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GOVERNEMENT BRIEFS AMBASSADORS ON STEPS TO COMBAT MONEY LAUNDERING
2002-01-14 13:23:24

Nicosia, Jan 14 (CNA) - The Cyprus government today briefed foreign ambassadors accredited to Cyprus on efforts to combat money laundering and the financing of terrorism.
Speaking after the briefing, held at the Foreign Ministry, Attorney General Alecos Markides said its aim was to elaborate on measures taken by Cyprus concerning this issue and the modalities of implementing them, adding that the squad dealing with the combating of money laundering is now also working on combating the financing of terrorism.|

The briefing was held at the Ministry of Foreign Affairs and was attended by Foreign Minister Ioannis Kasoulides, the Attorney General, Government Spokesman Michalis Papapetrou, head of the Unit for Combating Money Laundering Eva Papakyriakou and representative of the Central Bank of Cyprus Michalis Stylianou.

Markides noted that the issue of terrorism would be dealt with by a special coordinating body, on the basis of a cabinet decision.

After the briefing, the British High Commissioner to Cyprus said "it was a very useful presentation for which we are very grateful."

On the issue of Money Laundering we provide herebelow a very extensive and informative report of the Unit for Combating Money Laundering (MOKAS) of Cyprus on the legislative and other measures undertaken by the Republic of Cyprus in the area of combating Money Laundering and Financing of Terrorism.

THE LAW OFFICE OF THE REPUBLIC
UNIT FOR COMBATINGMONEY LAUNDERING(MOKAS)
1403 NICOSIA, CYPRUS

ANTI-MONEY LAUNDERING MEASURES IN CYPRUS

MONEY LAUNDERING SITUATION

The attractiveness of Cyprus for money laundering operations at the "placement stage" is diminished by virtue of the existence of Foreign Exchange Control Law, the relatively limited role of cash operations in the Cyprus economy and the absence of independent bureaux de change and casinos.

Cyprus has developed as a regional financial centre, offering international business facilities. The expansion of the international business sector in Cyprus is largely due to the country's strategic geographical location, at the crossroads of Europe, Asia and Africa, its modern telecommunications and the existence of a wide network of treaties with other countries for the avoidance of double taxation. Some other factors is the legal framework, closely based on English Common Law and the high quality of the offered legal, accounting and auditing services.

The Cypriot authorities recognising the dangers for possible abuse of its financial facilities for criminal activities including money laundering, have taken all measures, legislative and practical, both preventive and repressive, following and adopting all international measures in this area.

LEGISLATIVE MEASURES The Republic of Cyprus ratified the "United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances" (Vienna Convention) and the "Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime" (Strasbourg Convention).

In May 1996 domestic legislation was enacted, namely "the Prevention and Suppression of Money Laundering Activities Law (No. 61(I)/96") which was adopted in line with the aforementioned Conventions, the 40 Recommendations of the "Financial Action Task Force on Money Laundering" and the E.U. Council Directive of 10 June 1991.

This piece of legislation which includes both preventive and suppressive provisions was amended in 1997, in 1998, in 1999 and in 2000 for its better implementation.

The Law contains a broad definition of "laundering" which draws heavily upon article 6 of the Council of Europe Convention.

It criminalises the laundering of the proceeds derived from all criminal offences which are punishable with more than one year imprisonment.

With an amending bill in November 2000, the "list approach" was abandoned and replaced by the "all crimes approach" since with the amendment, predicate offences are considered to be all criminal offences punishable with imprisonment over one year, from which proceeds were derived.

This amendment is in conformity with the Joint Action No. 38/699 - 3.12.1998, of the European Union.

Measures against terrorism On 22.11.2001 the Cyprus Parliament enacted the ratification law of the U.N. Convention for the Suppression of the Financing of Terrorism.

The ratification law provides that all offences contained in article 2 of the Convention are considered to be predicated offences and thus the provisions and procedures contained in the anti-money laundering Law, directly apply.

The same law provides that the investigation of the offences prescribed in the Convention is assigned to the Unit for Combating Money Laundering (MOKAS), within which a special section will be set up for this task.

UNIT FOR COMBATING MONEY LAUNDERING (MOKAS) According to the Law, a reporting system has been set up since 1996. More specifically, the law provides for the establishment of a "Unit for Combating Money Laundering" (MOKAS) with investigative powers which became operational in January 1997 and is composed of Counsels of the Republic from the Attorney General's Office, Police Officers and Customs Officers. The Unit is headed by a member of the Attorney General's Office.

The Law provides for a mandatory reporting of suspicious transactions to MOKAS and the obligation to take the appropriate preventive measures (e.g. identification of customers, record keeping, mandatory reporting) is applied to all persons who are engaged in financial businesses including lawyers and accountants. The Unit may apply to the Court and obtain freezing, confiscation and disclosure orders. It is pointed out, that with the disclosure orders bank secrecy can be lifted.

In addition, the Unit is also engaged in policy issues in the area of anti-money laundering measures as well as in various awareness raising and training initiatives on the subject, involving both the public and the private sector. There is close co-operation between the banking and other financial institutions, on the one hand and the Unit, on the other, based on the relevant provisions of the Law as well as on guidance notes issued by the supervisory authorities of the financial institutions.

MEASURES IN THE FINANCIAL SECTOR The "Supervisory Authorities" appointed concerning the preventive measures in the financial sector are the following: The Central Bank of Cyprus for all persons licensed to carry on banking business in or from Cyprus as well as for international financial services companies operating through Cyprus; The Securities and Exchange Commission with regard to the participants to the Cyprus Stock Exchange; The Superintendent of Co-operative Societies and Co-operative Development for the Co-operative Credit Societies and the Superintendent of Insurance for insurance companies.

It should be also noted that a proposal for the appointment of Supervisory Authorities for the lawyers and accountants has been approved on 7.3.2001 by the Council of Ministers, which has the power to designate supervisory authorities according to the Law, and it is expected that the new Supervisory Authorities will issue relevant guidance notes very soon.

The Law recognises the important role of the financial sector for the forestalling and effective prevention of money laundering activities and places additional administrative requirements on all institutions, including banks, engaged in financial activities.

Specifically, the law requires all persons carrying on "relevant financial business" to establish and maintain specific policies and procedures to guard against their business being used for the purposes of money laundering. In essence these procedures are designed to achieve two objectives: Firstly, through the strict implementation of the "Know your customer" - principle to facilitate the recognition of suspicious transactions and, secondly, through adequate records keeping procedures to enable a bank, if a customer comes under investigation, to provide an audit trail to law enforcement agencies.

Bank Secrecy is not an obstacle for possible investigations. According to the Law, Bank secrecy can be lifted in the course of the investigations for possible criminal activities, including money laundering.

New Guidance Notes issued by the Central Bank of Cyprus

1. On 30 July, 2001, a new Guidance Note restricted the acceptance of cash deposits of foreign currency notes from a customer or a group of connected customers by banks in Cyprus to US$100.000 per calendar year.

2. On 17 September, 2001, a new Guidance Note broadens the customer identification requirements of legal entities. Banks are now required to identify the natural persons who are the ultimate beneficial owners of private and non-listed public companies (local and foreign) before opening an account for such entities. The new Guidance Note repeals the exception granted by virtue of the previous Guidance Note which allowed banks to place reliance on a written undertaking given by nominee shareholders that they have established the background and identity of beneficial owners and dispense with the customer identification requirement.

Furthermore, the new Guidance Note requires banks, in the case of subsidiary companies, to ascertain the identity of the natural persons who are the ultimate owners/controllers of the holding company.

3. On 26 November, 2001, a new Guidance Note repeals the exception given in previous Guidance Notes which allowed banks to open accounts in the name of trusts and nominees of third persons without identifying the settlors and beneficiaries provided that they could place reliance on the due diligence exercised by the trustee and nominee who were required to give a written undertaking to the bank concerned.

It is emphasised that as a result of the new Guidance Note, banks are now required without any exception, to ascertain the identity of all the settlors and true beneficiaries of trust and nominee accounts.

Furthermore, in December 2001, the Council of Ministers designated the Central Bank of Cyprus as the Supervisory Authority for persons and entities, who offer money remittance services in Cyprus, for the purposes of the Prevention and Suppression of Money Laundering Activities Law.

MEASURES IN THE INTERNATIONAL BUSINESS SECTOR

International Banking Units are required to adhere to the same legal, administrative and reporting requirements, as domestic banks as regards anti-money laundering measures. In addition, however, they are subject to strict entry requirements and detailed vetting procedure which aims at ensuring, that only reputable banks, which originate form jurisdictions exercising proper licensing and banking supervision, are allowed to establish a presence in Cyprus. All International Banking Units operate in Cyprus with the written approval, support and on-going consolidated supervision of their home supervisory authorities.

Furthermore, international business companies registered in Cyprus have to satisfy a number of requirements. Thus before issuing a permit for the registration of an international business company in Cyprus, the Central Bank makes enquiries aiming at ascertaining the past record and the character of the proposed company's true owners, which includes the receipt of references form a bank situated in their country of origin.

More specifically these companies are required to:

? Submit the names of their beneficial owners to the Central Bank.
? Submit good bank references on behalf of their beneficial owners from banks located in their home country.
? Submit annual accounts to the Central Bank.
? File with the Central Bank a confidential annual return, which provides information on the company's directors, expenditure, etc.

As regards the beneficial owners of international business companies, as mentioned, they are known to the Central Bank and if needed, for the purposes of the investigations they become known to the Unit for Combating Money Laundering.

On 23 November 2000, a Guidance Note of the Central Bank, issued under the anti-money laundering legislation, requires banks to refer to the Central Bank for guidance applications that they receive for the opening of accounts in the names of "banks" incorporated in specific offshore jurisdictions. This measure was taken with a view to protecting the banking system from dangers emanating from dealings with the so-called "shell banks" that provide the potential for abuse by money launderers.

INTERNATIONAL CO-OPERATION

The Unit for Combating Money Laundering, (MOKAS) strongly supports international co-operation and to this end it gives priority to requests for legal assistance submitted from foreign authorities, through formal rogatory letters and with the exchange of information on the F.I.U. level. The Unit co-operates with foreign counterpart Units and can exchange information with any type of F.I.U's (judicial, police, administrative) and has signed Memorandum of Understanding with the Belgian Unit (CTIF/CFI), the French Unit (TRACFIN), the Slovenian Unit (OMLP) and the Czech Unit (FAU). There is however, a specific provision in the Law, which enables MOKAS to co-operate with other F.I.U.'s without the need of a Memorandum of Understanding.

The Unit is a member of the "Egmont Group" and participates actively with representatives in the meetings of its working groups.

Representatives from the Unit for Combating Money Laundering and the Central Bank participate in the Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures, and in other international Bodies on this issue, and participate in the evaluation teams for other countries, of the Council of Europe.

The anti-money laundering measures of Cyprus were evaluated by the aforementioned Committee of the Council of Europe, the Financial Action Task Force and the International Monetary Fund.

In Cyprus the anti-money laundering measures are implemented, both at the preventive and suppressive aspect and the system is functioning effectively. We already have the practical results of the implementation of the Law.

UNIT FOR COMBATING MONEY LAUNDERING (MOKAS) Nicosia, 11 January 2002 ERP/GD

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