Cyprus admits money laundering weakness in banks

The Cyprus government, facing harsh criticism from the German media and politicians since last September, over local banks’ ineffective controls of foreign-owned accounts, has admitted there are weaknesses and declared that it is “committed to fully address these weaknesses”.
However, both the Ministry of Finance and the Central Bank of Cyprus have gone to great lengths to suggest that the reports co-authored by the anti-money laundering watchdog Moneyval and Deloitte Italy, paint a better picture than what appears in the press.
The government said it has received “overall positive evaluations” and that it had agreed to proceed with an in depth assessment of the effective implementation of Customer Due Diligence (CDD) requirements in Cyprus banks.
“The outcome of the assessments by the two institutions indicates a solid level of compliance across the sector,” the Ministry of Finance said on Thursday, adding that “the results of the audit ‘appears to indicate a generally solid level of compliance across the six banks with (4 out of 27 areas on CDD) requiring further attention’.”
The Moneyval report’s four page summary (http://www.financialmirror.com/news-details.php?nid=29943) said that it had “significantly revised” its previously more favourable assessment in late 2011 on compliance with anti money laundering (AML) regulations.
Countering this conclusion, the Ministry announcement added that “Moneyval respectively notes the banks demonstrated high standards of knowledge and experience of AML/CFT issues” and that “implementation of CDD measures, as described by the banks, appeared strong under most headings.”
The second report, dated May 10, found that Cypriot banks were more vulnerable to money laundering than previously thought, failing to report a significant number of suspicious transactions to authorities. This fuelled further harsh criticism from the German populist magazine ‘Bild’ saying last weekend that “this is how the Cypriots cheated us”.
The report was commissioned as a condition of the 10 bln euro rescue package from the European Union, the European Central Bank and the IMF to bailout the Cyprus government and recapitalise the local banks.
Moneyval and Deloitte found due diligence and safeguards by Cypriot banks to be insufficient in some cases.
"The data included in Deloitte's analysis exposes deficiencies in the implementation of preventative measures by the audited institutions," said the report.
Business profiles of customers were "generally not properly established" by Cypriot banks, the report said, adding that some 70% of the most complex ownership structures had nominee shareholders, and, on average, three layers between the customer and the ultimate or "beneficial" owners.
Even though banks are expected to know who beneficial owners are, awareness of clients with higher-risk profiles was not robust, the report said, and many had not been detected or flagged by the banks.
The Central Bank of Cyprus said in a separate statement on Thursday that “the summary paper does not provide a synopsis of the main findings of the reports but rather a description of the perceived weaknesses of the system, drawing inferences where none exist in the original reports. The lack of consultation with the authors of the Reports and the failure to refer to any of the positive aspects mentioned therein, has resulted in erroneous and distorted conclusions in the media, especially the international press.”
The central bank added that “a summary of the reports cannot be considered balanced if it omits to mention that they reveal a number of strengths both in the Cypriot AML framework and in the effective implementation of customer due diligence by Cypriot banks.”
The central bank added there was a level of awareness of AML risks among managers, explaining that “in general, bank managements appear conscious of AML/CFT risks and supportive of strong preventive measures, including, where warranted, the rejection of some high risk business and/or closing of existing accounts.”
“Some weaknesses are identified in the reports, but the general picture portrayed is not negative, something that is not reflected in the summary paper,” the central bank said.
“There is no perfect system that can guarantee the complete elimination of money laundering risk, as shown in the evaluations of the AML framework of countries in the relevant Moneyval and FATF reports,” it concluded.