax Justice Network which examined seventy countries found that Germany is one of the biggest havens for tax evasion. It's worth saying that Germany even ranks higher than offshore jurisdictions, such as Cayman Islands, that do not comply with the OECD or EU Regulations and Directives.
In the light of the above mentioned facts each of you can make his own decisions to which countries do really "support" money laundering.
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.