A closer look at Cyprus’ National Risk Assessments on Money Laundering and Terrorist Financing

 

National Risk Assessments Reports

Cyprus has undergone significant growth in its financial sector, which has increased the potential for illicit activities such as money laundering and terrorist financing. In response, the government of Cyprus has conducted two national risk assessments (NRAs) on these issues in compliance with the Financial Action Task Force recommendations (The Advisory Authority) and the 4th EU AML/CFT Directive.

 

First NRA (2015-2017)

The Advisory Authority conducted the first NRA against Money Laundering and Terrorist Financing, which includes supervisory authorities, the Financial Intelligence Unit (FIU), relevant government ministries/departments, and the private sector. The Central Bank of Cyprus and the FIU managed the NRA and used the World Bank methodology and technical assistance. The report identified key risk factors related to money laundering and terrorist financing in Cyprus, including its strategic location, large financial sector, vulnerability to corruption, tax evasion, and fraud. The report recommended several measures, including increased monitoring and regulation of the financial sector, improved cooperation with international partners, and increased public awareness of the risks of money laundering and terrorist financing.

 

Key risk mitigating factors identified in the NRA such as :

• Enhancement of the AML/CFT legislation with respect to the powers of the FIU and the competent supervisory authorities, according to the updated FATF Recommendations and the EU legislation; and
• Enhancement of the preventive measures and capacity of the competent supervisory authorities against money laundering and terrorist financing, which included implementing a risk-based approach to supervision and investing in IT tools and human resources.
• A comprehensive legal system, including Asset Recovery Laws (freezing and confiscation).
• Close cooperation and coordination of the authorities and law enforcement agencies through bilateral and multilateral relationships as well as through the Advisory Authority.
• Tax transparency and effective exchange of information with counterpart tax authorities, as evidenced by the evaluation by the Global Forum on Transparency and Exchange of Information for Tax Purposes and the availability of independent audits.
• Availability and access to beneficial ownership information and bank account data.

Areas where more risk/threat-reducing measures were needed

 

Relevant specific risk-mitigating actions have been drawn up by the Cypriot authorities on the basis of the findings of the assessment, aiming at strengthening the risk-mitigating factors of the system. Implementation of these actions commenced at the beginning of 2018 and is being followed up by the Advisory Authority.

 

Such actions include the following:

• Issuance of directives to banks on specific topics to strengthen the preventive measures against money laundering and terrorist financing, such as reliance on third parties and on risks emanating from abroad.
• Enhancement of the preventive measures in the administrative services sector, with the upgrading of the internal controls of the obliged entities as well as the frequency of the assessments by the supervisory authorities.
• Augmentation of the structure, training and capacity of investigators, prosecutors and judiciary to enhance the effectiveness of prosecuting money laundering and terrorist financing offences and confiscating their illegal proceeds.
• Further enhancement of the resources of the competent supervisory authorities and the FIU.
• Development of data collection and statistics procedures to correctly identify threats and vulnerabilities to enable closer monitoring and resource allocation.
• Provision of specialised training to reporting entities such as on terrorist financing.

 

Second NRA (2018-2021):

The second NRA builds on the findings of the first report and provides updated information on the risks related to money laundering and terrorist financing in Cyprus. The report notes that Cyprus has continued to experience significant growth in its financial sector, which has increased the potential for illicit activities.

 

Some of the key findings and recommendations of the second NRA report include:

• Beneficial Ownership: The report recommended the establishment of a centralized registry of beneficial owners of companies and trusts to improve transparency and prevent the misuse of such entities for money laundering and terrorist financing purposes.
• Real Estate Sector: The report highlighted the need for improved regulation of the real estate sector, which is vulnerable to illicit activities such as money laundering and corruption.
• Financial Institutions: The report recommended increased training and awareness among financial institutions to ensure that they can identify and report suspicious transactions on time.
• Law Enforcement: The report also emphasized the need for increased training and capacity building among law enforcement agencies to enable them to effectively investigate and prosecute money laundering and terrorist financing cases.
• Public Awareness: The report recommended increased public awareness of the risks of money laundering and terrorist financing to help prevent such activities from taking place.

 

Final Thoughts

The two NRAs provide valuable insights into the risks and vulnerabilities of money laundering and terrorist financing in Cyprus. The reports have identified several risk-mitigating factors of the system and areas where more risk/threat-reducing measures were necessary. The ongoing commitment of the authorities and stakeholders to address these risks bodes well for the future of Cyprus’ financial system.

In addition to the two national risk assessments mentioned above, Cyprus has also recently conducted a national risk assessment on virtual assets and virtual asset service providers (VASPs) in 2021. This new report examines the risks associated with virtual assets and the regulatory framework to prevent money laundering and terrorist financing in this area. To learn more about the preventative measures and regulatory oversight outlined in this report, be sure to check out our previous article on  ”Cyprus Virtual Assets & VASPs: 2021 Risk Assessment Preventative Measures and Regulatory Oversight”

 

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