Insider Economy Moneyval report: substantial progress but also major shortcomings recorded

Moneyval report: substantial progress but also major shortcomings recorded

Cyprus has taken positive steps towards anti-money laundering and countering the financing of terrorism, according to a much-anticipated report by the Council of Europe’s anti-money laundering body Moneyval.

But the report, which was released on Wednesday listing five important positive developments, also noted nine major shortcomings which hinder the effectiveness of the Cypriot regime.

The 280-pages report makes a comprehensive assessment of the effectiveness of Cyprus’s anti-money laundering and countering the financing of terrorism (AML/CFT) system and its level of compliance with the Recommendations of the Financial Action Task Force (FATF).

There are five elements in the Cypriot AML/CFT regime which are functioning adequately, the report said.

  • Firstly, Cyprus understands the money laundering/terrorist financing risks that it faces to a large extent. And a number of measures have been deployed to mitigate some of the main risks effectively.
  • Secondly, there is a good level of domestic co-operation and co-ordination between the competent authorities both on policy issues and at an operational level.
  • Third, the banking sector has become more effective in mitigating risks. This is largely due to the increasingly sound supervisory practices of the Central Bank of Cyprus.
  • Fourth, the financial intelligence unit has the ability to support the operational needs of competent authorities through its analysis and dissemination functions.
  • Fifth, Cyprus has developed mechanisms which are capable of delivering constructive and timely assistance to other countries both on a formal and informal basis.

However, the technocrats also noted nine major shortcomings which hinder the effectiveness of the Cypriot regime.

  • Firstly, the competent authorities are not yet sufficiently pursuing money laundering from criminal proceeds generated outside of Cyprus, which pose the highest threat to the Cypriot financial system.
  • Secondly, the competent authorities have not been very proactive at freezing and confiscating foreign criminal proceeds at their own initiative, although they have been instrumental in assisting other countries.
  • Third, Cyprus has not conducted a formal assessment of risks posed by legal persons, despite having a developed company formation and administration business. This has reduced the authorities’ ability to implement more targeted mitigating measures to ensure the transparency of legal persons.
  • Fourth, there are weaknesses in the implementation of preventive measures by the trust and corporate services sector as a whole. This has major implications for the availability of beneficial ownership information of legal persons/arrangements registered in Cyprus and the reporting of suspicions transaction reports.
  • Fifth, while significant strides have been made by Cyprus to implement a comprehensive supervisory framework for trust and corporate services providers, further progress is required, with certain areas requiring major improvement.
  • Sixth, the risk in the real estate sector has increased exponentially since it has become the preferred choice of investment vehicle to acquire citizenship under the Cyprus Investment Programme. These risks have not been properly been mitigated – the implementation of preventive measures by, and the supervisory framework of, the sector display significant weaknesses.
  • Seventh, the risks related to the Cyprus Investment Programme have not been assessed comprehensively.
  • Eighth, administrative service providers did not demonstrate a uniform level of understanding of the risks of TFS evasion. Given Cyprus’s status as an international financial centre and the role played by administrative service providers as gatekeepers, the fact that some service providers may not always be in a position to identify individuals or entities who may seek to conceal their identity behind complex structures to evade sanctions constitutes a significant vulnerability.
  • Ninth, the application of a risk-based approach to the non-profit sector was still at a nascent stage at the time of the on-site visit.


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