Cyprus was called on Wednesday to shore up weaknesses in several areas of the economy that still leave the island vulnerable to money laundering such as banking, the real-estate sector and shortcomings among administrative service providers (ASP).
The Council of Europe’s anti-money laundering watchdog, Moneyval, also called on Cyprus to pursue more aggressively money laundering from criminal proceeds generated outside of Cyprus “which pose the highest threat to the Cypriot financial system”, and take a more proactive approach to the freezing and confiscation of foreign proceeds at their own initiative.
The sectors with the main weaknesses named in the Moneyval report, in order of vulnerability were: banking, ASPs – such as accountants and lawyers who manage and administrate trusts and companies – the real estate market, Cyprus’ expanding casino business, and money transfer companies (MSB).
The top three risk sectors cited serve to produce a lethal combination when married with the island’s citizenship by investment scheme, which Moneyval said had not been assessed comprehensively in terms of the risks.
“The Cyprus Investment Programme is inherently vulnerable to abuse for ML (money laundering) purposes, as is real estate, both in general and as the apparent preferred investment to acquire citizenship,” the report said.
While the banking sector had become more effective in mitigating risks, largely due to the “increasingly sound supervisory practices” of the central bank, “the risk in the real estate sector has increased exponentially”, the report said.
“These risks have not properly been mitigated – the implementation of preventive measures by, and the supervisory framework of the sector display significant weaknesses.”
As for ASPs, Moneyval said there were shortcomings in the implementation of preventive measures by the trust and corporate services sector as a whole which has “major implications” for finding information on who the real owners of a company are. ASPs in Cyprus did not demonstrate a uniform level of understanding of the risks of terrorist financing evasion.
“Given Cyprus’ status as an international financial centre and the role played by administrative service providers as gatekeepers, the fact that some service providers may not always be in a position to identify individuals or entities who may seek to conceal their identity behind complex structures to evade sanctions constitutes a significant vulnerability,” the report said.
On top of that, Cyprus has not conducted a formal assessment of risks posed by legal entities despite having a developed company formation and administration into a huge economic sector.
“This has reduced the authorities’ ability to implement more targeted mitigating measures to ensure the transparency of legal persons,” according to Moneyval. For instance, it said that basic information for around 63,000 registered companies out of 215,346 “remains inaccurate and outdated”.
“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,” Moneyval said. “The low level of reporting by ASPs and the real estate sector raises concern… real estate agents have not demonstrated that they apply enhanced measures appropriately,” it added.
The report 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.
On the other hand, it said, several measures have been deployed to mitigate some of the main risks effectively. The country has developed mechanisms which are capable of delivering constructive and timely assistance to other countries both on a formal and informal basis. The reported review was conducted in May 2019. The next one will be in 2021.
The ministry of finance and the government welcomed the report.
“It reflects the progress and the measures adopted by Cyprus to combat money laundering in recent years and identifies areas where further improvements are needed,” it said.
It said the assessment was a very demanding exercise with very few countries achieving high results.
“Within this background, the assessment shows a very satisfactory picture of the implementation of the measures, with Cyprus being one of the 25 countries out of the 98 that have been subjected to this assessment and which do not exhibit a low rating on any of the 11 pillars evaluating the effectiveness of the measures,” the finance ministry added.
At the same time in the technical aspects of the report, Cyprus showed ‘compliant’ or ‘largely compliant’ ratings on almost all 40 parameters and no ‘non-compliance ratings’.
“The purpose of the report is be a tool for improving the measures against money laundering and contribute to the international effort to combat the phenomenon, for which Cyprus has shown its commitment to implement strong policies, against money laundering and terrorist financing activities,” the ministry said.