Cyprus Mail

Billions lost in cash crackdown on money laundering

Although aimed at catching money launderers, the strict regulations are hurting ordinary account holders as well

EVEN depositing the cash received for your wedding, a fairly simple banking task in the past, has apparently become arduous in recent days, as lenders enforce strict anti-money laundering rules in a bid to shed the image of a tax haven that Cyprus has been carrying and has been the source of many problems throughout the years.

The crackdown has cost banks a lot of business and oftentimes annoyed customers who have banked with the same institution for decades; but lenders do not appear concerned over the business they are turning away and continue to enforce strict compliance practices across the board.

The current state of affairs was accurately described by Bank of Cyprus CEO John Hourican.

“We are a compliance operation with a bank attached to it,” he said recently.

In recent months, there have been stories of people who have closed their accounts rather than go through the hassle, while others had to endure the third degree from compliance officers.

Even depositing the cash received for your wedding at a local co-op branch where you are known would require a marriage certificate. In other banks, it could need the wedding invitation too, provided the amount is within reasonable limits.

Stricter compliance practices, with proof of source of funds for any amount over €10,000, were introduced after the island’s economic collapse in 2013, but they appear to have been stepped up in recent days, most likely after pressure from the US.

In July this year, the Financial Action Task Force (FATF) and the Egmont Group (the forum of national Financial Intelligence Units from 156 countries) issued a scathing report on the Concealment of Beneficial Ownership regarding the abuse of shell companies – the bread and butter of the island’s services sector — by people seeking to launder illicit gains.

Cyprus-based shell companies have been implicated in several money laundering schemes such as the Russian Laundromat and more recently, the Danske Bank scandal, with the most infamous of all being the ‘Milosevic millions’ channeled through Cyprus bank accounts that evaded UN sanctions against former Yugoslavia in the late 1990s.

In June, the Central Bank of Cyprus asked supervised banks to avoid business with “shell and letterbox companies” that fit a particular definition, causing displeasure in certain quarters.

“While some may argue that the sledgehammer approach by the Central Bank of Cyprus is causing a disruption to the services sector, given the bad press (some of it unjust but not unfounded) the island needs drastic measures to shore up its reputation,” said George Markides, a senior consultant at consulting firm MAP S. Platis.

According to Markides, other EU countries have gone further.

The UK’s National Crimes Agency has started pursuing individuals with unexplained wealth orders (UWO), the first indictment being issued against the wife of a third-country banker who bought £22m of real estate using offshore companies.

The recent scandals in Estonia’s ABLV, Malta’s Pilatus bank and Danske, and the failures of national regulators to effectively supervise AML compliance, prompted the EU Commission in September to begin drafting a new rule that will allow the European Banking Authority to issue instructions to any EU-based bank when the national regulator fails to act, Markides said.

“In this context, the action of the CBC, while it is indeed a sledgehammer approach, may be a step towards the right direction.”

Hellenic Bank CEO Yiannis Matsis said last week that the lender has closed 50,000 high-risk accounts in the last year; they concerned foreign politically exposed persons (PEPs), accounts that showed high-risk movement, dormant accounts, accounts included on sanctions lists, those that haven’t been updated, and accounts of high-risk jurisdictions.

Bank of Cyprus, meanwhile, has either closed or refused opening over 8,000 accounts mainly linked to Russians, between 2015 and 2017 (the latest available data).

The bank said it terminated 5,359 customers and rejected 2,937 potential customers exclusively on the grounds of KYC/AML compliance (Know Your Customer/Anti-Money Laundering).

The loss to the bank was an estimated €3.6bn.

Despite the strict compliance operations, US officials are still not convinced, pointing to the absence of convictions for money laundering, despite cases being reported to the anti-money laundering unit, Mokas.

When a case is reported to Mokas, the bank cannot close the account or hinder the customer’s transactions because that would be considered tipping off, according to the law.

If Mokas does not respond, the bank closes the account citing some other reason rather than continuing to take the risk.

One banker suggested that Mokas does not have the qualified staff needed to engage in forensic accounting and bring cases to justice.

In a sense, according to another banker, banks these days are doing the job of the state as regards tax evasion and money laundering, since any ‘extra’ cash coming into an account must be adequately justified.

The fight starts at the branches whose managers will be held responsible if they fail to spot or report a red flag.

One branch recently turned away a few hundred thousand euros which was deemed to be high risk. The money was part of a real estate deal the branch’s customers had struck with an Asian buyer. The agreement provided that the property would be paid for partly in cash.

The manager questioned the provenance of the cash and was told they were legally imported. The buyer produced the necessary documentation issued by the customs department at the airport, but the branch still refused to accept the cash. It was later determined that the buyer had tried earlier to deposit the cash in a different town, but he had been turned away.

A customs official said they must know the circumstances of the case in question to provide comment, but in general, officers do check and ask for documentation in line with EU regulations, though not as detailed as the banks did.

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