FATF Status

Cyprus is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencie

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Cyprus was undertaken in 2022. According to that Evaluation, Cyprus was deemed Compliant for 16 and Largely Compliant for 20 of the FATF 40 Recommendations. It remains 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: -

Overview

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

Overview

The island of Cyprus remains vulnerable to exploitation by nefarious actors for illicit financial flows, including proceeds of foreign corruption and narcotics trafficking.  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, with the support of Turkey.  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 United Nations peacekeeping force in Cyprus separates the two sides.  The ROC and the Turkish Cypriot-administered area are discussed separately below.

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           53

World Governance Indicator – Control of Corruption             66

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

Situated at the crossroads of three continents – Europe, Africa, and Asia – Cyprus occupies a strategic place in the Eastern Mediterranean region.

The Republic of Cyprus (ROC), the eastern-most member of the European Union (EU), actively seeks and eagerly welcomes foreign direct investment (FDI). The ROC is a member of the eurozone. English is widely spoken. The legal system is based on UK common law. Legal and accounting services for foreign investors are highly developed. Invest Cyprus, an independent, government-funded entity, aggressively promotes investment in the traditional shipping, tourism, banking, and financial and professional services sectors. Newer sectors for FDI include energy, film production, investment funds, education, research & development, information technology, and regional headquartering. The discovery of significant hydrocarbon deposits in the ROC’s claimed Exclusive Economic Zone (and in the surrounding Eastern Mediterranean region) has driven major new FDI by multinational companies in recent years.

The Government of the ROC is the only internationally recognized government on the island, but since 1974 the northern third of Cyprus has been administered by Turkish Cypriots. This area proclaimed itself the “Turkish Republic of Northern Cyprus” (“TRNC”) in 1983. The United States does not recognize the “TRNC” as a legitimate government, nor does any country other than Türkiye (Turkey). A substantial number of Turkish troops remain in the northern part of the island. A Buffer Zone, or “green line,” patrolled by the UN Peacekeeping Force in Cyprus (UNFICYP), separates the two parts. The ROC and the area administered by Turkish Cypriots are addressed separately below.

The ROC economy performed well in 2022 compared to other EU members, but is facing headwinds in 2023, due to high energy prices and a general weakening of the global economy. Russia’s continuing war of aggression in Ukraine also poses significant downside risks to the growth outlook. ROC GDP growth in 2022 reached 5.6 percent but is expected to slow to 1.0-2.5 percent in 2023. Inflation hit 8.0 percent in 2022 and is forecast to drop to around 4.0 percent in 2023.

Country Links

Central Bank of Cyprus

Unit for Combating Money Laundering (MOKAS )

Cyprus Department of Registrar of Companies and Official Receiver