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Europe’s Verdict on Cyprus’ Anti-Money Laundering and Counter-Terrorist Financing Measures

Over the years, Cyprus has made notable efforts in order to shed its reputation as being somewhat of a money laundering hub. In light of such efforts, has Cyprus now entered into an era of being considered as a reputable and trustworthy jurisdiction?


What does the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) think of Cyprus’ Anti-Money Laundering Measures?


In December 2023, the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) published a report evaluating Cyprus’ progress concerning anti-money laundering and counter-terrorist measures since the Mutual Evaluation Report (MER) of Cyprus, which was adopted in December 2021. The report summarised that Cyprus made progress in improving its technical compliance via the following:


  1. Addressing the technical compliance deficiencies identified in the MER, for which a re-rating has been requested;

  2. Implementing new requirements where the Financial Action Task Force (FATF) Recommendations have changed since the MER.


Virtual Asset Service Providers


Recommendation 15, which relates to risks associated with new technologies including a comprehensive set of requirements for Virtual Asset Service Providers (‘VASPs’), has

Limassol skyline
Cyprus strives to be a reputable jurisdiction

been re-rated from partially compliant to largely compliant, following recent regulatory progress. Notably, Cyprus does not apply supervisory or regulatory requirements to VASPs that provide services on a remote basis into Cyprus from the European Economic Area (EEA) members.


In the 2011 MER, Cyprus was rated largely compliant with the equivalent Recommendations, however, the deficiency noted was that there were no provisions regarding the misuse of technological developments; therefore, the revised R.15 focuses on the assessment of risks related to the use of new technologies and deals with the requirements relating to VASPs. Criteria 15 requires all obliged entities to identify and assess money laundering and terrorist financing risks before promoting any new technology, service or product.


Furthermore, in accordance with Section 61 (E) of the AML/CFT law, VASPS must proceed with registration. The Cyprus Securities and Exchange Commission (‘CySEC’) takes a number of actions to identify those who may be acting outside such registration requirements, including following up complaints, use of internet administrative fines on any person that acts in violation of any provisions of AML/CFT law. Additionally, the term ‘person’ is defined in CySEC’s Law as not only a legal entity but also a natural person, therefore a fine can be imposed on either a legal or natural person.


Cyprus made evident improvements pertaining to key deficiencies particularly by adopting and undertaking a National Action Plan which demonstrates a commitment to improving the situation relating to Virtual Assets and VASPs as well as the issuance of relevant Guidance.


Non-Profit Organisations


bundles of euro notes

In 2023, Cyprus nearly finalised the first risk assessment of the Non-Profit Organisation (‘NPO’) sector, with a view to identifying a subset of NPOs which are likely to be at risk of terrorism financing abuse. The risk assessment encompasses multiple criteria related to money laundering, terrorist financing and tax abuse; though it should be noted that the risk calculation method distinguishes between the indicators that are directly linked to the terrorist financing risk and the money laundering risk, thus the assessment provides risk calculation results based solely on terrorist financing. The terrorist financing risk is based on the following risk indicators:


  • Negative information or sanctions applied to NPO,

  • Links of the management personnel who are foreign politically exposed persons (PEPs) with high-risk countries,

  • Source of funding with a geographical component,

  • Anonymous donations, including those made in cash,

  • Distribution of funds using cash or crypto assets,

  • NPO activities,

  • Country of origin of the beneficial owner or trustee;

  • Maintenance of bank accounts in foreign jurisdictions;

  • Financial relations with persons from high-risk countries linked with terrorist financing.


Authorities report that geographical factors potentially impact the likelihood of fund flows towards the countries which are considered high risk from a terrorist financing perspective, according to the data provided, NPOs seem to be particularly exposed to the following threats:


  1. Logistical support to terrorists or terrorist recruitment,

  2. Raising and moving funds to support terrorists,

  3. Bad governance.


It is ambiguous whether the reported threats are potential, materialised, or suspected to have occurred.


The Verdict


The expectation is that countries will have addressed most, if not all, TC deficiencies by the third year from the adoption of their MER. This threshold is considered to be thirty-six or more out of the forty FATF Recommendations, which should be at a largely compliant or compliant level.


The following shortcomings are noted to remain:


  1. The lack of requirement to identify and assess risk that may arise in relation to new business practices or developing technologies,

  2. It remains unclear whether every legal person created in Cyprus will be required to register as a VASP;

  3. Some gaps in relation to the application of fit and proper measures;

  4. Insufficient sanctions and preventative measures for failure to register as required.


the flag of cyprus

Remarkably, Cyprus currently has thirty-seven Recommendations for which are rated as either largely compliant or compliant. This strong rating highlights Cyprus as a now favourable jurisdiction, demonstrating its commitment to robust anti-money laundering and counter terrorist financing measures and enhancing its reputation in the global financial community.


Written by Andie Henderson, Legal and Compliance Associate, FAI Comply


 

If you require any further information or guidance on the contents of this article, please contact us.


We can assist with compliance to the Anti-Money Laundering regulations of numerous supervisory authorities and regulators.


We can also assist with VASP/CASP licensing and registrations in a variety of jurisdictions including Cyprus, Dubai, UK, Bahamas and more.






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