Press release - DC086(2013)

Council of Europe MONEYVAL Committee publishes special assessment of customer due diligence measures in the banking sector in Cyprus

Strasbourg, 17.06.2013 – The Council of Europe’s anti-money laundering body (MONEYVAL) today published its report ‘Special Assessment of the Effectiveness of the Customer Due Diligence Measures in the Banking Sector in Cyprus’. The assessment was conducted at the invitation of the Eurogroup Working Group (on behalf of the Troika institutions) to assist the decision-making process on Cyprus's request for financial assistance from the Euro area.

The assessment, which was submitted to the Troika institutions and the Cypriot authorities on 24 April 2013, is unique as no other jurisdiction has ever submitted to such an exceptional and focused evaluation covering the effectiveness of only one part of its system for combating money laundering and terrorism financing. A much larger sample of banks was interviewed than is possible in a regular anti-money laundering and combating financing of terrorism evaluation. The assessment team selected 13 banks for interview, covering 71% of the deposits. A private international audit firm also prepared a separate report for the Troika.

The report builds upon the MONEYVAL fourth round report on Cyprus, but largely focuses on the particular risks and shortcomings in the Cypriot banking sector.

The assessors note that the Cypriot authorities have taken a range of legislative and other measures, in line with Financial Action Task Force (FATF) and European Union standards, to minimise the risk of money laundering and financing of terrorism. Basically sound preventive requirements have been in place for several years at the levels of customer identification, identification of beneficial owner, record-keeping and reporting of suspicious activities. The report also positively notes the high standards of knowledge and experience of anti-money laundering and combating of terrorism issues demonstrated by banks and their commitment to implement customer due diligence measures.

The report refers to the substantial international business, mainly tax-driven, which is conducted in and through the Cypriot banking sector. This involves various features such as complex corporate structures, trusts, cross-border transactions, introduced business, the use of nominee shareholders and directors and client accounts.

These features are not unique to Cyprus and many of them can be found in banking systems worldwide. Nonetheless, the assessors express their concern that in high risk cases the combination of these features associated with international banking business may bring the cumulative level of risk beyond a level that the customer due diligence measures currently being applied can  effectively mitigate.

Banks have procedures in place to identify customers and beneficial owners and a range of documents are obtained for the verification of identity of both personal and corporate customers. Nevertheless, significant reliance is placed on lawyers, accountants and other trust and corporate service providers in and outside of Cyprus, who introduce a large part of international business to banks.

The report concludes that the supervision of lawyers and accountants needs strengthening and that the supervision of trust and corporate service providers has not yet been effectively implemented. In those cases where the customer is introduced, banks often may not establish direct contact with the beneficial owner, especially where chains of introducers are used. Introduced business is one of the largest areas of vulnerability for the banking sector in Cyprus.

Banks have Board-approved policy statements on anti-money laundering and combating financing of terrorism. However, none of the banks interviewed had made an overall assessment to determine the level of money laundering and financing of terrorism risk they are prepared to accept across the whole range of their potential business lines. Furthermore, the banks’ compliance departments are not always adequately consulted in the acceptance of high risk customers.

The assessors found that banks have systems in place to monitor high risk business on an ongoing basis and measures to reject some high risk business and closing of existing accounts. These measures have been implemented in practice to reject potential customers before the formal account-opening stage. However, information obtained at the inception of a business relationship is not always sufficient to create a meaningful economic and business profile of the customer, which may undermine the effectiveness of ongoing monitoring at a later stage.

A number of recommendations are made in the report to ensure that the banking sector in Cyprus takes targeted and expedited action. The Cypriot authorities are invited to report on progress on the implementation of these recommendations within MONEYVAL’s follow-up processes.


The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL) is a Council of Europe body that assesses compliance with the relevant international and European standards to counter money laundering and terrorist financing and the effectiveness of their implementation and makes recommendations to national authorities in respect of necessary improvements to their systems.

Contact : Jaime Rodriguez, media officer, Tel. +33 3 90 21 47 04

Council of Europe Directorate of Communications
Tel: +33 (0)3 88 41 25 60
Fax:+33 (0)3 88 41 39 11