Bank of Cyprus Denies US Pressure Forced Money-Laundering Crackdown

FILE - In this Oct. 30, 2013, file photo. a man uses an ATM machine outside of a branch of Bank of Cyprus in capital Nicosia, Cyprus. (AP Photo/Petros Karadjias, File)

NICOSIA – The Bank of Cyprus denied pressure from the United States led to tighter anti-money laundering rules announced shortly after a visit from Treasury Assistant Secretary for Terrorist Financing Marshall Billingslea.

After her stopover, the US Embassy said that, “It is vital that illicit actors know that Cyprus is not open for business,” which the Cyprus Mail said meant Russian businessmen under American sanctions and the island fighting a reputation where the rich and criminals can hide cash.

On June 14, the Central Bank of Cyprus (CBC) sent a circular letter to all credit institutions warning them to crack down on shell companies that set up operation in the country which critics said has been lax in going after wrongdoers.

The bank said there was no connection between Billingslea’s visit and the advisory, stating only that, “If a company fulfills any of the above criteria, engaging into or renewing a business relationship should be avoided,” a circular read.

Under the new rules, if banks engage in a business relationship with a customer that could be described as a shell company it would have to be justified and recorded in the client’s file.
Banks will also have to review their existing client base to identify customers which can be described as shell companies, inform the supervisor of the outcome of the review before July 31, 2018, and “assess the future of their future relationship with them”.

Yiangos Demetriou, Acting Senior Director of the CBC’s supervision division, told the newspaper that, “There is a pressure, definitely. But it comes from various sources. This is a problem for us, as shell companies are one of the primary means of conducting money laundering. We are constantly on the back of allegations that Cyprus is a money laundering center.”

A few months ago the Cyprus government picked a public relations firm in the US to help improve the country’s notorious image abroad through lobbying and other campaigns.

Demetriou cited Moneyval, a European rating body, and the Financial Action Task Force (FATF) as among the channels through which such pressure is being brought to bear.

Responding to a question, he said that Billingslea did not directly raised the issue of shell companies during his stay in Cyprus.

“We need to make a distinction. Yes, there may be a political facet in terms of American sanctions against Russian funds. But these sanctions involve named persons. With shell companies, you do not know the ultimate owner/beneficiary, and that’s the difference.”

But he did not deny the US has before raised the issue of shell companies registered in Cyprus, such as when the Financial Crime Enforcement Network (FinCEN) of the US Treasury listed FBME Bank as a financial institution “of primary money laundering concern” with alleged ties to Lebanon’s Shiite group Hezbollah.

The CBC official clarified that the regulator will not outright be barring banks – as well as credit payments institutions – from doing business with entities classed as shell companies.
“Rather, we expect the banks to act on a risk-based approach. We are not demanding that they close these accounts,” he said, adding that not all shell companies are involved in illicit practices.