No evidence of money laundering in Cypriot banks

There is widespread media acceptance that large Russian deposits in Cypriot banks indicate that Cyprus is a haven for Russian money laundering activities.

But how much do the facts support this theory?

Cyprus has been a member of the European Union since 2004 and a member of the Eurozone since 2008. It was admitted to the Eurozone after three successive, detailed evaluations of money laundering were carried out by none other than the Moneyval Committee of the Council of Europe.

The fourth report, in 2011, made findings which are totally at odds with recent media reporting.

This report found that money laundering is indeed criminalised in line with the most widely accepted international standards (FATF). As well as its own anti-money laundering legislation, Cyprus has transposed all relevant EU legislation in this regard.

While it made recommendations for increased diligence in the non-banking sector, the EU report was glowing in its praise for the Cypriot banking system.

According to the Moneyval Committee, there are no secrecy laws governing financial institutions which inhibit the implementations of the international standards against money laundering, unlike, say in Austria or Switzerland.

Furthermore, banks in Cyprus show a high degree of awareness of their responsibilities to combat money laundering, with banks going over and above the record keeping standards set out in law. Banks are prohibited from maintaining anonymous or numbered bank accounts like, again, in Austria or Switzerland.

Indeed, Beneficial ownership of capital is determined by stricter rules than set out in EU legislation.

Overall, the report said, the banking system is adequately monitored and the supervisory authorities are fully resourced to supervise compliance and carry out inspections.

Moreover, the Cypriot anti-money laundering agency, is "adequately performing its role as a key player in the [anti money laundering] system.

But there's more.

Not only are financial institutions in Cyprus compliant working to combat money laundering activities, Moneyval actually judges them to be more compliant than, say, Germany. (click to enlarge)

click to enlarge

The Ministry of Finance in Cyprus puts the difficulty of placing 'dirty money' into the Cypriot economy down to a number of factors. For example, unlike many of its mediterranean neighbours, there are no bureaux de changes or casinos on the island.

As elsewhere, but especially in a Mediterranean resort like Cyprus, the property industry can seem to represent an attractive money laundering proposition. This may be a cause for concern, but it doesn't involve the banking sector, and furthermore Cyprus in quite unique in restricting foreign ownership of property except to EU citizens.

Well that challenges the money laundering allegations, but why is the Cypriot financial services sector so large?

Well, that can be explained by a number of reasons, but its wide network of arrangements with other countries for the avoidance of double-taxation is significant, as is low corporation tax, in fact the lowest in the European Union.
The abolition of offshore status for brass plate companies and its geographic location on the edge of the EU are also attractive.

The financial services industry is important to Cyprus's economy and so their Government's desire to protect it is convincing.

However, whatever the eventual outcome of crisis negotiations with the Troika, one vital piece of reading for EU leaders should be their very own report into money laundering in Cyprus.

Link to report in English