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Prevention and suppression of money laundering activities and financing of terrorism


Legal and regulatory framework

According to section 59(1)(a) of the Prevention and Suppression of Money Laundering Activities Law, 2007-2016 (‘the Law’) the CBC is the competent authority for the enforcement of the provisions of the legislation regarding financial business on credit, payment and electronic money institutions. In this connection, in December 2013 the CBC issued the 4th version of the Directive on the Prevention of Money Laundering and Terrorist Financing ("the Directive") which analyses the way of applying specific policy, procedures and control systems that all credit institutions should implement for the effective prevention of money laundering and terrorist financing so as to achieve full compliance with the requirements of the Law. The CBC has also issued guidelines to credit institutions on key thematic areas, such as customer identification procedures and due diligence measures, ongoing monitoring of accounts and transactions, politically exposed persons, fraudulent tax crimes as predicate offenses and risk management systems for the prevention and suppression of money laundering and terrorism financing.  In April 2016, the CBC  issued an amendment to the Directive which provides, among others,  that credit institutions must establish direct contact with customers who are introduced to them by approved third persons within three months from the commencement of the business relationship.

The Law transposes into Cypriot legislation the requirements of the Third Directive of the European Union (Directive 2005/60/EC), which is in line with the recommendations of the Financial Action Task Force. In supervising, monitoring and assessing the enforcement of the requirements of the Law and the Directive, the CBC also takes into consideration the assessments, decisions and recommendations of other regional bodies, established and functioning along the standards set by the FATF such as the Moneyval Committee of the Council of Europe, the International Monetary Fund and the World Bank. Moreover, for the drafting of guidelines for supervised entities the CBC takes into account the typologies, modern trends and the risk of abusing the financial system for the purpose of money laundering and terrorist financing, as well as best practices promoted by other supervisory authorities towards the prevention and combating of this eventuality.  The 4th EU AML Directive is expected to be transposed to national legislation by March 2017.

Supervision and compliance of the supervised entities

The supervisory framework of the CBC for the prevention of money laundering and the financing of terrorism  includes, besides the issuance of directives,  circulars and guidelines pursuant to the Law, the submission of prudential returns and reports by credit institutions within specified time and reference periods. These are fed into the off-site monitoring tools which are used for the purpose of enhancing the risk assessment by the CBC of the supervised institutions and the formation of the appropriate action programs, including on-site inspections. On-site inspections are at the core of the CBC’s supervisory framework and allow for the assessment and evaluation of the level of compliance by credit institutions with respect to their legal and regulatory obligation to adopt and apply appropriate AML/CFT policies, systems and procedures. Onsite inspections that are carried out by the CBC may be comprehensive, thematic or special (ad-hoc), depending on the subject and the extent of the inspection and may be supplemented with the assistance of audit firms which are selected through a tendering process.

The CBC may take corrective measures in case a supervised person fails to comply with the Law and the Directive which, under section 59(6) of the Law, may provide, inter alia,  for the imposition of a financial fine, the amendment, suspension or revocation of the licence of the supervised person and the cessation or removal from his/her position of any director, manager or official, including the Money Laundering Compliance Officer and the Heads of the Internal Audit Unit and of the Regulatory Compliance Unit. Additionally, the CBC may take corrective measures in accordance with section 41(D) of the Business of Credit Institutions Laws of 1997 to 2015.

Targeted financial sanctions

The CBC is responsible for the compliance of the supervised persons with the targeted financial sanctions, decided and imposed by the United Nations’ Security Council and the EU. For the purpose of coordinated measures and actions the CBC works in close cooperation  with the Ministry of Foreign Affairs, the Ministry of Finance and the Financial Intelligence Unit (MOKAS) for  the exchange of information and  the timely transmission to supervised persons the lists of countries and/or persons on whom the sanctions have been imposed, mainly concerning the freezing of funds and other financial resources.

Cooperation with other supervisory authorities

The CBC participates in the Advisory Authority for Combating Money Laundering and Terrorist Financing, which, among other responsibilities, informs and advises the Council of Ministers on AML/CFT issues, while promoting the Republic of Cyprus internationally with regard to its compliance with the relevant conventions, resolutions and decisions of international organisations. In addition, the CBC participates in the Special Technical Committee of the Supervisory Authorities of the Financial Sector of Cyprus, the Moneyval Committee of the Council of Europe, the Experts Group for the Prevention of Money Laundering and Terrorist Financing of the European Commission and the Joint Committee's Sub-Committee on Anti-Money Laundering of the European authorities EBA, ESMA and EIOPA.

Assessment of the compliance of Cyprus by the EU and international organisations

The anti money laundering and counter financing of terrorism regulatory and supervisory framework of Cyprus is subject to assessments by the Moneyval Committee of the Council of Europe.

Following a request by the President of the Eurogroup Working Group on 9 March 2013, the Moneyval Committee of the Council of Europe conducted an assessment of the effective implementation of Customer Due Diligence (CDD) procedures in the Cypriot banking sector. In addition, Cyprus commissioned, with the agreement of Troika, Deloitte Italy to assess the credit institutions' level of compliance with the Cypriot legislative and regulatory framework for CDD.

Considering the findings of the two reports as a whole, there was no reference to or indication of systemic deficiencies. The reports indicated that the standard building blocks of the anti money laundering and counter financing of terrorism framework in Cyprus are in place, the AML/CFT preventive measures and procedures in credit institutions are generally sound, and, overall, credit institutions exhibit a high level of compliance with the statutory and regulatory requirements, which in some areas are more demanding than the respective EU and international requirements. Nevertheless, some areas which require attention and are amenable to suggestions for further improvements are raised in the reports. In this context, the Cypriot authorities acted in full commitment on the necessary improvements and/or rectifications.

On 30 June 2013, the Cypriot authorities agreed with the Troika on an AML Action Plan within a specified and tight timeframe with a view to addressing deficiencies identified by Moneyval and Deloitte Italy. The aforesaid Action Plan has been appended as Annex 2 to the Memorandum of Understanding agreed with the Troika (http://www.imf.org/external/pubs/ft/scr/2013/cr13293.pdf).

More specifically, the AML Action Plan required, inter alia, (i) the revision of the organisational structure of the CBC’s Supervision Department and the securing of adequate human resources, (ii) the design and development of risk-based analytical tools for off-site and on-site supervision, and (iii) the training of supervised entities. It should be noted that the development of the aforementioned supervisory tools has been achieved with the conclusion and implementation of an IMF Technical Assistance programme. Furthermore, in line with the provisions of the AML Action Plan, the CBC has issued additional guidelines to credit institutions on key thematic areas, as mentioned above.

Indicatively the the AML Action Plan activities included the following:

• Amendment of the AML Law το, inter-alia, extend the co-operation of  the FIU with other authorities and to expand definition of PEPs to include domestic ones.

• Issuance by Supervisory Authorities of revised AML Directives.

• Enhancement of the cooperation between Supervisory Authorities – extension of the Special Technical Committee of the Advisory Authority to include DNFBP supervisors.

• Revision and enhancement of the supervisory approach of all competent authorities, including off-site and on-site supervisory procedures, implementation of a risk-based approach to AML supervision for financial and other supervised institutions including the revision of supervisory strategies based on data and information gathered for off-site supervision, on-site inspections, feedback from prudential and external auditors, meetings with supervised entities and publicly available information/media and publishing of sanctions and fines.

• Provision of training to supervised persons on inspection findings, changes in the Law and directives issued by the Supervisory Authorities, practical applications, filing of STRs to the compliance officer and to MOKAS, reporting of tax crimes et al.

• Provision of technical assistance to the CBC by the IMF on the development of a structured supervisory approach

• Review of the organisational structure and resources of CBC’s AML Unit.

• Issuance of guidance notes on matters identified by the Action Plan (typologies). Areas covered are CDD, construction of business profiles & relationships, approved risk assessment policies & systems, high risk customers and evaluation & mitigation, ECDD, tax crimes, PEPs/source of wealth, on-going monitoring / investigation of suspicious activity & transactions, training of staff.

• Initiation of a national risk assessment project.

• Preparation of the transposition of the 4th EU AML Directive 2015/849 into local legislation.

In the context of the regular reviews conducted by Troika up until the completion of the program in 2016 of the progress achieved by Cyprus on the various agenda items, AML/CFT issues have been rated as compliant.  As part of the 50th Moneyval Plenary, Cyprus submitted a biennial report.  Having assessed this report, the Moneyval Plenary concluded that "In light of the progress made by Cyprus, especially the fact that all credit institutions that had been inspected by the special assessment team in 2013 have now been subject to an on-site inspection and are currently discussing any necessar corrective measures with the CBC, the Plenary decided that Cyprus should not be requested to provide any furhter progress reports in relation to the Special Assessment.  However, Cyprus should continue informing the Plenary, through the tour de table procedure, on any sanctions or other administrative actions imposed on credit institutions as a result of the on-site inspections carried out by the CBC."

National Risk Assessment of Anti Money Laundering and Counter Terrorist Financing Measures

As part of the efforts exerted by Cyprus to reinforce the fight against the use of the financial sector for money laundering and terrorist financing and in line with the international standards set by the Financial Action Task Force (FATF) but also the relevant European directives and especially the 4th Directive of the European Parliament and of the Council on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, the CBC, in collaboration and coordination with the other regulatory authorities have decided to conduct an assessment of the related risks on a national level, with the assistance of the World Bank. This exercise, on the basis of the internationally accepted and recognised methodology of the World Bank, will allow for the identification of any deficiencies in the regulatory framework currently in place for combating money laundering and terrorist financing, but also in the effectiveness of the procedures followed by all stakeholders involved in this effort, aiming at taking corrective action. This will contribute significantly towards the reinstatement of Cyprus as a reputable international financial centre and will facilitate substantially the various assessments of Cyprus that are carried out from time to time by international organisations.

The National Risk Assessment is expected to be completed by July 2016, resulting in a report with concrete recommendations that will be submitted to the Government, the Cypriot regulatory authorities and the private sector for implementation.

Documents and useful links

Legal and regulatory framework

Targeted financial sanctions

Official Journal of the European Union

United Nations Security Council Resolutions

United Nations Security Council Sanctions Committees

United Nations Office on Drugs and Crime

Supervisory authorities and other sources of useful information

Unit for Combating Money Laundering - MOKAS

Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)

European Commission

European Banking Authority 

Basel Committee on Banking Supervision

Financial Action Task Force (FATF)  

Assessment of Cyprus legal and regulatory framework by the EU and international organisations

Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus 

Deloitte Italy's Special Assessment of the Third Party Anti-Money Laundering (AML) Assessment of the Effective Implementation of Customer Due Diligence (CDD) Measures with Regard to Cyprus’ Deposits and Loans

Moneyval Evaluation Reports

Economic Adjustment Programme for Cyprus 

International Monetary Fund  - Eighth review report