MONEYVAL: Cyprus passport scheme attracts dirty money

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A European money-laundering watchdog has warned that a secretive investment-for-passports scheme run by Cyprus was vulnerable to money laundering and fraught with risk.

Cyprus welcomed the report saying it highlights the progress made in combating money laundering while it pledged to successfully adopt recommendations in areas such as the passport programme.

Cyprus launched the scheme offering passports for investment in 2013 – as a crisis measure – with more than 3,000 people gaining citizenship through the programme.

A committee of experts from the Council of Europe, known as MONEYVAL, said in a report released on Wednesday that, although Cyprus had broadly taken measures to mitigate key money laundering risks, the risk of vulnerabilities in the investment program had increased “exponentially” via real estate, the investment vehicle of choice.

“These risks have not been properly mitigated,” it said. “The risks related to the Cyprus Investment Programme have not been assessed comprehensively.”

MONEYVAL said supervision of the real estate sector should be “significantly enhanced” with more monitoring of property transactions.

Although it did not elaborate, real estate is broadly known to be used by money launderers as a stable investment which can appreciate over time and is normally subject to more limited scrutiny, according to a European Parliament research note issued in 2019.

Under the program, a minimum €2 mln investment can get a passport and instant visa-free travel throughout the European Union, of which Cyprus is a member.

Supervision of the real estate sector should be significantly enhanced, the MONEYVAL report said, saying there should be more preventive measures by real estate agents.

While Cyprus was instrumental in assisting other countries, it was “not very proactive” at freezing and confiscating foreign criminal proceeds at its own initiative.

The review was conducted in May 2019. Based on the results of its evaluation, MONEYVAL decided to apply an enhanced follow up procedure and invited Cyprus to report back in 2021.

The total amount invested under the investment scheme was €6.64 bln between 2013 and 2018, the MONEYVAL report said, calling it “material” to the economy of Cyprus.

In November 2019 Cyprus said it would review the processes used to grant citizenships in the wake of a report by Reuters that Cambodian nationals in the inner circle of long-time leader Hun Sen had acquired passports.

It said it had introduced additional safeguards to the program since its inception to prevent abuses.

It also said it would start a process to revoke citizenship from 26 individuals.

However Cypriot MPs told Reuters that the process had stalled on a legal technicality.

Another area of concern flagged in the report were “risks emanating” from the future operation of the Integrated Casino Resort should be “appropriately evaluated and mitigated”.

Cyprus Police should continue in developing expertise to effectively handle complex analysis cases and aggressively pursue money laundering cases especially those emanating from foreign criminal proceeds, said the report.

The Cypriot Advisory Authority for Combating Money Laundering and Terrorist Financing said Nicosia remains fully committed to pursuing all the recommendations issued in the report.

“All stakeholders engaged in combatting money laundering and terrorist financing have demonstrated to the assessors the commitment in implementing solid policies to reinforce the anti-money laundering and counter-terrorist financing system of Cyprus,” said a statement.

According to Moneyval’s scoreboard, Cyprus has complied or largely complied with 37 of the 40 technical compliance ratings, partially complying in the remaining three.

On Effectiveness ratings, Cyprus scored a “substantial” rating in three of the eleven criteria with a “moderate” score in the remainder.