A team of experts on Anti Money Laundering (AML) of the Council of Europe`s Moneyval believes that certain features of the international banking business in Cyprus may contain "inherent risks."
As part of the preconditions set out by Cyprus` partners in the Euro area for a €10 billion bailout, Moneyval carried out a "unique evaluation" to the Cypriot banking system on the effective implementation of AML practices implemented by the banking sector.
The report, obtained by Cyprus News Agency, focuses on three main features associated with the international banking in Cyprus and namely introduced business, complex structures and the use of nominees, noting that this may increase the level of risk.
"The assessment team therefore considers that the accumulation of high risks emanating from the use of complex structures, combined with introduced business, warrants the application of the highest level of enhanced due diligence, which needs to be fully reflected in the bank-specific risk assessments," the report says.
However Moneyval notes that the Cypriot authorities have put in place sound protective measures, noting that some of the findings are not unique in Cyprus. The report furthermore points out that banks interviewed "demonstrated high standards of knowledge and experience of AML/CFT issues".
In its key findings, Monveyval describes the Cypriot banks` reliance on customer introducers as a vulnerability. "It is the assessors’ view that reliance on introducers constitutes one of the largest areas of vulnerability for the banking sector in Cyprus," the report notes.
The report states that banks remain in many cases one or more steps removed from direct contact with the beneficial owner, still more where chains of introducers are used. In such cases, banks should implement the highest level of enhanced Customer Due Diligence (CDD).
The AML experts also point out that in a significant number of banks their compliance function is not always adequately consulted in the acceptance of high risk customers.
Moneyval notes that some of the banks interviewed maintain business with a significant number of politically exposed persons (PEPs). Noting that while these deficiencies are not uncommon in many jurisdictions, the report points out that "they are important in the context of Cyprus, given the significant number of politically exposed customers with accounts in some of the banks".
Additionally, the report adds that it appeared to the team that some banks "mechanically address the points listed in the CBC Directive rather than conducting their own risk analysis, as required.
"The assessors consider that each bank should combine all of its risk analyses into an overall AML/CFT risk policy document, for Board approval", the report says.
The report suggests that the banks should recognise that the accumulation of risks in complex business in itself presents overarching risk; determine their appetite for such complex business bearing in mind whether the bank is in a position to effectively monitor and control the cumulative risks sufficiently to mitigate the possibility of abuse for purposes of ML (including in respect of tax crimes) and FT; set out the enhanced measures which need to be taken to mitigate these overarching risks and specify cases where it is appropriate based on an assessment of the risks to reject or terminate a client relationship.
