Prevention and suppression of Money Laundering activities and financing of Terrorism
Legal and regulatory framework
According to section 59(1)(a) of the Prevention and Suppression of Money Laundering Activities Laws of 2007 to 2018 (the AML/CFT Law), the Central Bank of Cyprus (‘CBC’) is the competent authority for the enforcement of the provisions of the legislation in relation to the financial activities of entities supervised by the CBC, which include credit, payment, electronic money, currency exchange, leasing and credit acquiring institutions. It should be noted that by the amending Law No 13(I) of 2018, enacted on 3rdApril 2018, the provisions of the EU Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 in relation to the prevention of the use of the financial system for the purposes of money laundering and the financing of terrorism (the so-called ‘4th EU AML Directive’) have been transposed in domestic legislation.
The CBC has issued the 5th edition of the Directive on the Prevention of Money Laundering and Terrorist Financing (‘the CBC AML/CFT Directive’) which replaced the previous 4th edition of December 2013 as well as the amendments to the fourth edition of April 2016 and July 2017. The new CBC AML/CFT Directive makes analytical reference to ways of applying various provisions of the AML/CFT Law. The CBC has also issued guidelines to credit institutions on key thematic areas, such as customer identification procedures and due diligence measures, ongoing monitoring of accounts and transactions, politically exposed persons, fraudulent tax crimes as predicate offenses and risk management systems for the prevention and suppression of money laundering and terrorism financing.
Also, the CBC is currently preparing similar Directives to other types of supervised entities and on different topics. All Directives will be published on the CBC website.
In supervising, monitoring and assessing the enforcement of the requirements of the AML/CFT Law and the CBC AML/CFT Directive, the CBC also takes into consideration the assessments, decisions and recommendations of bodies such as the EBA, the Financial Action Task Force (FATF), the Moneyval Committee of the Council of Europe, the International Monetary Fund and the World Bank. Moreover, for the drafting of guidelines for supervised entities the CBC takes into account the typologies, modern trends and the risk of abusing the financial system for the purpose of money laundering and terrorist financing, as well as best practices promoted by other supervisory authorities towards the prevention and combating of this eventuality. At the same time, the Supranational Risk Assessment conducted by the European Commission and the National Risk Assessment conducted by Cyprus authorities under the auspices of the Advisory Authority which functions in accordance with the AML/CFT Law are of equal importance for the formulation of the regulatory framework.
On June 19th 2018 the EU Directive 2018/843 was published in the official journal of the EU. The said Directive will have to be transposed into Cypriot legislation within 18 months of its publication.
Supervision and compliance of the supervised entities
The supervisory framework of the CBC for the prevention of money laundering and the financing of terrorism includes, in addition to the issuance of directives pursuant to section 59(4) of the AML/CFT Law, circulars and guidelines, comprises the submission of prudential returns and reports by supervised entities within specified time and reference periods. These are fed into the off-site monitoring tools which are used for the purpose of enhancing the risk-based supervision approach followed by the CBC and the formation of the appropriate action programs, including on-site inspections. On-site inspections are at the core of the CBC’s supervisory framework and allow for the assessment and evaluation of the level of compliance by supervised entities with respect to their legal and regulatory obligation to adopt and apply appropriate AML/CFT policies, systems and procedures. Onsite inspections that are carried out by the CBC may be comprehensive, thematic or special (ad-hoc), depending on the subject and the extent of the inspection and may be supplemented with the assistance of audit firms which are selected through a tendering process.
The CBC is empowered to implement corrective measures in case a supervised person fails to comply with the AML/CFT Law and the Directive which, under section 59(6) of the AML/CFT Law, may provide, inter alia, for the imposition of a financial fine, the amendment, suspension or revocation of the license of the supervised person and the cessation or removal from his/her position of any director, manager or official, including the Money Laundering Compliance Officer and the Heads of the Internal Audit Unit and of the Regulatory Compliance Unit. CBC is legally empowered by virtue of section 59(6A) of the AML/CFT Law to make such measures public. Additionally, the CBC may take corrective measures in accordance with section 41(D) of the Business of Credit Institutions Law 66(Ι) of 1997 as subsequently amended.
Targeted financial sanctions
In April 2016 “The implementation of the provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council Decisions and Regulations (Restrictive Measures) Law 58(I) of 2016” was enacted. In accordance with the said Law, the CBC is responsible for the compliance of the supervised entities with the targeted financial sanctions, decided and imposed by the United Nations’ Security Council and the EU. For the purpose of coordinated measures and actions the CBC works in close cooperation with the Ministry of Foreign Affairs and the Ministry of Finance for the exchange of information and the timely transmission to supervised persons the lists of countries and/or persons on whom the sanctions have been imposed, mainly concerning the freezing of funds and other financial resources. The CBC participates in the two committees in operation under the auspices of the Ministry of Finance, namely the Advisory Body on Economic Sanctions and the Unit for the Implementation of Sanctions in the Financial Sector in relation to Sanctions imposed by UN Security Council Resolutions and Restrictive Measures imposed by European Union (EU) Council Regulations.
Financing of Terrorism
In July 2017, the Combating of Terrorism Law of 2010 was amended by Law 94(I) of 2017 providing for criminal and pecuniary fines in the event of non-compliance with the EU restrictive measures and UN Council resolutions or sanctions. The Combating of Terrorism Law, provides, amongst others, the freezing and confiscation of funds and other financial resources of specific persons or entities, by entities of the financial sector supervised for the purposes of the AML/CFT Law and who have a responsibility to inform their supervisory authority accordingly.
Cooperation with other supervisory authorities
The CBC participates in the Advisory Authority for Combating Money Laundering and Terrorist Financing which is established by the Council of Ministers according to section 56(1) of the AML/CFT Law. The responsibilities of the Advisory Authority include informing and advising the Council of Ministers on AML/CFT issues, while promoting the Republic of Cyprus internationally with regard to its compliance with the relevant conventions, resolutions and decisions of international organizations. Also, the CBC presides over the Special Technical Committee comprising of the Supervisory Authorities of the Financial Sector of Cyprus and participates regularly at the plenary meetings of the Moneyval Committee of the Council of Europe, the Experts Group for the Prevention of Money Laundering and Terrorist Financing of the European Commission and the Joint Committee’s Sub-Committee on Anti-Money Laundering of the European authorities (EBA, ESMA and EIOPA).
Assessment of the compliance of Cyprus by the EU and international organizations
The anti-money laundering and counter financing of terrorism regulatory and supervisory framework of Cyprus is subject to assessments by the Moneyval Committee of the Council of Europe.
Following a request by the President of the Eurogroup in March 2013, the Moneyval Committee of the Council of Europe in collaboration with Deloitte Italy, conducted an assessment of the effective implementation of customer due diligence procedures in the Cypriot banking sector. The relevant reports were presented in April 2013 and according to their findings, there was no reference to or indication of systemic deficiencies. The reports indicated that the standard building blocks of the anti-money laundering and counter financing of terrorism framework in Cyprus are in place, the AML/CFT preventive measures and procedures in credit institutions are generally sound, and, overall, credit institutions exhibit a high level of compliance with the statutory and regulatory requirements, which in some areas are more demanding than the respective EU and international requirements. Nevertheless, some areas which require attention and are amenable to suggestions for further improvements are raised in the reports. In this context, the Cypriot authorities acted in full commitment on the necessary improvements and/or rectifications.
On 30 June 2013, the Cypriot authorities agreed with the Troika on an AML/CFT Action Plan within a specified and tight timeframe with a view to addressing deficiencies identified by Moneyval and Deloitte Italy. The aforesaid Action Plan has been appended as Annex 2 to the Memorandum of Understanding agreed with the Troika. In the context of the regular reviews conducted by Troika up until the completion of the program in 2016 of the progress achieved by Cyprus on the various agenda items, AML/CFT issues have been rated as compliant.
As part of the 49th Moneyval Plenary in December 2015, Cyprus submitted a biennial progress report which was adopted by the Plenary. Cyprus was requested not to provide any further progress reports in relation to the Special Assessment but to continue informing the Plenary, through the tour de table procedure, accordingly.
Moneyval — 5th round of evaluation
MONEYVAL has commenced its 5th round mutual evaluation of Cyprus with a two-day training (4th and 5th of June 2018) on the evaluation process for the Cypriot authorities and representatives from the private sector. The training seminar aimed at familiarizing all stakeholders with the basic principles and procedure of the Moneyval evaluation which includes an onsite visit scheduled for May 2019. The draft report for Cyprus is expected to be presented to the Plenary in the December 2019 meeting.
National Risk Assessment of Anti Money Laundering and Counter Terrorist Financing Measures
As part of the efforts exerted by Cyprus to reinforce the fight against the use of the financial sector for money laundering and terrorist financing and in line with the international standards set by the Financial Action Task Force (FATF) but also the relevant European directives and especially the so called 4th EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing as well as the domestic legislation, Cypriot authorities collaborated in order to conduct an assessment of the related risks on a national level, on the basis of the World Bank methodology, whose experts provided valuable guidance to all stakeholders. This exercise allowed for the identification of any deficiencies in the regulatory framework in place for combating money laundering and terrorist financing, but also in the effectiveness of the procedures followed by all stakeholders involved in this effort, aiming at taking corrective action.
The National Risk Assessment (NRA) report (non-public version) was submitted to the Council of Ministers in December 2017. The Cypriot regulatory authorities and the private sector started working on the suggested reforms and the implementation of the action plan since the beginning of 2018.