Recently, the Central Bank of Cyprus has issued guidelines to Cyprus banks to open new bank accounts or to continue maintaining existing bank accounts in companies considered "shell companies" or "letter-box companies". The Central Bank of Cyprus guidelines are expected to be incorporated in the near future into the Cyprus Central Bank's Anti-money Laundering Directive.
Banks in Cyprus to open a bank account in Cyprus and to maintain bank accounts in Cyprus should also now follow a risk-based approach and review their clients in order to identify companies that will continue to have business relationships. Cyprus banks may also choose to open Cyprus bank accounts and continue to have business relationships with "shell companies" or "letter- box companies" but they must be able to justify their decision and record that justification in their client records.
The term shell company refers to a non-publicly traded, limited liability company (LCC) or any other business entity that fulfils any one of the following criteria:
- Has no physical presence in its country of domicile (other than a mailing address);
- Has no established economic activity, little or no independent economic value and no documentary proof to the contrary;
- Is registered in a jurisdiction where companies are not required to submit to the authorities independently audited financial statements;
- Has a tax residence in a jurisdiction recognised as "tax haven" or non tax residence whatsoever;
For the purposes of this paragraph, physical presence is construed as meaningful mind and management located within a country. The presence of third person such as a lawyer, an accountant or a TCSP (Trust Company Service Providers), acting merely as an agent of the company and / or providing nominee services including company secretary duties does not constitute physical presence. Also the lack of employed personnel (including the nominal presence of one single person as a staff member) is construed as lack of physical presence.
If a company fulfils any of the above criteria, engaging into or renewing business relationship should be avoided. Before taking a decision, the following should be taken into consideration (irrespective of the ML/TF risk assessment carried out by the credit institution in compliance with article 58A of the AML/CFT Law)
- The company is established for the purpose of holding stock or shares of another business entity or entities with identifiable activities and ownership.
- The company is established solely for the purpose of holding intangible or other assets including real estate or ship vessels.
- The company is established to facilitate currency trades and asset transfers, corporate mergers, acts as group treasurer or in any other case where convincing proof can be provided that the company is engaged in legitimate business and substantiated information is provided about its ultimate beneficial owner/s.
Cyprus banks have already taken action and have already begun to close down Cyprus bank accounts of companies that they consider to be inconsistent with the new Cyprus Central Bank guidelines despite the fact that there are still many uncertainties and the amending directive has not yet been implemented.
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.