Mixed reviews on anti-money laundering

A US State Department anti-money laundering report on Cyprus includes fewer negative references but still points to vulnerabilities in the island’s financial services and gaming sectors.

The money laundering section of the “International Narcotics Control Strategy Report” in March 2020, issued by the State department, points out that money laundering remains a serious global threat with criminal enterprises seeking out weak links in countries where corruption and the rule of law remain at high levels.

According to the report, the financial system in the Republic of Cyprus remains vulnerable to money laundering activities by both domestic and foreign criminals, while illegal proceeds generated abroad to pose a greater threat.

“The main criminal sources of illicit proceeds are investment fraud, corruption, advance fee fraud, tax evasion, illegal drugs, and tobacco smuggling. Additionally, cybercrime cases, especially phishing, e-mail hacking, and the use of ransomware, continue to increase,” the report said, adding that the Republic’s first-ever national risk assessment characterized the Cypriot banking sector as high risk, while trust and company service providers, lawyers, and accounting firms were deemed medium/high risk.

In the past, criminals have reportedly used banks in the Republic to launder proceeds, particularly from Russian and Ukrainian illicit activity, the state department pointed out.

But the report also included information on the government’s efforts progress in the battle of financial corruption, noting that Cypriot authorities convicted 26 individuals in 2018 for money laundering offences.

Authorities also stepped up the enforcement of registration rules and submission of accounting reports by companies. The total number of companies has declined from 272,157 in 2013 to 216,239 at the end of 2018, according to the report, while the Republic of Cyprus was still in the process of “upgrading” its anti-money laundering framework, as the number of non-resident businesses remained significant.

“Closures of old companies also contributed to the decline even though more than 10,000 new companies have been registered every year since 2013,” the report said.

New measures have also been put in place that would help authorities take measures against non-compliant entities, such as a newly introduced Suspicious Transaction Report, a standardized electronic system, to improve reporting effectiveness.

The United States is also concerned over casino supervision, pointing out the Republic of Cyprus’ gaming sector is vulnerable to abuse.

While “pop up” casinos have been operating in the Republic, the report pointed to Hong Kong-based Melco International, which is set to operate the City of Dreams Mediterranean next year.

“ROC authorities are just beginning to develop the capacity to supervise casino-based activity” while an newly-established gaming authority has been working with “international gaming consultants to conduct due diligence on clients, to train staff, and to establish mechanisms to report illicit activity.”

In the north, according to the same report, there were 34 casinos last year under the supervision of Turkish Cypriot authorities within a sector described as “poorly regulated and vulnerable to money laundering.”

The report also points to concerns over unregulated moneylenders and currency exchange houses in the north.

In the south, the report also noted that state authorities announced last year that they intended to revoke the citizenship of 26 investors and beneficiaries, “but it is not yet clear whether there is a clear legal path for revocation” the report said.

Another emerging concern for Cyprus is the rise of virtual banking and use of virtual currency, the state department said in its report.