Just over two weeks ago, Transparency International published a report called “Top Secret Countries Keep Financial Crime Fighting Data to Themselves”.
Transparency and good preventive practices are important because money-laundering cases are difficult to prove. The Magnitksy case, for example, has been open in several jurisdictions for years (although the UK never opened a case on the matter) and despite Cyprus and other jurisdictions co-operating together on it through Europol, to date no one has even been charged, let alone convicted.
The report is also timely, given that the words “money-laundering”, “Russia”, “dirty” and “Cyprus” have been popping up in the same sentences in international media again. This is largely because the appointment of the outgoing vice-chairman of Bank of Cyprus, Wilbur Ross, as US Commerce Secretary, and lots of questions about the nature of US President Donald Trump’s relations with Russia.
So how is Cyprus doing when it comes to transparency?
Transparency International studied 12 jurisdictions including Cyprus and big centres like Germany, Luxembourg, the Netherlands, UK and the US. It looked at data released in a range of different areas. The report is based on information available up to January 2017.
The report found that: “Cyprus disclosed the most complete set of anti-money laundering data among the 12 analysed countries, with information available for 14 out of the 20 indicators.”
It said the number of onsite monitoring visits was “high”, the number of criminal investigations on money-laundering activities in 2014 was “very high” and that a fifth to a quarter of criminal investigations resulted in prosecution. The only negative-looking remark I could see was that, based on 2012 data, Cyprus makes and receives a “very low” number of requests for mutual legal assistance (MLA).
A comparative table in the report shows that Germany is by the worst performer, with full and up-to-date transparency in only one area, while the UK is second worst, with full reporting in only two.
Cyprus is among just three countries that publish the number of regulatory breaches and the value of penalties; it is among just four countries that publish the number of sanctions applied; and one of only five that publish the number of MLA requests they have made to other countries. It is the only country that scored a ‘Yes’ on the average time taken to provide a response on the merits of MLA requests received.
As for anti-money-laundering (AML) supervision, Transparency International said: “Cyprus and France presented the most complete data sets, covering aspects of monitoring, regulatory breaches and sanctions. No relevant data for the UK were found.”
OECD Peer Review
The positive assessment from Transparency International for good reporting comes on top of another, rarely cited report on Cyprus from 2015. This is the “Supplementary Peer Review Report Phase 2: Implementation of the Standard in Practice”, produced by the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes.
Global Forum undertakes an “in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes”.
It is also very strict. If you are found ‘non-compliant’ in just one of the 10 areas, your entire score is non-compliant.
This happened to Cyprus in 2013 because of non-compliance in two areas: availability of accounting information (essentially tax files) and access to information (mainly exchange of information). The 2015 report notes the “major operation” undertaken at the company registrar (I confirmed with the ministry that the registrar is now fully digitised) and upgraded Cyprus to “largely compliant” for accounting information.
For exchange of information, it noted that information from third parties has been requested “in many more cases than before, including from service providers other than banks”. For access to information, therefore, Cyprus gets upgraded all the way from non-compliant to fully compliant.
Overall based on the 2015 review, Cyprus is found ‘Compliant’ (ie fully compliant) in 7 out of 10 areas. It is therefore given a score of ‘Largely Compliant’. By comparison, financial centres Germany, the Netherlands and the UK also get 7 out of 10 and are also scored ‘Largely Compliant’. Luxembourg gets 5 out of 10 while Ireland gets 10 out of 10.
Other recent developments
Since international journalists only ever seem to have budget for desk research, it is also worth updating with some other more recent developments.
From January 2017 Cyprus has been one of the ‘early adopters’ of the Common Reporting Standard (CRS)—the first group of countries to implement the standard on automatic exchange of financial information with each other. You cannot open a bank account in Cyprus without your tax identification number from your country of residence. If you already have a bank account, the bank will be asking for your tax number.
Russia signed the CRS in May 2016 and is also rolling it out under a 2017-19 transitional period according to Bloomberg.
There are other developments since 2012, which I discovered by talking personally to the various supervisors charged with tackling money-laundering. Cyprus is the only country in the world where it is a criminal offence not to register a trust with the authorities.
Bank cash clerks can be found guilty of money-laundering, making it one of the strictest in the world. Banks, accountants and lawyers are now subject to onsite inspections and stringent ‘know your customer’ (KYC) requirements so that they know who their ultimate beneficial owners (UBOs) are.
In the past few years Cyprus has jailed previously untouchable elites, including a former Central Bank governor, a former mayor and a former attorney-general (to name a few) for issues such as fraud, bribery or tax evasion.
Cyprus stopped being the top country for inward FDI into Russia in 2011. In 2012-13 it was the Netherlands, Luxembourg and Ireland according to my trawl through Russian central bank data. Since 2014 (when the total amount started to drop off sharply), it has been the Bahamas.
There is more but I have run out of space, so let me leave you with this one. Deutsche Bank’s $629m fine in January for $10bn worth of ‘mirror trades’ was triggered when a bank in Cyprus—Hellenic Bank—did its job properly and reported “suspicious high-volume transactions” to Deutsche Bank in London in 2014. Bloomberg reports that Hellenic sent two reminders but did not get a reply.
Just to repeat: a Cypriot bank blew the whistle on a German bank that was laundering billions of dollars of Russian money through the UK.
Yet somehow it is the Cypriots who are the scumbags.