## _cr0777 — The Third Evaluation of Cyprus by MONEYVAL (3–9 April 2005)

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### Evaluation basis, team and scope
- Evaluation basis:
  - Forty Recommendations of the FATF and the 9 Special Recommendations of the FATF.
  - Two Directives of the European Commission: 91/308 EEC and 2001/97/EC.
- Scope:
  - Institutional framework; AML/CFT Laws, regulations and guidelines; regulatory and other systems to deter money laundering and financing of terrorism through financial institutions and DNFBP; capacity, implementation and effectiveness.
- Evaluation team:
  - Mr Lajos KORONA (Legal Examiner)
  - Dr Stephan OCHSNER (Financial Examiner)
  - Ms Daniela STOILOVA (Law Enforcement Examiner)
  - Mr Dennis EVANS (Legal Examiner)
  - Mr Richard WALKER (Financial Examiner – representing the Offshore Group of Banking Supervisors [OGBS])
  - MONEYVAL Secretariat.

### Institutional strengths and recent reforms
- Positive institutional elements and developments:
  - Cyprus FIU (MOKAS) reinforced and adequately staffed since the Second Round Evaluation.
  - Central Bank of Cyprus (CBC) issues guidance and carries out on-site visits to banks.
  - MOKAS approach to building relationships with reporting institutions highlighted as positive.
  - Guidance Notes for banks include ongoing due diligence and monitoring of complex and unusual transactions and PEPs.
  - Basic customer and beneficial owner identification building blocks are in place and appear implemented satisfactorily by financial institutions.
- Progress since Second Round Evaluation:
  - MOKAS resources improved significantly and now chairs the Advisory Authority.
  - AML Law amended in 2003 to give FIU power to issue administrative instructions to suspend financial transactions (partial achievement).
  - Companies Register transfer to an electronic database accomplished in 2002.
  - Ongoing priorities: strong monitoring/supervision, and training for persons newly subject to AML/CFT obligations.
- Areas for enhancement pursued:
  - Abolition of exception relating to identification duty of banks when dealing with customers introduced by trustees or nominees (identified in second evaluation).

### Legal and regulatory gaps (preventive obligations)
- Key gap: Some basic preventive obligations arising from FATF Recommendation 5 are only in enforceable and sanctionable guidance, not in primary or secondary legislation.
- Specific Criteria identified by evaluators (endorsed by MONEYVAL Plenary) as not in law or secondary legislation:
  - Criteria 5.2(c), (d) and (e)
  - 5.3 and 5.4 (a)
  - 5.5 and 5.5.2 (b)
  - 5.7
- Evaluators’ view: these should be in law or secondary legislation, not merely in supervisory guidance, despite guidance being enforceable and sanctionable in practice.
- Cyprus authorities’ position: circulars or guidance notes under the AML-Law constitute secondary legislation (view set out in report).

### Money laundering and predicate offences — situation and cases
- Money laundering situation:
  - "Has not changed in Cyprus in the last four years."
  - Sources of proceeds: both domestic and foreign predicate offences.
- Recorded domestic predicate offences generating illegal proceeds include:
  - fraud (including “obtaining money or goods by false pretences”)
  - burglary
  - theft
  - drug trafficking offences
- Cyprus characteristics:
  - Relatively low level of domestic crime over the last four years.
  - No tradition of narcotic production or trafficking; relatively limited local use of narcotic drugs.
  - Organised crime groups reported currently not to exist in Cyprus; no established link between Cyprus residents and organised crime groups in other countries.
- Police investigations and prosecutions:
  - Police investigate numerous money laundering offences based on foreign predicates.
  - Some investigations and prosecutions for money laundering based on foreign predicate offences, but none successfully concluded during the relevant period.
  - All convictions recorded during the relevant period since the second evaluation related to domestic predicate offences.
  - At on-site visit at least 14 money laundering cases were reported as currently before the courts; only three of these 14 emanated from the STR system.
  - Difficulties obtaining precise information on all cases because police do not always apprise the FIU of investigations where FIU had no direct involvement in interim orders.

### Criminalisation of money laundering and terrorist financing
- Money laundering criminalisation:
  - Drug money laundering criminalised in 1992 by the Confiscation of Proceeds from Trafficking of Narcotic Drugs and Psychotropic Substances Law of 1992; repealed and replaced by the Prevention and Suppression of Money Laundering Activities of 1996.
  - 1996 Law extended predicate offences to "all serious crimes".
  - Predicate offences cover all crimes which under Cyprus Law are subject to a maximum sentence of at least 12 months, including FATF-designated offences.
  - Legal enterprises can be held criminally liable; negligent money laundering and "own proceeds" laundering provided for.
  - All four convictions since the second evaluation related to “own proceeds” laundering (theft and obtaining money by false pretences).
  - No prosecutions or convictions for money laundering by third parties as autonomous offences during the relevant period.
- Evaluators’ recommendations:
  - Place more emphasis on third party laundering for both foreign and domestic predicate offences.
  - Clarify the evidence required to establish underlying predicate criminality in autonomous prosecutions; issue further prosecutorial guidance.
- Financing of terrorism (FT):
  - Cyprus ratified the 1999 United Nations Convention for the Suppression of the Financing of Terrorism in November 2001.
  - Financing of terrorism criminalised under sections 4 and 8 of the Ratification Law 29 (III)/2001 in respect of the Convention; practical consequences not yet tested in court.
  - At the time of the on-site visit, criminalisation was incomplete due to inadvertent exclusion under Ratification Law No. 29 (III) of 2001 of offences committed by Cyprus citizens on Cyprus territory; evaluators recommended introduction of a clear separate criminal offence of financing of terrorism.
  - Footnote: On 22 July 2005 Parliament enacted a Law amending the Ratification Law deleting section 9 and this difficulty no longer applies.

### Freezing, confiscation, and investigative powers
- Confiscation and related powers:
  - Powers to trace, freeze and confiscate direct and indirect proceeds and associated investigative powers provided in a generally robust and operational confiscation regime.
  - Law includes provisions requiring, in certain circumstances, defendants to demonstrate legal origin of their property in confiscation proceedings.
  - Confiscation regime applies to financing of terrorism whether prosecuted as stand-alone or autonomous offence.
- Freezing under UN and EU measures:
  - Administrative procedure exists for freezing accounts under UN resolutions and EU regulations; implemented by Council of Ministers Decision Number 54.374 of 4 October 2001.
  - Since 1 May 2004, Cyprus obliged to follow relevant European legislation on freezing terrorist assets.
  - Cyprus authorities had not frozen any accounts in respect of any names on UN or EU lists as no named person located in Cyprus.
  - Evaluators note need for a comprehensive and effective system for freezing without delay by all financial institutions, including procedures for de-listing and humanitarian access consistent with S / Res / 1452 (2002).

### MOKAS (FIU) — structure, resources and performance
- Structure and staff:
  - MOKAS is multi-disciplinary with currently 14 staff: two lawyers, three accountants, four police officers, two customs officers and three administrative staff.
  - After the on-site visit, 8 additional posts for investigators were created; recruitment in final stages.
  - MOKAS has enhanced IT facilities since the second evaluation.
- Performance and role:
  - MOKAS appears adequately resourced for current tasks though increase may be needed if supervisory role for real estate and precious metal dealers is added.
  - Highly regarded by domestic financial institutions; strong rapport noted as particular strength.
  - Activities include training, improving STR quality, providing feedback, acting efficiently on reports; processing times should be kept under review.
  - MOKAS is responsible for obtaining restraint and confiscation orders and advises prosecutors and police on money laundering cases.
  - Member of Egmont Group since June 1998; hosts Egmont Plenary in 2006.
  - Follows Egmont Principles for Information Exchange and cooperates effectively with foreign FIUs.

### Suspicious Transaction Reporting (STR) patterns
- Reporting patterns since 2002:
  - Large majority of STRs come from banks.
  - Money remittance services: 4 STRs since 2002.
  - Accountants and lawyers: 4 STRs since 2002.
  - Brokerage sector: 1 STR since 2002.
- Evaluators expected more reporting from non-bank sectors given Cyprus’s role as a financial centre.

### Financial sector, DNFBP and key statistics
- Banking sector:
  - Banks licensed in two categories: Domestic banks and International Banking Units (IBUs).
  - 14 domestic banks: 11 commercial banks and 3 specialised financial institutions.
  - Six of the 11 commercial banks are foreign owned — two operate as branches.
  - 26 IBUs: 5 local subsidiaries of foreign incorporated banks and 21 branches of foreign incorporated banks.
  - Both domestic banks and IBUs supervised by the Central Bank (CBC).
- Other supervised entities and numbers:
  - Six money transfer companies licensed to operate in Cyprus.
  - CBC supervises under Capital Movement Law 40 international independent financial advisers, six international trustee services companies and 200 feeder funds.
  - 47 investment firms and 2 UCITS management firms supervised by the Securities and Exchange Commission (SEC).
  - 362 credit institutions in the co-operative sector; supervised by the Cooperative Societies’ Supervision and Development Authority.
  - 43 licensed insurance companies operating in or from within Cyprus supervised by the Insurance Companies Control Service (ICCS).
- Customer base:
  - Significant majority of customers in banking, investment and insurance sectors appear to be Cypriots resident in Cyprus.
- Offshore/IBE/company sector:
  - Historical “offshore” centre with treaties and low taxation (4.25 %) applicable to profits of international business enterprises.
  - 2003 figures: approximately 14,000 international business enterprises (IBEs) registered in Cyprus in 2003; number of companies with a physical presence in 2003 was 2000.
  - 2002 legislation abolished “offshore” regime and introduced uniform corporate tax rate of 10 % from January 2003.
  - Pre-existing IBEs in operation as at 31/12/2001 could maintain existing tax status only until end of 2005; from 1 January 2006 all IBEs can operate internally and the descriptive term IBEs no longer exists.
  - Authorities consider abolition of offshore regime reduces vulnerability to money laundering.
  - Six trust and company service providers licensed by CBC as international trustee services companies.
  - Large majority of domestic trust and company service providers are lawyers.
  - Register of approximately 136484 companies maintained by the Department of Registrar of Companies and Official Receiver.
  - In 2003 lawyers creating, operating or managing companies required to comply with AML-Law provisions; guidance notes for lawyers were in draft at onsite visit and evaluators advised onsite inspections by Cyprus Bar Association. (Footnote: guidance notes later formally issued to lawyers.)

- DNFBP counts:
  - Real estate agents: 238.
  - Dealers in precious metals or precious stones: estimated some 300.
  - Registered accountants: 1,858; supervised by the Institute of Certified Public Accountants of Cyprus.
  - Registered practising lawyers: 1,631; all members of the Cyprus Bar Association.
  - Cyprus authorities advised there are no bureaux de change and no casinos established in Cyprus.

### Company law, registers and beneficial ownership access
- Company formation:
  - Companies limited by shares and guarantee; companies limited by shares sub-divided into public and private.
  - Cyprus company established by incorporation at Registrar via forms submitted by an advocate practising in Cyprus; advocate must draft and sign Memorandum and Articles.
- Registers and public access:
  - Register must contain registered office address, names of current directors, shareholders and secretary and a report of allocation of shares.
  - Information available to the public through examination of company’s file at Registrar premises.
  - Shareholder information also kept at company’s registered office and available to any person.
  - Overseas companies establishing a place of business may file certain documents and acquire registration without advocate services necessarily required.
- Beneficial ownership and control:
  - Current and accurate information on directors and shareholders required to be sent to Registrar within specified period.
  - Department of Registrar shares all information it holds with other competent authorities.
  - Beneficial ownership and control information on customers held by lawyers and financial institutions because of CDD standards.
  - Central Bank can obtain and disclose beneficial owner and control information on customers of international trust companies that are legal persons.
  - Recommendation: introduce framework for supervision of company service providers to require obtaining, verifying and retaining adequate, accurate and current records of beneficial ownership and control and permit supervisor access.

### Supervisory framework, sanctions and oversight issues
- Supervisory powers and practice:
  - CBC has conducted regular inspections of banks and seven on-site visits to international trustee services companies since 2001.
  - Some supervisory authorities need further resources (Superintendent of Insurance, on-site visits for money transfer businesses).
  - Examiners consider all persons conducting financial business should be regulated to same standard; greater coordination between supervisory bodies recommended.
- Sanctions:
  - AML Law provides for administrative sanctions by supervisory authorities; no sanctions have been imposed.
  - Current administrative penalty in AML Law of up to CYP 3,000 is not considered effective, proportionate and dissuasive.
  - Lack of imposition of administrative sanctions undermines preventive regime efficiency; consider linking regulatory law sanctions directly to AML/CFT standards.
  - CBC historically follows policy of moral persuasion vis-à-vis banks; examiners suggest policy on sanctions be reviewed.
- Licensing and shell banks:
  - All applicant banks required to establish a physical presence in Cyprus; therefore no shell banks exist in Cyprus.
  - Specific provision should require financial institutions to ensure respondent institutions do not permit accounts to be used by shell banks.
- Value transfer services:
  - Central Bank issued Directive for Regulation of Money Transfer Services; value transfer services are not covered and should be.

### Preventive measures — Guidance, CDD, record-keeping, PEPs and training
- AML Law and Guidance Notes:
  - Prevention and Suppression of Money Laundering Activities Law 1996 to 2004 (AML Law) is major instrument; amended in 2003 and 2004 to extend preventive regime to “relevant financial and other businesses”.
  - Sections 58 and 61 include auditors, external accountants and tax advisors; independent lawyers when participating in certain professional activities; dealers in real estate transactions; dealers in precious stones or metals.
  - Five sets of Guidance Notes issued to financial institutions between 2001 and March 2005: G-Banks; G-MTB; G-International Financial/Trustee Business; G-Investment Brokers; G-Insurers.
  - G-Banks closest to FATF risk approach; requires enhanced due diligence for prescribed high risk accounts including bearer share companies, trusts or nominees, and PEPs.
  - Some guidance deficiencies noted: need for record retention for at least five years after termination; similar guidance for securities, insurance and international/trustee sectors on complex/unusual transactions and written findings.
- Record keeping and wire transfers:
  - Some amendments required so records must be maintained for at least five years following termination to be fully in line with Recommendation 10.
  - Law should expressly provide for reporting of attempted transactions.
- STRs and tipping-off:
  - Direct mandatory obligation in law requiring all persons to report suspicious transaction reports relating to money laundering without financial threshold.
  - Obligation to report suspected links to terrorism also applies; no FT STRs received.
  - Tipping off provision seems unreasonably restricted; safe harbour provisions should clearly cover all civil and criminal liability.
- Training and coverage:
  - All AML Guidance Notes should include training on countering terrorist financing; some training provided to CBC Banking Supervision and Regulation Division.
  - Financial institutions’ Guidance Notes need enhancement on:
    - understanding ownership and control structures;
    - enhanced due diligence for higher risk customers;
    - politically exposed persons;
    - monitoring of complex, unusual transactions or patterns.
- DNFBP-specific guidance and supervision:
  - Guidance Notes issued to accountants; draft guidance for lawyers at onsite visit (later issued per footnote).
  - Guidance Notes remain to be issued for most trust and company service providers, real estate agents, dealers in precious metals and dealers in precious stones.
  - Evaluators welcome plans to designate MOKAS as supervisory authority for real estate agents and dealers in precious metals and stones.
  - Core preventive obligations need to be in law for DNFBP as for financial institutions.
  - Institute of Certified Public Accountants has outsourced AML/CFT monitoring of its membership; outsourcing relationship will need monitoring.

### Law enforcement, prosecutions, resources and training needs
- Investigative framework:
  - All money laundering investigations are sent to MOKAS by law; decisions made case by case on which investigative body works fully on AML/CFT investigation.
  - Other major investigative units: Drugs Law Enforcement Unit and Financial Crime Unit.
  - Examiners advise clear guidance on distribution of responsibilities.
- Resource and training needs:
  - Police and FIU generally adequately resourced though more focus needed on financial aspects of major proceeds-generating crime as routine part of investigations.
  - Need for more trained financial investigators outside MOKAS and more training for prosecutors on autonomous money laundering prosecution.
  - Prosecutorial guidance on third party laundering suggested, possibly by the Attorney General.

### National and international cooperation, statistics and oversight recommendations
- Advisory Authority and coordination:
  - Advisory Authority (now under MOKAS leadership) meets quarterly to discuss risks and coordinate enhancements.
  - Scope to deepen role: coordinate Guidance Notes, develop strategic threat/vulnerability analysis, review system performance, and develop key performance indicators.
- Statistics and information sharing:
  - Need for meaningful statistical data: breakdowns of number/types of investigations, prosecutions and convictions for ML and FT.
  - MOKAS to keep detailed statistical data on mutual legal assistance requests including response times and whether requests were fulfilled.
  - Prudential supervisory authorities have broad powers to exchange information with foreign counterparts; keep statistical data on such exchanges.
- Conventions and ML/FT international instruments:
  - Vienna Convention, Palermo Convention, 1999 UN Convention for the Suppression of the Financing of Terrorism and Strasbourg Convention ratified and implemented.
  - Judicial mutual legal assistance being provided; requests under Convention 141 executed significantly more rapidly than ETS 30.

### FATF Ratings summary — selected points
- R.1 Money laundering offence — Largely compliant. Effectiveness could be enhanced by emphasis on third party laundering and clarifying evidence in autonomous prosecutions.
- R.5 Customer due diligence — Partially compliant. Specific gaps: no general rule to identify beneficial owner except in G-Banks; no CDD for occasional wire transfers, irrespective of insurance premium exemption when suspicion exists, and in cases of doubts regarding previously obtained customer data.
- R.6 Politically exposed persons — Largely compliant. No PEP provisions in G-MTB, G-Investment Brokers, G-Insurers and G-International Businesses.
- R.12 DNFBP — Partially compliant. AML Law does not cover CDD in suspicion cases and in doubts about previously obtained CDD; Guidance Notes need enhancement; records retention for five years after termination required.
- R.14 Protection and no tipping-off — Partially compliant. Tipping off seems unreasonably restricted; safe harbour provisions should cover all civil and criminal liability.
- R.15 Internal controls, compliance and audit — Partially compliant. Terrorist financing not covered; compliance officer access may not be timely; lack of required independent audit and employee screening provisions.
- R.17 Sanctions — Partially compliant. Administrative fine up to CYP 3,000 not effective, proportionate and dissuasive; no sanctions imposed.
- R.33 Legal persons — Largely compliant. Lawyers form/administer companies and are subject to AML-Law but not all company service providers required to ascertain beneficial owners and controllers by law/guidance.
- SR.II Criminalise terrorist financing — Partially compliant. Domestic criminalisation incomplete at on-site visit; legislative amendment on 22 July 2005 addressed exclusion of Cypriot citizens.
- SR.VI Money/value transfer services — Largely compliant with deficiencies: no PEP rules; no minimum transaction information record requirements; value transfer business not licensed/registered; no on-site visits.

### Recommended action priorities (selected, in order of themes)
- General/statistics:
  - Maintain meaningful and comprehensive statistics on AML/CFT performance for strategic analysis.
- Criminalisation and prosecutions:
  - Emphasise third party laundering and clarify evidence in autonomous prosecutions; consider prosecutorial guidance.
  - Ensure FT criminalisation covers collection of funds in knowledge they will be used by terrorists; consider separate FT offence (note legislative amendment on 22 July 2005 addressed earlier exclusion).
- Freezing and UN/EU measures:
  - Establish clear statutory framework for freezing, de-listing procedures, humanitarian access consistent with S / Res / 1452 (2002), and court review of freezing.
- FIU and law enforcement:
  - Keep STR processing times under review; improve STR breakdowns for strategic analysis.
  - Delineate investigative competencies among police bodies; inform MOKAS of all AML/CFT investigations/prosecutions/convictions for complete statistical overview.
  - Re-orient police resources for more financial investigation; train prosecutors and investigators on third party laundering evidence.
- Preventive measures (financial institutions and DNFBP):
  - Amend AML Law to enshrine CDD obligations now only in guidance (Criteria 5.x); require record retention for at least five years after termination; require reporting of attempted transactions.
  - Enhance Guidance Notes across sectors (banks, money transmitters, securities, insurance, international/trustee businesses) on ownership/control, purpose/nature of relationship, existing customers, STRs on termination, PEPs, technological misuse, and written findings for complex/unusual transactions.
  - Ensure safe harbour provisions clearly cover all civil and criminal liability; reconsider tipping off restrictions.
  - Introduce effective, proportionate and dissuasive sanctions for financial institutions and DNFBP (current administrative penalty up to CYP 3,000 inadequate).
  - Extend section 61 of AML Law to cover trust and company service providers, notaries, casinos and dealers in high-value goods where cash payment EUR 15,000 or more.
  - Designate supervisory authority for real estate agents, dealers in precious metals/stones and trust/company service providers; consider MOKAS designation for some DNFBP.
  - Start risk-based on-site visits for money transfer businesses, insurers and insurance intermediaries and formalise programme for investment sector.
- Legal persons, trust service providers and NPOs:
  - Introduce statutory frameworks for supervision of company service providers and trust service providers to obtain, verify and retain adequate, accurate and current records of beneficial ownership/control and permit supervisory access.
  - Undertake formal review of NPO sector and consider guidance and proportionate oversight in line with SR.VIII Best Practice Paper.
- International cooperation:
  - Keep complete, detailed and precise statistics on MLA and extradition in ML/FT cases; MOKAS to include response times and fulfilment status in statistics.
  - Ensure supervisory bodies record and make available statistics on information exchange with foreign counterparts.

*Source: _cr0777 - The Third Evaluation of Cyprus by MONEYVAL (3 to 9 April 2005) — IMF country report section as provided.*

### 1.   The   Third   Evaluation   of   Cyprus   by   MONEYVAL   took   place   from   3   to   9   April   2005.

### _cr0777 - 1.   The   Third   Evaluation   of   Cyprus   by   MONEYVAL   took   place   from   3   to   9   April   2005.

### Evaluation basis and scope
- The evaluation was based on the Forty Recommendations of the FATF and the 9 Special Recommendations of the FATF, together with the two Directives of the European Commission (91/308 EEC and 2001/97/EC).
- The examiners reviewed:
  - the institutional framework;
  - the relevant AML/CFT Laws, regulations and guidelines and other requirements;
  - regulatory and other systems in place to deter money laundering and financing of terrorism through financial institutions and designated non-financial businesses and professions (DNFBP);
  - the capacity, the implementation and the effectiveness of all these systems.

### Evaluation team
- The evaluation team comprised:
  - Mr Lajos KORONA, Public Prosecutor, Budapest, Hungary (Legal Examiner)
  - Dr Stephan OCHSNER, Chief Executive Officer, Financial Market Authority, Vaduz, Principality of Liechtenstein (Financial Examiner)
  - Ms Daniela STOILOVA, Financial Intelligence Agency, Bulgaria (Law Enforcement Examiner)
  - Mr Dennis EVANS, Section Head, Home Office, London (Legal Examiner)
  - Mr Richard WALKER, Deputy Director, Policy and International Affairs, Guernsey Financial Services Commission, Guernsey (Financial Examiner – representing the Offshore Group of Banking Supervisors [OGBS])
  - and the MONEYVAL Secretariat.

### Institutional strengths and implementation
- Cyprus authorities demonstrated resolve to reduce vulnerability of financial institutions and DNFBP to money laundering.
- Key active authorities:
  - Cyprus FIU (MOKAS) — reinforced and adequately staffed since the Second Round Evaluation.
  - Central Bank of Cyprus (CBC) — active in issuing guidance and carrying out on-site visits to banks.
- Positive developments and practices:
  - Approach and attitude of MOKAS in building relationships with reporting institutions.
  - Guidance Notes for banks contain provisions on ongoing due diligence and monitoring of complex and unusual transactions and PEPs.
  - Basic building blocks for financial institutions are in place, e.g. regarding identification of the customer and the beneficial owner.
  - Basic requirements (identification of the customer and the beneficial owner, ongoing due diligence and monitoring of complex and unusual transactions and PEPs) appeared to be implemented satisfactorily and efficiently by financial institutions.
- Areas for enhancement being pursued by authorities, including abolition of the exception relating to identification duty of banks when dealing with customers introduced by trustees or nominees (identified in the second evaluation report).

### Legal and regulatory gaps (preventive obligations)
- Some basic preventive obligations arising from FATF Recommendation 5 are currently referred to only in enforceable and sanctionable guidance, but not in primary or secondary legislation.
- Specific obligations currently not in law or secondary legislation (per evaluators’ view endorsed by MONEYVAL Plenary) and marked by the 2004 AML/CFT Methodology as requiring statutory or regulatory backing:
  - Criteria 5.2(c), (d) and (e)
  - 5.3 and 5.4 (a)
  - 5.5 and 5.5.2 (b)
  - 5.7
- Evaluators’ view: these should be in law or secondary legislation and not just in supervisory guidance, even though current supervisory guidance notes are enforceable and sanctionable and the present efficiency of the system in Cyprus is not hampered.
- Cyprus authorities’ position: circulars or guidance notes issued under the AML-Law constitute secondary legislation, as provided in the Methodology — their view is set out in detail in the report.

### Money laundering and terrorist financing situation
- Money laundering situation has not changed in Cyprus in the last four years.
- Sources of proceeds:
  - Both domestic and foreign predicate offences.
- Recorded domestic predicate offences generating illegal proceeds include:
  - fraud (including the offence of “obtaining money or goods by false pretences”)
  - burglary
  - theft
  - drug trafficking offences
- Cyprus characteristics:
  - Relatively low level of domestic crime over the last four years.
  - No tradition of narcotic production or trafficking and a relatively limited local use of narcotic drugs.
  - Organised crime groups are reported currently not to exist in Cyprus, and there is no established link between Cyprus residents and organised crime groups in other countries.
- Police investigations:
  - Police investigate numerous money laundering offences based on foreign predicates and recognise that proceeds from foreign predicates may be laundered through Cyprus.
  - Some investigations and prosecutions in respect of money laundering based on foreign predicate offences, but none successfully concluded during the relevant period.
  - All convictions recorded for money laundering offences during the relevant period since the second evaluation visit related to domestic predicate offences.
  - At the time of the on-site visit at least 14 money laundering cases were reported as currently being before the courts; difficulties existed in establishing precise information about all these cases because the police do not always apprise the FIU of all money laundering investigations where the FIU has no direct involvement in obtaining interim orders.
  - Only three of these 14 cases were said to emanate from the suspicious transaction reporting system and involved money laundering in respect of fraud and drug offences; the others were investigated independently of the STR regime.

### Terrorist financing framework and practice
- Cyprus ratified the 1999 United Nations Convention for the Suppression of the Financing of Terrorism in November 2001.
- Financing of terrorism is criminalised in Cyprus under sections 4 and 8 of the Ratification Law 29 (III)/2001 in respect of the Convention; practical consequences have not been tested in court as yet.
- Council of Ministers Decision Number 54.374 of 4 October 2001 empowers implementation of necessary measures to enforce UN Security Council Resolutions 1267, 1333, 1368, and 1373.
- Since 1 May 2004, Cyprus is obliged to follow relevant European legislation on the freezing of terrorist assets.
- Cyprus authorities have not frozen any accounts yet in respect of any names on UN or EU (or US) lists, as no named person has been located in Cyprus.
- MOKAS jurisdiction:
  - MOKAS has jurisdiction to deal with financing of terrorism by virtue of the Ratification Law 29 III / 2001.
  - There have been no STRs filed with MOKAS in respect of financing of terrorism.
- Guidance deficiency:
  - The issue of financing of terrorism had yet to be addressed in guidance to reporting enterprises; this should be rectified so reporting enterprises are aware, for example, of the need for vigilance in connection with financial activity which may not be derived from the proceeds of crime.
- International cooperation:
  - Cyprus authorities conducted some enquiries into financing of terrorism on behalf of other countries; enquiries were externally generated via general requests to all FIUs in the Egmont Group (two in 2001; five in 2002; six in 2003; and two in 2004).
  - If a domestic enquiry arises in future, MOKAS advised they would deal with it, possibly in collaboration with other units.

### Overview of financial sector and DNFBP (key statistics and composition)
- Banking sector classification:
  - Banks licensed to carry on business in Cyprus may be classified into two categories: Domestic banks and International Banking Units (IBUs).
- Numbers and composition:
  - 14 domestic banks, of which 11 are commercial banks and 3 are specialised financial institutions.
  - Six of the 11 commercial banks are foreign owned – two operate in the form of branches.
  - 26 IBUs, of which 5 are local subsidiaries of foreign incorporated banks and 21 are branches of foreign incorporated banks.
  - Both domestic banks and IBUs are subject to the same supervisory regime by the Central Bank (CBC).
- Central Bank supervisory scope and licences:
  - Under the Central Bank of Cyprus Law of 2002, the Central Bank is the competent licensing and supervision authority for all legal persons whose business activities consist of the acceptance of money exclusively for transfer from and to Cyprus.
  - At present six money transfer companies have been licensed to operate in Cyprus.
  - CBC supervises banks in carrying out securities and capital markets business.
  - CBC supervises under the Capital Movement Law 40 international independent financial advisers, six international trustee services companies and 200 feeder funds.
- Other supervisory bodies and numbers:
  - 47 investment firms and 2 UCITS management firms are supervised by the Securities and Exchange Commission (SEC).
  - 362 credit institutions comprise the co-operative sector; supervised by the Cooperative Societies’ Supervision and Development Authority.
  - 43 licensed insurance companies operating in or from within Cyprus supervised by the Insurance Companies Control Service (ICCS).
- Customer base:
  - A significant majority of customers in the banking, investment and insurance sectors would appear to be Cypriots resident in Cyprus.

### Offshore, international business enterprises (IBEs) and company sector
- Historical context:
  - Cyprus began operating in the late 1970s as an “offshore” financial centre, attracted by a wide network of treaties with around 40 countries for avoidance of double taxation and a low taxation rate (4.25 %) applicable to profits of international business enterprises.
- 2003 figures:
  - Approximately 14,000 international business enterprises (IBEs) registered in Cyprus in 2003.
  - Number of companies with a physical presence in 2003 was 2000.
  - Majority of customers establishing companies and trusts would appear to be based outside Cyprus.
- Legislative change and effects:
  - 2002 legislation abolished the “offshore” regime and introduced a uniform rate of tax on companies (10 %) from January 2003, irrespective of their ownership and place of operation.
  - Pre-existing IBEs in operation as at 31/12/2001 were given the option to maintain their existing tax status only until the end of 2005.
  - As from 1 January 2006, all IBEs can operate internally as well and the descriptive term IBEs no longer exists.
- Impact on vulnerability:
  - The Cyprus authorities consider abolition of the offshore regime reduces Cyprus’ vulnerability to money laundering activities.
- Trust and company service providers:
  - There are six trust and company service providers licensed by the CBC as international trustee services companies.
  - The large majority of domestic trust and company service providers are lawyers.
  - Register of approximately 136484 companies is maintained by the Department of Registrar of Companies and Official Receiver.
- Legal firms and supervision:
  - In 2003, the vulnerability of the company sector was further reduced by requiring lawyers creating, operating or managing companies or organising the contributions necessary for the creation, operation or management of companies to comply with AML-Law provisions on establishing AML procedures.
  - Legal firms comprise the majority of the firms engaged in such business.
  - Guidance notes for lawyers were in draft form at the time of the onsite visit and should be issued; evaluators strongly advise that onsite inspections should be undertaken by the Cyprus Bar Association.
  - Note: A footnote states these guidance notes have now been formally issued to the lawyers.

### DNFBP and professional sectors (numbers)
- Real estate agents: 238.
- Dealers in precious metals or precious stones: estimated some 300.
- Registered accountants: 1,858; supervised by the Institute of Certified Public Accountants of Cyprus.
- Registered practising lawyers: 1,631; all are members of the Cyprus Bar Association which is the supervisory authority for lawyers.
- Bureaux de change and casinos: Cyprus authorities advised there are no bureaux de change and no casinos established in Cyprus.

### Company law and public access to information
- Company types and incorporation:
  - Law provides for companies limited by shares and guarantee; companies limited by shares are sub-divided into public and private companies.
  - A Cyprus company is established by incorporation at the Department of the Registrar of Companies via forms submitted by an advocate practising in Cyprus; the advocate must draft and sign the Memorandum and Articles.
- Registers and public access:
  - The register must contain inter alia the registered office address, the names of current directors, shareholders and secretary and a report of the allocation of shares.
  - This information is available to the public through an examination of the company’s file at the premises of the Registrar of companies.
  - Information on shareholders is also kept at the company’s registered office and is available to any person.
  - Overseas companies establishing a place of business in Cyprus may file certain documents with the Registrar of Companies and acquire registration; the services of an advocate are not necessary simply for registration.

### Progress since the Second Round Evaluation
- Positive responses to most Recommendations and comments in the second report.
- Notable improvements:
  - Resources of the Cyprus FIU (MOKAS) have improved significantly.
  - MOKAS now has lead responsibility for AML/CFT issues in Cyprus and chairs the Advisory Authority (strategic policy-making body).
  - MOKAS and CBC work closely; MOKAS is at the centre of the national response.
- Legal empowerment:
  - Second report recommendation that MOKAS be formally empowered to suspend financial transactions was partially achieved in 2003 when the AML Law was amended to give the FIU the power to issue administrative instructions to financial institutions to suspend financial transactions.
- Company register digitisation:
  - Transfer of the Companies Register to an electronic database was accomplished in 2002.
- Ongoing priorities:
  - Strong monitoring and supervision of the financial sector.
  - Provision of training to persons involved in prevention and detection of money laundering, particularly those recently subject to AML/CFT obligations.
- Private sector engagement:
  - Evaluators met with representatives from banking, insurance and investment sectors (including the Stock Exchange), a firm of accountants and associations representing financial institutions and DNFBP.
  - There is a strong commitment in the private sector to the AML framework and to liaison with MOKAS.

*Source: _cr0777 - 1.   The   Third   Evaluation   of   Cyprus   by   MONEYVAL   took   place   from   3   to   9   April   2005.*

### 26.  Drug  money  laundering  was  criminalised  in  Cyprus  in  1992,  upon  the  enactment  of  the

### 26.  Drug money laundering was criminalised in Cyprus in 1992, upon the enactment of the

### Criminalisation and prosecutions
- Drug money laundering criminalised in 1992 by the Confiscation of Proceeds from Trafficking of Narcotic Drugs and Psychotropic Substances Law of 1992; repealed and replaced by the Prevention and Suppression of Money Laundering Activities of 1996.
- 1996 Law extended predicate offences to "all serious crimes".
- Legal structure described as comprehensive and, in some cases, exceeds international standards (negligent money laundering is provided for — albeit that no cases were reported on this basis).
- Predicate offences cover all crimes which under Cyprus Law are subject to a maximum sentence of at least 12 months, including all offences designated under the FATF Recommendations.
- Legal enterprises can be held criminally liable for money laundering and criminal offences generally.
- “Own proceeds” laundering is clearly provided for; all four convictions since the second evaluation related to “own proceeds” laundering and were prosecuted together with the relevant domestic predicate offences (theft and obtaining money by false pretences).
- Examiners note these convictions are comparatively easy to prove compared with autonomous prosecutions of money laundering by third parties.
- Cyprus authorities stated no need for a conviction for the predicate offence to prosecute a money laundering case, but this has not been tested (no prosecutions or convictions for money laundering by third parties as autonomous offences).
- Examiners recommend:
  - Place more emphasis on third party laundering for both foreign and domestic predicate offences (particularly by professional launderers).
  - Clarify the evidence required to establish underlying predicate criminality in autonomous prosecutions.
  - Issue further prosecutorial guidance on these issues.
- Some pending cases involve third party money laundering.

### Confiscation, tracing, freezing and investigative powers
- Powers to trace, freeze and confiscate direct and indirect proceeds and associated investigative powers are provided in a generally robust and operational confiscation regime.
- Law includes provisions requiring, in certain circumstances, that defendants should demonstrate the legal origin of their property in confiscation proceedings.
- Confiscation regime applies to financing of terrorism whether prosecuted as a “stand-alone” or autonomous offence (or together with a money laundering offence).

### Criminalisation of financing of terrorism (FT)
- Criminalisation of financing of terrorism, as defined in the 1999 United Nations Convention for the Suppression of the Financing of Terrorism, was not completely achieved at the time of the on-site visit due to an inadvertent exclusion under Ratification Law No. 29 (III) of 2001 of offences committed by Cyprus citizens on Cyprus territory (reliance on S.58 of the Criminal Code is insufficient).
- Countries are obliged to criminalise collection of funds in the knowledge they are to be used (for any purpose) by a terrorist organisation or an individual terrorist; Cyprus has not yet criminalised this activity.
- Evaluators’ view: introduction of a clear separate criminal offence of financing of terrorism is the best solution.
- Note: On 22 July 2005, Parliament enacted a Law amending the Ratification Law deleting section 9 and this difficulty no longer applies.

### Freezing under UN and EU measures
- An administrative procedure exists for freezing accounts under United Nations resolutions and European Union regulations; no domestic legislation other than a decision by the Council of Ministers.
- A comprehensive and effective system for freezing without delay by all financial institutions of assets of designated persons, including publicly known procedures for de-listing, is not yet fully in place.

### MOKAS (FIU) — structure, resources, and performance
- MOKAS is a multi-disciplinary Unit with currently 14 staff: two lawyers, three accountants, four police officers, two customs officers and three administrative staff.
- After the on-site visit, 8 additional posts for investigators were created and recruitment is in final stages.
- MOKAS has enhanced information technology facilities since the second evaluation.
- MOKAS appears adequately resourced in personnel terms for current tasks, though the number of open cases may imply a need for further human resources; further personnel would be needed to undertake any supervisory role for real estate and precious metal dealers.
- MOKAS is highly regarded by domestic financial institutions and has established a strong rapport with them — cited as a particular strength of the AML framework.
- MOKAS efforts include training, improving quality of STRs, providing good feedback, and acting efficiently on reports received; processing times should be kept under review.
- MOKAS is a general centre of excellence for freezing and confiscating criminal proceeds and is responsible for obtaining restraint and confiscation orders for the police, particularly the Financial Crime Unit.
- MOKAS advises other prosecutors in the Attorney General’s Office and the Police on money laundering cases in which MOKAS is not directly involved.
- MOKAS has been a member of the Egmont Group since June 1998 and participates actively; it will host the Egmont Plenary in 2006.
- When exchanging information with foreign counterparts MOKAS follows the Egmont Principles for Information Exchange and cooperates effectively with foreign FIUs.

### Suspicious Transaction Reporting (STR) and reporting patterns
- The large majority of reports come from banks.
- Money remittance services sent four STRs since 2002.
- Accountants and lawyers sent four reports since 2002.
- One report from the brokerage sector had been made since 2002.
- Evaluators expected more reporting from sectors other than banks given Cyprus’s strength as a financial centre.

### Law enforcement, investigative focus and training
- All money laundering investigations are sent to MOKAS by law; decisions are made case by case on which investigative body works fully on an AML/CFT criminal investigation.
- Other major investigative units: Drugs Law Enforcement Unit and Financial Crime Unit.
- Examiners advise general guidance on distribution of responsibilities.
- Police and FIU generally adequately resourced, though more focus needed on financial aspects of major proceeds-generating crime as routine part of investigation; re-orientation of law enforcement resources may be needed.
- More trained financial investigators (outside MOKAS) and more training for prosecutors on autonomous money laundering prosecution are required.

### Preventive measures — Financial institutions
- Prevention and Suppression of Money Laundering Activities Law 1996 to 2004 (the AML Law) is the major legislative instrument covering repressive, preventive and international co-operation issues.
- AML Law amended twice since last evaluation (in 2003 and 2004) primarily to extend the preventive regime beyond financial businesses to “relevant financial and other businesses”.
- Sections 58 and 61 include: auditors, external accountants and tax advisors; independent lawyers when participating in a variety of professional activities (including creation, operation or management of trusts, companies or similar structures); dealers in real estate transactions; and dealers in precious stones or metals.
- Tipping off provision in AML Law seems unreasonably restricted and safe harbour provisions should clearly cover all civil and criminal liability.
- Five sets of Guidance Notes issued to financial institutions between 2001 and March 2005:
  - AML Guidance Note to Banks (G-Banks, issued by the Central Bank)
  - Guidance Note to Money Transfer Businesses (G-MTB, issued by the Central Bank)
  - AML Guidance Notes to International Financial Services Companies, International Trustee Services Companies etc. (G-International Financial/Trustee Business, issued by the Central Bank)
  - AML Guidance to brokers (G-Investment Brokers, issued by the Securities and Exchange Commission)
  - AML Guidance Notes to life and non-life insurers operating exclusively outside Cyprus (G-Insurers, issued by the Insurance Companies Control Service)
- Guidance Notes are regularly updated; G-Banks is closest to FATF in risk approach, requiring enhanced due diligence for prescribed high risk accounts including accounts in names of companies whose shares are bearer, in name of trusts or nominees and in respect of politically exposed persons.
- Cyprus extended AML/CFT obligations to some general insurers and independent financial advisors beyond FATF Recommendations and the EU Directive.
- Provisions on Third Parties and introduced business are fully in line with the Methodology.
- No financial secrecy law inhibits FATF Recommendations implementation.
- MOKAS has access to financial, administrative and law enforcement information including direct access to Registrar of Companies database.
- Examiners consider some amendments required so records must be maintained for at least five years following termination of business relationship to be fully in line with Recommendation 10.
- Banks and money transmitters required explicitly to pay special attention to all complex, unusual or large transactions with no apparent economic purpose; similar guidance needed for securities, insurance and international and financial/trustee business sectors.
- Financial institutions need guidance that results of such examinations must be in writing and kept available for competent authorities for at least five years.
- Direct mandatory obligation in law requiring all persons to report suspicious transaction reports relating to money laundering (without any financial threshold).
- Obligation to make STRs also applies to funds suspected to be linked to terrorism or financing of terrorism; however no financing of terrorism reports have been received.
- All AML Guidance Notes should include training on countering terrorist financing; training is provided to staff of the Banking Supervision and Regulation Division of the Central Bank of Cyprus (CBC) including terrorist financing.
- All applicant banks required to establish a physical presence in Cyprus; therefore no shell banks exist in Cyprus.
- Specific provision should be created requiring financial institutions to satisfy themselves that respondent financial institutions do not permit their accounts to be used by shell banks.
- Supervisory and oversight building blocks are in place; supervisory authorities have strong legislation preventing criminals from controlling financial institutions and legislation is enforced.
- CBC has conducted regular inspections of banks and seven on-site visits to international trustee services companies since 2001.
- Some supervisory authorities need further resources; Superintendent of Insurance should recruit additional staff and conduct on-site visits; on-site visits need commencement for money transfer businesses.
- Examiners consider all persons conducting financial business should be regulated to the same standard; greater co-ordination recommended between supervisory bodies; consideration of number of supervisory bodies may be given.
- AML Law provides for administrative sanctions by supervisory authorities for failure to comply with AML/CFT requirements; no sanctions have been imposed.
- Current administrative penalty in AML Law of up to CYP 3,000 is not considered sufficiently effective, proportionate and dissuasive by examiners.
- Lack of imposition of administrative sanctions undermines preventive regime efficiency; supervisory authorities’ policy on administrative sanctions should be reconsidered (consider linking regulatory law sanctions directly to AML/CFT standards).
- CBC historically follows policy of moral persuasion vis-à-vis banks; examiners suggest general policy on sanctions could be reviewed as non-supervised persons appear under law to be liable to greater penalties (including criminal sanctions) for breaches of AML requirements than supervised persons.
- Central Bank issued Directive for the Regulation of Money Transfer Services providing licensing and operating terms; value transfer services are not covered and should be.

### Preventive measures — Designated non-financial businesses and professions (DNFBP)
- DNFBP covered by AML Law are subject to CDD, record keeping, and internal reporting requirements similar to financial institutions.
- Guidance Notes have been issued by Institute of Certified Public Accountants to accountants and auditors; draft Guidance Notes prepared by Cyprus Bar Association for lawyers but not yet formally issued.
- Guidance Notes issued to international trust companies (though they are not covered in section 61).
- Guidance Notes remain to be issued for most trust and company service providers, real estate agents, dealers in precious metals and dealers in precious stones.
- Issued Guidance Notes include positive, strong statements for DNFBP approaches in countering money laundering.
- Core preventive obligations need to be in law for DNFBP as for financial institutions.
- AML Guidance Notes need enhancement regarding:
  - Understanding ownership and control structures
  - Enhanced due diligence for higher risk customers
  - Politically exposed persons
  - Monitoring of complex, unusual transactions or patterns of transactions
- Cyprus Bar Association will need more staff resources as its AML/CFT programme develops, particularly to monitor implementation of Recommendations and Guidance.
- Institute of Certified Public Accountants has outsourced AML/CFT monitoring of its membership; outsourcing relationship itself will need monitoring by the Institute.
- Evaluators welcome plans to designate MOKAS as supervisory authority for real estate agents and dealers in precious metals and stones.
- Sanctioning regime comments for DNFBP mirror those for financial institutions.

*Source: IMF country report section as provided.*

### 52.  Current  and  accurate  information  on  directors  and  shareholders  is  required  to  be  sent  to  the

### _cr0777 - 52.  Current  and  accurate  information  on  directors  and  shareholders  is  required  to  be  sent  to  the

### Beneficial ownership, company information, and company service providers
- Current and accurate information on directors and shareholders is required to be sent to the Registrar of Companies within a specified period.
- The Department of the Registrar of Companies shares all the information it holds with other competent authorities.
- Beneficial ownership and control information on customers is held by lawyers and financial institutions because of the application of customer due diligence standards.
- The Central Bank can obtain and disclose beneficial owner and control information on customers of international trust companies that are legal persons.
- Lawyers, who are subject to the customer identification requirements of the AML-law, represent the majority of the company service providers.
- Guidance indicates that accountants and auditors should obtain beneficial ownership and control information.
- Some DNFBP, including lawyers and other company service providers, are not yet covered by Guidance Notes.
- Recommendation: For full compliance with Recommendation 33, introduce a framework for the supervision of company service providers that requires them to obtain, verify and retain adequate, accurate and current records of beneficial ownership and control of legal persons and permits supervisor access to such records.
- Evaluators welcome the firm commitment and active steps by Cyprus to introduce company service provider regulation.

### Trusts and trust service providers
- The vast majority of trusts in Cyprus are established by professionals such as lawyers and international trustee services companies.
- Lawyers are covered by the AML Law for the creation, operation or management of trusts, while guidance has yet to be issued to them.
- The law does not cover international trustee services companies, although guidance has been issued by the Central Bank of Cyprus.
- Recommendation: Introduce a statutory framework for the supervision of trust service providers requiring them to obtain, verify and retain records adequate, accurate and current on beneficial ownership and control of legal arrangements.
- Evaluators welcome active steps by Cyprus to introduce trust regulation.
- Guidance Notes (or wording attached to the licence for international trust companies licensed by the CBC) state that institutions should verify trustees, settlors and beneficiaries.
- Suggestion: Include specific reference to verifying the identity of settlors and beneficiaries in the G-Investment Brokers.

### Accounts, partnerships, and non-profit organisations (NPOs)
- For accounts opened in the name of clubs, societies and charities, banks are expected to satisfy themselves as to legitimate purpose and verify identity of all authorised signatories.
- For partnerships and other unincorporated businesses, the identity of principal beneficiaries should be verified in line with requirements for natural persons.
- There was no evidence of a formal review of the adequacy of laws and regulations in the non-profit organisation sector since SR.VIII was introduced.
- Recommendation: Undertake a formal review of the NPO sector and consider general guidance to financial institutions regarding specific risks of this sector.
- Consideration should be given to effective and proportional oversight of the NPO sector and to whether further measures are needed in light of the Best Practice Paper for SR.VIII.

### National and international co-operation, information exchange, and oversight
- The Advisory Authority (now under MOKAS leadership) meets quarterly to discuss potential risks and coordinate enhancements to the system.
- Scope remains to deepen the Advisory Authority’s role in coordinating responses, developing strategic threat/vulnerability analysis, and reviewing system performance.
- The Advisory Authority (or a supervisory authority/grouping) could coordinate AML/CFT Guidance Notes and provide input on quality control.
- Recommendation: Develop key performance indicators for the AML/CFT system and review the system periodically against them; ensure receipt of accurate statistical information including breakdowns of the total number and types of investigations, prosecutions and convictions for financing of terrorism and money laundering.
- More work needed on provision of meaningful statistical data on the national AML/CFT response; the Advisory Authority should review information required to carry out its tasks.
- The Vienna Convention, the Palermo Convention, the 1999 United Nations Convention for the Suppression of the Financing of Terrorism and the Strasbourg Convention have all been ratified and implemented.
- Judicial mutual legal assistance is being provided; statistical information on execution of requests under ETS 30 and ETS 141 was provided, with requests under Convention 141 executed significantly more rapidly.
- No one has been extradited to or surrendered by Cyprus for money laundering (or terrorist financing) offences, but the extradition system is functioning properly.
- A fund was created by Cyprus shortly after the on-site visit for depositing confiscated assets, including those shared with foreign authorities (in line with Criterion 38.4).
- MOKAS has broad capacity to exchange information; increasing volume of exchange with foreign FIUs noted.
- Recommendation: MOKAS’s statistical data on non-judicial mutual legal assistance requests should include response times and whether requests were fulfilled (in whole or in part) or incapable of being fulfilled.
- Prudential supervisory authorities have broad powers to exchange information with foreign counterparts.
- Recommendation: Keep statistical data on supervisory authorities’ information exchange and make it available to the Advisory Authority.

### FATF Ratings and key deficiencies (summary of Tables)
- Table 1 presents ratings of compliance with FATF Recommendations for Cyprus across Forty Recommendations and Nine Special Recommendations.
- Selected ratings and underlying factors:
  - R.1 Money laundering offence — Largely compliant. Note: effectiveness could be enhanced by greater emphasis on third party laundering and clarifying evidence required in autonomous prosecutions.
  - R.5 Customer due diligence — Partially compliant. Specific gaps include: no general rule to identify beneficial owner except in the G-Banks; no CDD measures required for 1) occasional wire transfers, 2) irrespective of the insurance premium exemption when there is a suspicion of money laundering or terrorist financing, and 3) in cases of doubts regarding previously obtained customer data; AML Guidance Notes (other than G-Banks and G-MTB) need enhancement on ownership/control, purpose/nature of relationship, existing customers, and STR consideration when terminating relationships.
  - R.6 Politically exposed persons — Largely compliant. No PEP provisions in the G-MTB, the G-Investment Brokers, the G-Insurers and the G-International Businesses.
  - R.12 DNFBP – R.5,6,8-11 — Partially compliant. AML Law does not cover CDD in 1) suspicion cases and 2) doubt regarding previously obtained CDD; Guidance Notes need enhancement; AML Law needs amendment so records are kept for five years after formal termination.
  - R.14 Protection and no tipping-off — Partially compliant. Tipping off seems unreasonably restricted; safe harbour provisions should clearly cover all civil and criminal liability.
  - R.15 Internal controls, compliance and audit — Partially compliant. Terrorist financing not covered; compliance officer access to information not necessarily timely; mostly no requirement for independent audit function; Guidance Notes lack reference to training on money laundering/terrorist financing trends; no specific employee screening provisions.
  - R.17 Sanctions — Partially compliant. Administrative fine up to three thousand pounds is not effective, proportionate and dissuasive; no sanctions imposed; no specific supervisory authority for insurance intermediaries under the AML Law.
  - R.33 Legal persons – beneficial owners — Largely compliant. Mainly lawyers subject to AML-Law form/administer companies, but not all institutions (including company service providers) are required by law/guidance to ascertain beneficial owners and controllers; not all institutions are monitored for implementation.
  - R.34 Legal arrangements – beneficial owners — Largely compliant. Mainly lawyers form/administer trusts; lawyers covered by AML Law and international trust companies subject to CBC guidance, but other trust service providers not covered; not all institutions monitored for implementation.
- Special Recommendations highlights:
  - SR.II Criminalise terrorist financing — Partially compliant. The criminalisation as defined in the 1999 Convention is not completely achieved as offences committed by Cyprus citizens on Cyprus territory appeared to have been excluded (a subsequent legislative amendment on 22 July 2005 addressed this exclusion after the on-site visit). Cyprus has not criminalised collection of funds in the knowledge they are to be used by a terrorist organisation or individual terrorist.
  - SR.VI AML requirements for money/value transfer services — Largely compliant. Identified deficiencies include: no rules regarding PEPs; no minimum transaction information record requirements; SR.VII-infringement not sanctionable; no regulation requiring examination and written findings for complex/unusual large transactions or patterns and retention for at least five years; value transfer business not licensed/registered; no on-site visits; low risk due to licence conditions.
  - SR.VIII Non-profit organisations — Partially compliant. No evidence of a special review of laws in the NPO sector; some action taken after 11 September 2001 concerning NPOs with significant foreign participation.
- Table 2 (Recommended Action Plan) lists recommended actions in order of priority (table content not reproduced here).

*Source: _cr0777 - 52.  Current and accurate information on directors and shareholders is required to be sent to the*

### 1.   General

### _cr0777 - 1.   General

### 1. General
- The maintenance of meaningful and comprehensive statistics on AML/CFT performance, and for strategic analysis of Cyprus’s AML/CFT vulnerabilities.

### 2. Legal System and Related Institutional Measures

#### Criminalisation of Money Laundering (R.1 and 2)
- Having regard to the broad and firm legal basis provided by the AML Law, further attention should be given to enhancing the effectiveness of money laundering criminalisation by placing more emphasis on third party laundering in respect of both foreign and domestic predicate offences and clarifying the evidence that may be required to establish the underlying predicate criminality in autonomous prosecutions.
- Cyprus authorities should also consider whether the benefits of negligent money laundering and corporate liability in the statute are being fully maximised by law enforcement and prosecutors.

#### Criminalisation of Terrorist Financing (SR.II)
- In order to close the major gap in the criminalisation of terrorist financing, section 9 of the Ratification Law should be repealed without delay or amended to ensure section 2 applies to Cyprus citizens.
- Criminalisation should be extended to the collection of funds in the knowledge that they are to be used (for any purpose) by a terrorist organisation or an individual terrorist.
- Consideration should be given to achieving these goals by introducing a clear separate criminal offence of financing of terrorism which covers all the essential criteria in SR.II and all the characteristics of a financing of terrorism offence as explained in the Interpretative Note of June 2004.
- Footnote: On 22 July 2005 Parliament enacted a Law amending the Ratification Law deleting section 9 and this difficulty no longer applies.

#### Confiscation, freezing and seizing of proceeds of crime (R.3)
- No action required.

#### Freezing of funds used for terrorist financing (SR.III)
- Need for a clear statutory framework which covers:
  - procedures for considering de-listing requests and unfreezing assets of de-listed persons as well as for unfreezing in a timely manner the funds and assets of persons inadvertently affected by the freezing mechanism;
  - a procedure for authorising access to funds/assets that are frozen and that are determined to be necessary on humanitarian grounds in a manner consistent with S / Res / 1452 (2002);
  - a procedure for court review of freezing actions.

#### The Financial Intelligence Unit and its functions (R.26, 30 and 32)
- Processing times for money laundering STRs should be kept under review;
- More detailed breakdowns of STRs would assist strategic analysis (e.g. between domestic and offshore sectors).
- Review S.26(2)(c) of the AML Act as a statutory basis for suspending transactions.

#### Law enforcement, prosecution and other competent authorities (R.27, 28, 30 and 32)
- Investigative competencies of the various police bodies could usefully be delineated;
- MOKAS should be informed of all AML/CFT investigations prosecutions and convictions, and the types of case to which they refer so that the Advisory Authority has a complete statistical overview of the law enforcement response;
- Some re-orientation of existing police resources should be considered for more financial investigation;
- Prosecutors (and investigators) need more training on types of evidence a court may accept in cases of money laundering by third parties;
- Consideration of prosecutorial guidance on third party laundering, possibly by the Attorney General.

### 3. Preventive Measures – Financial Institutions

#### Risk of money laundering or financing of terrorism
- Improve or enhance the Guidance Notes as outlined in the report particularly in respect of CDD and identification of beneficial ownership of companies and trusts.

#### Financial institution secrecy or confidentiality (R.4)
- Delete the requirement in Section 27(2) of the Banking Law that the CBC should not divulge any information relating to an individual deposit account; and
- Draw a direct link in the regulatory legislation to the supervisory authorities’ (CBC, SEC, ICCS) ability to disclose information relating to money laundering and terrorist financing.

#### Customer due diligence, including enhanced or reduced measures (R.5 to 8)
- Undertake CDD measures in cases of occasional wire transfers, when there is a suspicion of money laundering or terrorist financing, regardless of any exemptions or thresholds that are referred to under the AML Law, and in cases of doubts about the veracity or adequacy of previously obtained customer data (Criteria 5.2(c), (d) and (e) of the Methodology);
- On terminating a business relationship to consider making an STR where the business relationship has already commenced and Criteria 5.3 to 5.5 cannot be satisfied (all AML Guidance Notes; Criterion 5.16 of the Methodology);
- Amend the AML Law and require financial institutions to verify the customer’s identity using reliable and independent source documents as well as to verify that any person purporting to act on behalf of the customer is so authorised, and identify and verify the identity of that person (Criteria 5.3 and 5.4(a) of the Methodology);
- Identify the beneficial owner, take reasonable measures to verify his identity using relevant information or data obtained from a reliable source and determine the controller of legal persons and arrangements (Criteria 5.5 and 5.5.2(b) of the Methodology);
- Understand ownership and control structures (all AML Guidance Notes; Criterion 5.5.2(a) of the Methodology);
- Obtain information on the purpose and intended nature of the business relationship; (the G-Investment Brokers, the G-Insurers, the G-International Businesses; Criterion 5.6 of the Methodology);
- Conduct ongoing due diligence on the business relationship (Criterion 5.7 of the Methodology);
- Perform enhanced due diligence for higher risk customers; the G-International Businesses; Criterion 5.8 of the Methodology);
- Describe cases where identification after the establishment is essential not to interrupt the normal conduct of business, including the risk management procedures to be taken (Criteria 5.13, 5.14 and 5.14.1 of the Methodology).
- Seek and obtain satisfactory evidence of identity of their customers in any case at the time of establishing an account relationship or describe cases where an identification after the establishment is essential not to interrupt the normal conduct of business, including the risk management procedures to be taken in the latter case (the G-Banks; Criteria 5.13, 5.14 and 5.14.1 of the Methodology);
- Apply CDD requirements to existing customers on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times (the G-MTB, the G-Investment Brokers, the G-Insurers and the G-International Businesses; Criterion 5.17 of the Methodology).

#### Politically exposed persons (R.6)
- Have in place rules regarding PEPs according to Criteria 6.1-6.4 of the Methodology (all AML Guidance Notes except the G-Banks).

#### Technological developments (R.8)
- Put in place procedures to prevent the misuse of technological developments (the G-Investment Brokers, the G-Insurers and the G-International Businesses; Criterion 8.1 of the Methodology).

#### Record keeping and wire transfer rules (R.10 and SR.VII)
- Repeal and amend section 66(3/b) of the AML Law, section 3.2.3(iii) of the G-Banks, section 3.2.3(iii) of the G-Investment Brokers and section 5 of the G-International Businesses and amend the G-Insurers so that it is clear that records must be maintained for at least five years following the termination of the business relationships (Criterion 10.2 of the Methodology);
- Amend the AML Law requiring all financial institutions to ensure that all customer and transaction records and information are available on a timely basis to domestic competent authorities upon appropriate authority (Criterion 10.3 of the Methodology).

#### Monitoring of transactions and relationships (R.11 and 21)
- Investment, insurance and international business sectors need guidance to pay special attention to complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose (Criterion 11.1 of the Methodology);
- Require financial institutions to examine as far as possible the background and purpose of complex, unusual large transactions or unusual patterns of transactions and to set forth their findings in writing (Criterion 11.2 of the Methodology);
- Amend the G-Investment Brokers, the G-Insurers and the G-International Businesses to give special attention to business relationships and transactions with persons from or in countries which do not or insufficiently apply the FATF Recommendations; to examine the background and purpose of such transactions where they have no apparent economic or visible lawful purpose; and for written findings to be available to assist competent authorities (Criteria 21.1 and 21.2 of the Methodology);
- All financial institutions to keep such findings available for competent authorities for at least five years (Criterion 11.3 of the Methodology).

#### Suspicious transaction reports and other reporting (R.13 and 14, 19, 25 and SR.IV and SR.IX)
- The Law should expressly provide for the reporting of attempted transactions;
- The safe harbour provisions should clearly cover all civil and criminal liability;
- The tipping off offence should be reconsidered to ensure the full range of coverage as required by criterion 14.2 of the Methodology without unnecessary restrictions;
- More training and guidance to support the reporting of suspicious transactions related to financing of terrorism (SR.IV).

#### Internal controls, compliance, audit and foreign branches (R.15 and 22)
- Amend the AML Guidance Notes to include training on countering terrorist financing (Criteria 15.1 to 15.4 of the Methodology);
- Include reference in the AML Guidance Notes to an independent audit function to test compliance (Criterion 15.2 of the Methodology);
- Amend the various Guidance Notes (and possibly the AML Law) to require financial institutions to put in place screening procedures to ensure high standards when hiring employees (Criterion 15.4 of the Methodology);
- Ensure that financial institutions’ foreign branches and subsidiaries observe AML/CFT measures consistent with home country requirements and the FATF Recommendations (Criteria 22.1 to 22.2 of the Methodology).

#### The supervisory and oversight system – competent authorities and SROs Roles, functions, duties and powers (including sanctions) (R.17, 23, 29 and 30)
- Introduce effective, proportionate and dissuasive sanctions for financial institutions in respect of money laundering and terrorist financing (Criterion 17.1 of the Methodology);
- Increase staff resources at the ICCS, the CBA and ICPAC and technical resources at the ICCS (Criterion 30.1 of the Methodology) in a sustainable way;
- Provide training on combating money laundering to the ICCS and the CBA and on combating the financing of terrorism to all supervisory authorities (Criterion 30.2 of the Methodology);
- Introduce greater coordination between the supervisory authorities, including coordination of the AML Guidance Notes and consideration as to whether the number and functions of the supervisory authorities is appropriate. Quality control of Guidance Notes would be helpful;
- Designate a supervisory authority under the Anti-Money Laundering Law for insurance intermediaries;
- Pursue active vetting of controllers, directors and managers of foreign insurance undertakings.

#### Shell banks (R.18)
- Create a specific provision requiring financial institutions to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks (see Criterion 18.3 of the Methodology).

#### Financial institutions – market entry and ownership/control (R.23)
- AML Guidance Notes have been issued by each of the supervisory authorities. The evaluators recommend that this framework should be enhanced by issuing transparent and explicit Guidance Notes to those sub-sectors – investment enterprises (other than brokers), insurance intermediaries and value transfer services – not yet in receipt of guidance.

#### Ongoing supervision and monitoring (R23, 29)
- Start on-site visits regarding money transfer business, insurers and insurance intermediaries on a risk based and random basis and formalise a programme of such visits for the investment sector (Criteria 23.4, 23.6 and 29.2 of the Methodology).

#### AML/CFT Guidelines (R.25)
- The AML Guidance Notes should cover techniques of terrorist financing (Criterion 25.1 of the Methodology);
- Guidance Notes should be explicitly issued to insurance intermediaries and to all undertakings carrying on investment business (including UCITS managers and investment firms other than brokers) (Criterion 25.1 of the Methodology).

#### Money or value transfer services (SR.VI)
- The relevant recommendations have already been made above.

### 4. Preventive Measures – Designated Non-Financial Businesses and Professions

#### Customer due diligence and record-keeping (R.12)
- Extend section 61 of the AML law to cover trust and company service providers, notaries, casinos and dealers in all high-value goods whenever payment is made in cash in an amount of EUR 15,000 or more (definitions of DNFBP in the Methodology and article 2(a) of the EU Directive);
- Undertake CDD measures in cases of occasional wire transfers, when there is a suspicion of money laundering or terrorist financing, regardless of any exemptions or thresholds that are referred to under the AML Law, and in cases of doubts about the veracity or adequacy of previously obtained customer data (Criteria 5.2(c), (d) and (e) of the Methodology);
- Amend the AML Law and require financial institutions to verify the customer’s identity using reliable and independent source documents as well as to verify that any person purporting to act on behalf of the customer is so authorised, and identify and verify the identity of that person (Criteria 5.3 and 5.4(a) of the Methodology);
- Identify the beneficial owner, take reasonable measures to verify his identity using relevant information or data obtained from a reliable source and determine the controller of legal persons and arrangements (Criteria 5.5 and 5.5.2(b) of the Methodology);
- Conduct ongoing due diligence on the business relationship (Criterion 5.7 of the Methodology);
- Describe cases where identification after the establishment is essential not to interrupt the normal conduct of business, including the risk management procedures to be taken (Criteria 5.13, 5.14 and 5.14.1 of the Methodology);
- Repeal and amend section 66(3)(b) of the AML Law (Criterion 10.2 of the Methodology);
- Require DNFBP to ensure that all customers and transaction records and information are available on a timely basis to domestic competent authorities upon appropriate authority (Criterion 10.3 of the Methodology).
- Additional specific points for DNFBP:
  - understand ownership and control structure (Criterion 5.5.2(a) of the Methodology);
  - obtain information on the purpose and intended nature of the business relationship (Criterion 5.6 of the Methodology);
  - perform enhanced due diligence for higher risk customers (Criterion 5.8 of the Methodology);
  - on terminating a business relationship to consider making an STR where the business relationship has already commenced and Criteria 5.3 to 5.5 cannot be satisfied (Criterion 5.16 of the Methodology);
  - apply CDD requirements to existing customers on the basis of materiality and risk and to conduct due diligence on such existing relationships at appropriate times (Criterion 5.17 of the Methodology);
  - have in place rules regarding PEPs (Criteria 6.1 to 6.4 of the Methodology);
  - put in place procedures to prevent the misuse of technological developments (Criterion 8.1 of the Methodology);
  - clarify the transaction records to be held (Criterion 10.1 of the Methodology).

#### Monitoring of transactions and relationships (R.12 and 16)
- Pay special attention to complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose (Criterion 11.1 of the Methodology);
- Examine as far as possible the background and purpose of complex, unusual large transactions or unusual patterns of transactions and to set forth their findings in writing (Criterion 11.2 of the Methodology);
- Keep such findings available for competent authorities for at least five year (Criterion 11.3 of the Methodology);
- State that transactions by persons from or in countries which do not or insufficiently apply the FATF Recommendations, where those transactions have no apparent or legal purpose, the background and purpose should be examined and written findings be available to the competent authorities (Criterion 21.2 of the Methodology).

#### Reporting (R.13 and R.14)
- The Law should expressly provide for the reporting of attempted transactions (R.13).
- The examiners consider that the safe harbour provisions do not fully comply with Criterion 14.1. The examiners recommend that this issue is reconsidered to clearly cover all civil and criminal liability.
- The tipping off offence should be reconsidered as outlined above.

#### Internal controls, compliance and audit (R.16)
- Amend the existing AML Guidance Notes to include training on countering terrorist financing (Criteria 15.1 to 15.4 of the Methodology).

*Source: _cr0777 - 1.   General*

### 15.4 of the Methodology);

### _cr0777 - 15.4 of the Methodology);

### Regulation, supervision and monitoring (R.17, 24-25)
- Include reference in the AML Guidance Notes to an independent audit function to test compliance (Criterion 15.2 of the Methodology);
- Include a training requirement in the AML Guidance Notes for developments in money laundering and terrorist financing techniques, methods and trends (Criterion 15.3 of the Methodology);
- Amend the AML Guidance Notes (and possible the AML Law) and require DNFBP to put in place screening procedures to ensure high standards when hiring employees (Criterion 15.4 of the Methodology).
- Introduce effective, proportionate and dissuasive sanctions for DNFBP who will be covered by section 58(2)(a) of the AML Law (Criterion 17.1 of the Methodology);
- Designate a supervisory or other authority for real estate agents, dealers in precious metals, dealers in precious stones and trust and company services providers which can apply sanctions (Criterion 17.2 of the Methodology);
- Amend the existing Guidance Notes to cover CFT (Criterion 2.5.1 of the Methodology);
- Issue guidelines on AML and CFT to all trust and company service providers, lawyers, real estate agents, dealers in precious metals and dealers in precious stone (Criterion 25.1 of the Methodology).

### Other designated non-financial businesses and professions (R.20)
- Suggest AML framework is extended to all dealers in high value goods (EU Directive).

### Legal Persons and Arrangements and Non-profit Organisations

Legal Persons – Access to beneficial ownership and control information (R.33)
- Introduce a framework for the supervision of company services providers, which requires such providers to obtain, verify and retain records, which are adequate, accurate and current, of the beneficial ownership and control of legal persons, and which allows the supervisor to have access to such records. (Criteria 33.1 and 33.2 of the Methodology).

Legal Arrangements – Access to beneficial ownership and control information (R.34)
- Introduce a framework for the supervision of trust service providers, which requires such providers to obtain, verify and retain records, which are adequate, accurate and current, on the beneficial ownership and control of legal arrangement (Criteria 34.1 and 34.2 of the Methodology);
- Clarify the obligations regarding customers which are legal arrangements across the Guidance Notes (Criterion 34.1 of the Methodology);
- Monitor implementation by all financial institutions and DNFBP of the FATF Recommendations.

Non-profit organisations (SR.VIII)
- Having first undertaken a formal analysis of the threats posed by this sector as a whole, review the existing system of laws and regulations so as to assess the adequacy of the current legal framework (Criterion VIII.1);
- Consideration should be given to effective and proportional oversight of the NPO sector and the issuing of guidance for financial institutions on the specific risks of this sector;
- Consider whether and how further measures need taking in the light of the Best Practices document for SR.VIII.

### National and International Co-operation

National Co-operation and Co-ordination (R.31)
- The Advisory Authority should deepen its role: by facilitating a co-ordinated response to AML/CFT issues (e.g. co-ordinating Guidance Notes); by developing a strategic analysis of the AML/CFT threats and vulnerabilities; by reviewing the system periodically against developed key performance indicators (including the breakdown of the total number and types of AML/CFT investigations, prosecutions and convictions as set out in the report).

The Conventions and UN Special Resolutions (R.35 and SR.I)
- Provide for adequate domestic legislation implementing the UN Resolutions.

Mutual Legal Assistance (R.32, 36-38, SR.V)
- Since the definitional problems with the domestic financing of terrorism offence would severely limit MLA based on dual criminality, immediate legislative steps should be taken for the proper criminalisation (see above)8;
- Complete, detailed and precise statistics must be kept on AML / CFT mutual legal assistance.

Extradition (R.32, 37 and 39, and SR.V)
- The problems with the offence of financing of terrorism would limit extradition possibilities as well, which makes the above mentioned legislative steps even more important (see above);
- Complete, detailed and precise statistics must be kept on extradition in ML /FT cases.

Other forms of co-operation (R.32)
- FIU to keep more detailed statistical data on requests to it, including response times, and whether the request was able to be fulfilled.
- Cyprus authorities to satisfy themselves that supervisory bodies are exchanging information with foreign counterparts.

- Footnote 8: After the on-site visit, on 22 July 2005 Parliament enacted a Law amending the Ratification Law deleting section 9 and now Cypriot citizens are clearly covered.

*Source: _cr0777 - 15.4 of the Methodology);*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr0777.pdf_