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Compliance & Regulation

Cyprus responds to MONEYVAL Evaluation Report

MONEYVAL, the Council of Europe’s anti-money laundering body, has published its 5th Round Mutual Evaluation Report (MER) of Cyprus, advising the Cypriot authorities to pursue more aggressively money laundering from criminal proceeds generated outside of Cyprus, and take a more proactive approach to the freezing and confiscation of foreign proceeds.

The report makes a comprehensive assessment of the effectiveness of Cyprus's anti-money laundering and countering the financing of terrorism (AML/CFT) system and its level of compliance with the Recommendations of the Financial Action Task Force (FATF).

The report, according to a statement by MONEYVAL, concludes that Cyprus understands the money laundering and terrorist financing risks that it faces to a large extent, albeit the understanding of terrorist financing risk is less comprehensive.

MONEYVAL noted that in various aspects major improvements are necessary for the effectiveness of the Cypriot AML/CFT regime. The competent authorities are not yet sufficiently pursuing money laundering from criminal proceeds generated outside of Cyprus, which pose the highest threat to the Cypriot financial system. Moreover, they have not been very proactive at freezing and confiscating foreign criminal proceeds at their own initiative, although they have been instrumental in assisting other countries.

There are weaknesses in the implementation of preventive measures by the trust and corporate services sector as a whole, according to MONEYVAL. This has major implications for the availability of beneficial ownership information of legal persons and arrangements registered in Cyprus and the reporting of suspicious transactions. While significant strides have been made by Cyprus to implement a comprehensive supervisory framework for trust and corporate services providers, further progress is required, with certain areas requiring major improvement.

The risk in the real estate sector has increased exponentially since it has become the preferred choice of investment to acquire citizenship under the Cyprus Investment Programme. As this risk has not been properly mitigated, the report recommends that supervision of the real estate sector should be significantly enhanced and that measures should be taken to increase the level of compliance with preventive measures by real estate agents.

The risks related to the Cyprus Investment Programme have not been assessed comprehensively, and the report recommends that Cyprus should conduct a comprehensive money laundering and terrorist financing risk assessment of this programme.

Trust and corporate service providers did not demonstrate a uniform level of understanding of the risks of evasion of targeted financial sanctions for terrorist financing and the proliferation of weapons of mass destruction. Given the role played by these service providers as gatekeepers, this shortcoming constitutes a significant vulnerability.

On the other hand, several measures have been deployed to mitigate some of the main risks effectively. There is a good level of domestic co-operation and co-ordination between the competent authorities, for example, both on policy issues and at an operational level. The banking sector has become more effective in mitigating risks. This is largely due to the increasingly sound supervisory practices of the Central Bank of Cyprus.

The report also notes positively that the authorities investigate the financial aspects where there is a terrorism investigation/prosecution, that they have carried out a number of terrorist financing investigations in the review period and that they have taken steps to increase awareness of terrorist financing risks.

The Financial Intelligence Unit (FIU) has the ability to support the operational needs of competent authorities through its analysis and dissemination functions. The country has developed mechanisms which are capable of delivering constructive and timely assistance to other countries both on a formal and informal basis.

It is crucial to note that the 5th Round Mutual Evaluation is a very demanding exercise with very few countries achieving high results, according to a release by the Press & Information Office of Cyprus.

Cyprus is one of 25 countries out of 98 undergone this assessment which do not have a low evaluation grade in any of the eleven pillars composing the effectiveness assessment. Cyprus AML/CFT measures have been assessed as substantially effective in three out of the eleven effectiveness pillars and moderately effective in the remaining eight.

On the technical compliance, Cyprus has achieved Compliant or Largely Compliant ratings in most of the 40 parameters with only two partially compliant ratings and none non-compliant rating. The Advisory Authority expresses its satisfaction that Cyprus’ MER, reflects the efforts of the authorities and all stakeholders in the fight against money laundering and terrorist financing, within the international community.