Cyprus Mail

Troika distorted ‘dirty money’ findings

By George Psyllides

CYPRUS yesterday accused the troika of distorting information in a document purportedly summarising the island’s status vis a vis anti-money laundering (AML) measures by “drawing inferences” where none existed in the original reports.

The original four-page summary, based on audits by the Council of Europe’s money-laundering watchdog Moneyval and by private auditors Deloitte, had been drawn up by international lenders prior to a Eurogoup meeting on May 13 to approve the first tranche of the island’s €10 billion bailout programme.

Yesterday the Central Bank of Cyprus (CBC) said the summary did not give a synopsis of the main findings “but rather a description of the perceived weaknesses of the system, drawing inferences where none exist in the original reports.”

“The lack of consultation with the authors of the reports and the failure to refer to any of the positive aspects mentioned therein, has resulted in erroneous and distorted conclusions in the media, especially the international press,” the CBC said in a statement.

“A summary of the reports cannot be considered balanced if it omits to mention that they reveal a number of strengths both in the Cypriot AML framework and in the effective implementation of customer due diligence by Cypriot banks.”

The CBC said the authorities were in the process of providing a detailed response to the troika as well as to the Eurogroup.

An independent audit of Cyprus’ implementation of AML measures was set as a precondition for an international bailout.

Cyprus initially resisted the idea, arguing it had already been cleared in a prior assessment by Moneyval.

The government later backed down and agreed to a fresh review, one by Moneyval and a parallel one by private auditor Deloitte.

The summary said that between 2008 and 2010, Cypriot banks reported not a single suspicious transaction under anti-money laundering regulations, and flagging only one in 2011 and “a few” in 2012.

This despite Deloitte’s forensic analysis of sample customer transactions during its short investigation, identifying 29 potentially suspicious transactions during the last 12 months, none of which were reported by the Cypriot banks.

However, the summary had failed to mention that the 29 potentially suspicious cases had been identified in an analysis of 590,000 transactions, the CBC said in its statement.

Among the positive aspects the CBC listed as being absent from the troika summary was the fact that Deloitte also said Cyprus had a stricter legal framework beyond normal EU standards.

“In the audit for compliance with the CDD (customer due diligence) requirements of the Cyprus legal framework, it is worthy of note that these requirements are more detailed, and to a certain extent prescriptive, than in many other jurisdictions, including other EU Member States that similarly have implemented the requirements of the Third Money Laundering Directive,” the CBC quoted Deloitte as saying.

Cyprus also had a solid level of compliance on CDD across the sector and displayed strong compliance in the identification of customers, it said.
“For international business, most customers are corporate entities and supporting documentation is obtained to confirm the identification of the customer, the directors and the owners. Although some of these structures are complex and can involve legal entities in two or more jurisdictions, there was a consistency in the responses of the banks that they are required to, and do in practice, identify all relevant parties through all layers of these structures. The assessors did not come upon any examples to suggest lack of understanding or weak compliance on this aspect.”

In its statement, the CBC said there was no reference to or indication of systemic deficiencies and in contrast to the summary, the reports “indicate that the standard building blocks are in place, the AML preventive measures and procedures in banks are generally sound, and, generally, the banks have a high level of compliance with the statutory and regulatory requirements, which in some areas are more demanding than EU and international requirements. Some weaknesses are identified in the reports, but the general picture portrayed is not negative, something that is not reflected in the summary paper”

“AML is a challenge for all the international community. There is no perfect system that can guarantee the complete elimination of money laundering risk, as shown in the evaluations of the AML framework of countries in the relevant Moneyval and FATF reports. In addition, it should be stressed that no benchmarking of the Cyprus AML audit results was carried out, as this was a unique, focused and exceptional evaluation procedure not carried out in other countries,” the CBC said.

Echoing the CBC, a statement from the finance ministry said the nature and depth of the assessments done on Cyprus were “unique and have never been carried out in any other jurisdiction”.

“The outcome of the assessments by the two institutions indicates a solid level of compliance across the sector,” the ministry said.

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