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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 Laws of 2007 to 2019 (‘the AML/CFT Law’), the Central Bank of Cyprus (‘CBC’) is the competent authority for the enforcement of the provisions of the legislation in relation to the financial activities of entities supervised by the CBC, which include credit, payment, electronic money, currency exchange, leasing and credit acquiring institutions.  It should be noted that by the amending Law No 13(I) of 2018, enacted on 3rd April 2018, and the amending Law No81(I) of 2019, enacted on 31st May 2019, the provisions of the EU Directive 2015/849 of the European Parliament and of the Council of 20 May 2015 in relation to the prevention of the use of the financial system for the purposes of money laundering and the financing of terrorism (the so-called ‘4th EU AML Directive’) have been transposed into domestic legislation.

The CBC has issued the 5th Edition of the Directive on the Prevention of Money Laundering and Terrorist Financing (‘the CBC AML/CFT Directive’) which replaced the previous 4th Edition of December 2013 as well as the amendments to the 4th Edition of April 2016 and July 2017. The new CBC AML/CFT Directive makes analytical reference to ways of applying various provisions of the AML/CFT Law.  The CBC aims at issuing more directives in accordance with identified needs.

In supervising, monitoring and assessing the enforcement of the requirements of the AML/CFT Law and the CBC AML/CFT Directive, the CBC also takes into consideration the assessments, decisions and recommendations of bodies such as the European Banking Authority (EBA), the Financial Action Task Force (FATF), the Moneyval Committee of the Council of Europe and other international bodies. 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 and the Cyprus FIU towards the prevention and combating of this eventuality. At the same time, the Supranational Risk Assessment conducted by the European Commission and the National Risk Assessment conducted by Cyprus authorities under the auspices of the Advisory Authority, which functions in accordance with the AML/CFT Law, are of equal importance for the formulation of the regulatory framework.

The CBC will update its website accordingly once the transposition of the provisions of the EU Directive 2018/843 into domestic legislation is completed.

 

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, in addition to the issuance of directives pursuant to section 59(4) of the AML/CFT Law, circulars and guidelines, comprises the submission of prudential returns and reports by supervised entities 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 based supervision approach followed by the CBC 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 supervised entities 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 is empowered to implement corrective measures in case a supervised person fails to comply with the AML/CFT Law and the Directive which, under section 59(6) of the AML/CFT 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.  CBC is legally empowered by virtue of section 59(6A) of the AML/CFT Law to make such measures public. Additionally, the CBC may take corrective measures in accordance with section 41(D) ‘Other administrative penalties and measures’ of the Business of Credit Institutions Law 66(Ι) of 1997, as subsequently amended.

 

Targeted financial sanctions

In April 2016, ʺThe implementation of the provisions of the United Nations Security Council Resolutions or Decisions (Sanctions) and the European Union Council Decisions and Regulations (Restrictive Measures)ʺ, Law 58(I) of 2016 was enacted. In accordance with the said Law, the CBC is responsible for the compliance of the supervised entities 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 and the Ministry of Finance 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.  The CBC participates in the two committees in operation under the auspices of the Ministry of Finance, namely the Advisory Body on Economic Sanctions and  the Unit for the Implementation of Sanctions in the Financial Sector in relation to Sanctions imposed by UN Security Council Resolutions and Restrictive Measures imposed by European Union (EU) Council Regulations.

 

Financing of Terrorism

On 21 May 2019, the Combating of Terrorism and Victims’ Protection Law Ν. 75(I)/2019 was published in the official gazette. The law deals with a number of issues, including the definition of terrorism felonies, the responsibilities of legal persons, responsibility of entities obliged under the AML/CFT Law to confiscate property belonging or controlled by persons engaged in terrorism and the responsibility of supervisory authorities for ensuring that obliged entities abide with the relevant provisions of this law. The CBC engages as part of its supervisory activity with a view to discharging its supervisory responsibilities under this law.

 

Cooperation with other supervisory authorities

Domestically, the CBC participates in the Advisory Authority for Combating Money Laundering and Terrorist Financing, which is established by the Council of Ministers according to section 56(1) of the AML/CFT Law. The responsibilities of the Advisory Authority include informing and advising 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. Also, the CBC presides over the Special Technical Committee comprising of the Supervisory Authorities of the Financial Sector of Cyprus and participates regularly at the plenary meetings of 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 Anti-Money Laundering Committee of the European Banking Authority.

 

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 in March 2013, the Moneyval Committee of the Council of Europe, in collaboration with Deloitte Italy, conducted an assessment of the effective implementation of customer due diligence procedures in the Cypriot banking sector. The relevant reports were presented in April 2013 and according to their findings, there was no reference to or indication of systemic deficiencies, that the key building blocks of the Cyprus framework for preventing money laundering and terrorist financing are adequate and credit institutions have a high level of compliance with legal and regulatory requirements which in some cases are more stringent than the corresponding international and European requirements. However, the report mentions areas in need of further improvement and the Cypriot authorities committed to taking the necessary corrective measures.

On 30 June 2013, the Cypriot authorities agreed with the Troika on an AML/CFT 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. 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 49th Moneyval Plenary in December 2015, Cyprus submitted a biennial progress report which was adopted by the Plenary. Cyprus was requested not to provide any further progress reports in relation to the Special Assessment but to continue informing the Plenary, through the tour de table procedure, accordingly.

 

Moneyval - 5th round of evaluation

MONEYVAL completed the 5th Round of Cyprus’ evaluation in 2019 and published on 12 February 2020 the Mutual Evaluation Report (MER) (Cyprus (coe.int)). The assessment, conducted on the basis of the robust FATF methodology by a team of international experts, reflects the measures adopted by Cyprus in the fight against money laundering and terrorist financing over the recent years and identifies areas where further enhancements and improvements are needed.

Cyprus AML/CFT measures have been assessed as substantially effective in three out of the eleven effectiveness pillars and moderately effective in the remaining eight. On the technical compliance, Cyprus has achieved Compliant or Largely Compliant ratings in most of the 40 parameters with only two partially compliant ratings and none non-compliant rating.

All stakeholders engaged in combatting money laundering and terrorist financing have demonstrated to the assessors the commitment in implementing solid policies to reinforce the anti-money laundering and counter terrorist financing system of Cyprus. The recommendations included in the MER by and large are aligned with the first National AML/CFT Risk Assessment and the resulting Action Plan and Strategy that have been endorsed by the Council of Ministers in November 2018 and March 2019 respectively as well as by all stakeholders.

 

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 so called 4th EU Directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing as well as the domestic legislation, Cypriot authorities collaborated in order to conduct an assessment of the related risks on a national level, on the basis of the World Bank methodology, whose experts provided valuable guidance to all stakeholders.  This exercise allowed for the identification of any deficiencies in the regulatory framework 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.

The National Risk Assessment (NRA) report (non-public version) was submitted to the Council of Ministers in December 2017. The Cypriot regulatory authorities and the private sector started working on the suggested reforms and the implementation of the action plan since the beginning of 2018. The National Risk Assessment Report (public version) was published in November 2018.

 

Documentation and useful links

 

Targeted economic sanctions

 

Other useful information sources