FATF AML Deficiency List
US Dept of State Money Laundering assessment
Offshore Finance Center
Corruption Index (Transparency International & W.G.I.)
Cyprus is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Cyprus was undertaken in 2019. According to that Evaluation, Cyprus was deemed Compliant for 16 and Largely Compliant for 21 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 3 of the Effectiveness & Technical Compliance ratings.
Moneyval Report: Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus - April 2014; Extract: -
A large part of the international business is introduced to banks by professionals and trust and corporate service providers, the latter known in Cyprus as Administrative Service Providers (ASPs). The banks therefore place significant reliance on the business introducers in Cyprus or other countries to certify the authenticity of many of the documents provided for CDD purposes and to perform some other elements of CDD. It is the assessors’ view that reliance on introducers constitutes one of the largest areas of vulnerability for the banking sector in Cyprus. Given the significant role played by introducers in attracting international business to Cyprus, it was noted with concern that one of the categories of introducers (ASPs) although made subject to regulation is not yet supervised in practice for compliance with AML/CFT requirements and the supervision of the other categories of introducers (lawyers and accountants) needs to be strengthened further.
All banks have procedures in place to determine the identity of the beneficial owner controlling the customer. In those cases where the customer is introduced, the identity of the beneficial owner is typically presented to the bank as part of an overall package of CDD documentation provided by the introducer. However, banks remain in many cases one or more steps removed from direct contact with the beneficial owner, still more where chains of introducers are used. In such cases, banks should implement the highest level of enhanced CDD, which could include (as indicated by some banks in Cyprus as already their practice in high risk cases) direct contact with the ultimate beneficial owner in a larger number of cases.
None of the banks could point to the existence of an overall AML/CFT risk assessment conducted at the level of and specific to the individual bank which could be used to determine the risk appetite of the bank across the whole range of its potential business lines. Additionally, in a significant number of banks their compliance function is not always adequately consulted in the acceptance of high risk customers. These findings, in combination, constitute material deficiencies in light of the level of high risk international business being conducted in the banking sector.
Overall, the assessors are concerned that the combination of a number of features associated with international banking business (e.g., introduced business plus complex structures plus use of nominees) may in higher-risk cases bring the cumulative level of inherent risk beyond a level that is capable of being effectively mitigated by the CDD measures currently being applied.
US Department of State Money Laundering assessment (INCSR)
Cyprus was deemed a Jurisdiction of Primary Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
The Republic of Cyprus (ROC) is the only internationally recognized government on the island, but since 1974 the northern part of Cyprus has been administered by Turkish Cypriots. The north proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983, but the United States does not recognize the “TRNC,” nor does any country other than Turkey. A buffer zone patrolled by the UN Peacekeeping Force in Cyprus separates the two sides. The ROC and the area administrated by Turkish Cypriots are discussed separately below.
The Republic of Cyprus
The ROC continues to upgrade its established AML legal framework. As a regional financial and corporate services center, Cyprus has a significant number of nonresident businesses. However, the total number of companies has declined from 272,157 in 2013 to 216,239 at the end of 2018 as ROC authorities have stepped up enforcement with registration rules, including the annual submission of accounting reports. Closures of old companies also contributed to the decline even though more than 10,000 new companies have been registered every year since 2013. By law, all companies registered in Cyprus must disclose their ultimate beneficial owners to authorities.
Area Administered by Turkish Cypriots
The area administered by Turkish Cypriots lacks the legal and institutional framework necessary to prevent and combat money laundering. Turkish Cypriot authorities have taken steps to address some major deficiencies, although “laws” are not sufficiently enforced to effectively prevent money laundering. The casino sector and the offshore banking sector remain of concern. Because of international sanctions and the lack of recognition of the “TRNC,” the banking sector is largely isolated from international financial institutions. Banks operating in the area do not have access to the SWIFT system and have almost no correspondent banking relationships outside of Turkey. Almost no international central bank will conduct business with the “TRNC central bank.” This isolation somewhat mitigates the money laundering risk, as moving illicit funds out of the area administered by Turkish Cypriots is difficult.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 57
World Governance Indicator – Control of Corruption 72
Although Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risk in the Cypriot banking sector, public procurement and land administration sector. The close relationship between bankers, businesses and politicians have resulted in the economic crisis that the country recently faced, contributing to corruption in other areas (e.g., bias in the awarding of public tenders). Businesses may encounter demands for irregular payments, but the government has established a strong legal framework to combat corruption. Bribery, facilitation payments and giving or receiving gifts are criminal offences under Cypriot law. The government has a strong anti-corruption framework and has developed effective e-governance systems (the Point of Single Contact and the e-Government Gateway project) to assist businesses. Investors should take into consideration the political situation of the country, which divides the island into two parts: one controlled by the Cypriot government and the other under the administration of Turkish Cypriots. For further information - GAN Integrity Business Anti-Corruption Portal
The area of the Republic of Cyprus under government control has a market economy dominated by the service sector, which accounts for more than four-fifths of GDP. Tourism, financial services, shipping, and real estate have traditionally been the most important sectors. Cyprus has been a member of the EU since May 2004 and adopted the euro as its national currency in January 2008.
During the first five years of EU membership, the Cyprus economy grew at an average rate of about 4%, with unemployment between 2004 and 2008 averaging about 4%. However, the economy tipped into recession in 2009 as the ongoing global financial crisis and resulting low demand hit the tourism and construction sectors. An overextended banking sector with excessive exposure to Greek debt added to the contraction. Cyprus’ biggest two banks were among the largest holders of Greek bonds in Europe and had a substantial presence in Greece through bank branches and subsidiaries. Following numerous downgrades of its credit rating, Cyprus lost access to international capital markets in May 2011. In July 2012, Cyprus became the fifth euro-zone government to request an economic bailout program from the European Commission, European Central Bank and the International Monetary Fund - known collectively as the "Troika."
Shortly after the election of President Nikos ANASTASIADES in February 2013, Cyprus reached an agreement with the Troika on a $13 billion bailout that resulted in losses on uninsured bank deposits. The bailout triggered a two-week bank closure and the imposition of capital controls that remained partially in place until April 2015. Cyprus' two largest banks merged and the combined entity was recapitalized through conversion of some large bank deposits to shares and imposition of losses on bank bondholders. As with other EU countries, the Troika conditioned the bailout on passing financial and structural reforms and privatizing state-owned enterprises. Despite downsizing and restructuring, the Cypriot financial sector throughout 2015 remained burdened by the largest stock of non-performing loans in the euro zone, equal to nearly half of all loans. Since the bailout, Cyprus has received positive appraisals by the Troika and outperformed fiscal targets but has struggled to overcome political opposition to bailout-mandated legislation, particularly regarding privatizations. Cyprus emerged from recession in 2015 and its economy grew an estimated 1.6% for the year, setting a positive tone for the scheduled end of the bailout program in March 2016.
In October 2013, a US-Israeli consortium completed preliminary appraisals of hydrocarbon deposits in Cyprus’ exclusive economic zone (EEZ), which revealed an estimated gross mean reserve of about 130 billion cubic meters. Though exploration continues in Cyprus’ EEZ, no additional commercially exploitable reserves were identified during the exploratory drilling in 2014/2015. Developing offshore hydrocarbon resources remains a critical component of the government’s economic recovery efforts, but development has been delayed as a result of regional developments and disagreements about exploitation methods.
Even though the whole of the island is part of the EU, implementation of the EU "acquis communautaire" has been suspended in the area administered by Turkish Cypriots, known locally as the "Turkish Republic of Northern Cyprus" ("TRNC"), until political conditions permit the reunification of the island. The market-based economy of the "TRNC" is roughly one-fifth the size of its southern neighbor and is likewise dominated by the service sector with a large portion of the population employed by the government. In 2012 - the latest year for which data are available - the services sector, which includes the public sector, trade, tourism, and education, contributed 58.7% to economic output. In the same year, light manufacturing and agriculture contributed 2.7% and 6.2%, respectively. Manufacturing is limited mainly to food and beverages, furniture and fixtures, construction materials, metal and non-metal products, textiles and clothing. The “TRNC” maintains few economic ties with the Republic of Cyprus outside of trade in construction materials. Since its creation, the "TRNC" has heavily relied on financial assistance from Turkey, which supports the "TRNC" defense, telecommunications, water and postal services. The Turkish Lira is the preferred currency, though foreign currencies are widely accepted in business transactions. The "TRNC" remains vulnerable to the Turkish market and monetary policy because of its use of the Turkish Lira. The "TRNC" weathered the European financial crisis relatively unscathed - compared to the Republic of Cyprus - because of the lack of financial sector development, the health of the Turkish economy, and its separation from the rest of the island. The "TRNC" economy experienced growth estimated at 2.8% in 2013 and 2.3% in 2014 and is projected to grow 3.8% in 2015.
Economy of the area administered by Turkish Cypriots:
Economy - overview: Even though the whole of the island is part of the EU, implementation of the EU "acquis communautaire" has been suspended in the area administered by Turkish Cypriots, known locally as the "Turkish Republic of Northern Cyprus" ("TRNC"), until political conditions permit the reunification of the island. The market-based economy of the "TRNC" is roughly one-fifth the size of its southern neighbor and is likewise dominated by the service sector with a large portion of the population employed by the government. In 2012 - the latest year for which data are available - the services sector, which includes the public sector, trade, tourism, and education, contributed 58.7% to economic output. In the same year, light manufacturing and agriculture contributed 2.7% and 6.2%, respectively. Manufacturing is limited mainly to food and beverages, furniture and fixtures, construction materials, metal and non-metal products, textiles and clothing. The “TRNC” maintains few economic ties with the Republic of Cyprus outside of trade in construction materials. Since its creation, the "TRNC" has heavily relied on financial assistance from Turkey, which supports the "TRNC" defense, telecommunications, water and postal services. The Turkish Lira is the preferred currency, though foreign currencies are widely accepted in business transactions. The "TRNC" remains vulnerable to the Turkish market and monetary policy because of its use of the Turkish Lira. The "TRNC" weathered the European financial crisis relatively unscathed - compared to the Republic of Cyprus - because of the lack of financial sector development, the health of the Turkish economy, and its separation from the rest of the island. The "TRNC" economy experienced growth estimated at 2.8% in 2013 and 2.3% in 2014 and is projected to grow 3.8% in 2015.
Agriculture - products:
citrus, vegetables, barley, grapes, olives, vegetables; poultry, pork, lamb; dairy, cheese
tourism, food and beverage processing, cement and gypsum, ship repair and refurbishment, textiles, light chemicals, metal products, wood, paper, stone and clay products
Exports - commodities:
citrus, potatoes, pharmaceuticals, cement, clothing
Exports - partners:
Greece 10.9%, Ireland 10.2%, UK 7.2%, Israel 6% (2015)
Imports - commodities:
consumer goods, petroleum and lubricants, machinery, transport equipment
Imports - partners:
Greece 25.7%, UK 9.1%, Italy 8%, Germany 7.5%, Israel 5.5%, China 4.8%, Netherlands 4.1% (2015)
Investment Climate - US State Department
The business and investment climate in Cyprus is steadily improving following the financial crisis of 2013. After almost four years of recession, the Cypriot economy registered a positive growth rate of 1.6 percent in 2015 and is expected to grow to 2 percent in 2016. The gradual economic recovery has helped improve domestic economic sentiment, but other challenges remain. The banking sector continues to struggle with exceptionally high levels of impaired loans – among the highest in Europe; new lending is low as households and banks deleverage high levels of debt; and the unemployment rate, while decreasing, remains high at 15 percent. At the same time, access to market financing has improved, as reflected in the successful government debt issuance on international capital markets in 2015. Liquidity and solvency in the banking system have improved and the pace of debt restructuring has accelerated. Cyprus graduated from a three-year economic adjustment program at the end of March. The program was tied to policy reforms, including restructuring the banking sector, reforming the civil service, and reducing government spending, and privatizing state-owned enterprises (SOEs).
Strategically located at the crossroads of Europe, Asia, and Africa, Cyprus offers significant promise and opportunity to U.S. investors. Sectors that provide the greatest opportunity for investment are in energy, shipping, services, and technology. Smaller, niche investment opportunities exist in food processing and franchises. Investors may also be interested in new opportunities in renewable energy and tourism infrastructure. Cyprus offers a low tax business environment, skilled and English-speaking professionals, and excellent infrastructure for doing business in the Eastern Mediterranean. U.S. citizens traveling with a U.S. passport may enter Cyprus without a visa for up to 90 days.
Area Administered by Turkish Cypriots
Since 1974, the southern two-thirds of Cyprus has been under the control of the government of the Republic of Cyprus (ROC), while the remaining area in the north has been administered by Turkish Cypriots (TCs). In 1983, the TC-administered area declared itself the "Turkish Republic of Northern Cyprus" (“TRNC"), but this has not been recognized by any country other than Turkey. While the unresolved conflict has implications for all potential investment on the island, companies considering investments in the TC-administered area should be particularly aware of complications that arise from the lack of international recognition and the absence of a comprehensive political settlement in Cyprus. TC businesses are interested in working with American companies in the fields of agriculture, renewable energy, and franchises. The accession of the ROC to the European Union (EU) in 2004 also had important consequences for the northern part of Cyprus. Although the EU suspended implementation of the acquis communautaire (AC) in the area administered by TCs, EU-funded technical programs are being used to bring TC goods and services into compliance with EU standards and norms.
The single greatest catalyst for island-wide Cypriot economic growth and prosperity lies in the efforts of both communities to achieve a political settlement. According to some analysts, prospects for a settlement hold the promise of significantly increasing the island’s GDP.
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