For the offshore investor, Cyprus banking law provides a reasonable but not outstanding level of non-disclosure.
Offshore entities must disclose beneficial ownership to the Central Bank on formation, but Central Bank employees are bound to secrecy by Section 3 of the Central Bank Law 37 of 1975. Offshore entities also have to disclose this information to their local agent, but he can only be forced to divulge it with a Court Order.
Trustees do not have to register the beneficiaries of a trust, but a trustee opening a bank account must disclose beneficial ownership. Confidentiality on the part of commercial banks is covered by the Banking Law 1997. Normally speaking, local banks apply about the same standards of confidentiality as apply in English law. In December, 2003, the Government announced plans to breach banking confidentiality, allowing the tax authorities access to residents’ bank accounts. It is not yet clear whether these plans will go ahead.
The rules for exchange of information with foreign states are a complex mixture of the local taxation laws, the network of double-tax treaties, and international agreements for mutual legal assistance and the exchange of information to which Cyprus is a signatory, now further complicated by the EU acquis communitaire which substantially worsens the position of individuals and corporations as regards secrecy. However Cyprus law does provide for normal judicial appeal procedures against treaty requests for information and cooperation.
The Cyprus Government has taken strong measures to prevent the use of the island for money laundering, partly in response to an influx of doubtful money and unwanted organizations from Russia and other CIS countries in the early nineties. The Prevention and Suppression of Money Laundering Law of 1996 has been largely successful: in April 1998 a Select Committee of Experts from the Council of Europe reported enthusiastically about the island’s measures to control money laundering.
In July 2001 a delegation from the European Union’s Peer committee began an inspection of Cyprus’s financial sector to determine if Cyprus had sufficiently aligned its laws with EU directives governing banking, the stock exchange, offshore institutions, the insurance industry and co-operative credit institutions. Giorgos Vassiliou, head of the Cypriot EU negotiating team, said not only must Cyprus enact all the relevant legislation in the financial sector, its supervisory systems must also be up to scratch in order to enforce those laws. The investigation included the banks’ ability to impose the legislation, confidentiality, credit risk controls, depositor protection, money-laundering, and the supervision of co-operative entities.
In August the International Monetary Fund visited Cyprus to undertake the first in a series of planned reviews of offshore financial centres (OFCs). Starting with Cyprus an IMF staff assessment programme, designed to help strengthen financial supervision of OFCs and to promote greater cooperation among supervisory authorities, reviewed and analysed the extent to which the Island’s OFC met international banking, securities, and insurance standards, and to determine if further action was required for those standards to be met.
The IMF’s report: ‘Cyprus – Assessment of Implementation of the Basel Core Principles for Effective Banking Supervision in Respect of the Offshore Sector – July 30, 2001’, was an informal review of the supervision of the Cypriot banking sector which indicated that supervision was ‘generally effective and thorough.’
However, the review pointed to a level of supervision that was ‘less than desirable’ due to the scarcity of some resources. And although Cyprus’s impending accession to the European Union had led the authorities to implement a vast amount of legislative change, said the review, the Island had authorized some institutions that were regarded by other supervisory bodies as ‘high-risk’. The review stated: ‘while customers do not appear to have experienced significant losses, such an environment will require continued vigilance and a high standard of supervision.’
In addition the review highlighted the fact that regulators and financial institutions depended, to a degree, on accounting and legal firms which were not regulated by any external authorities. ‘It is clear that the provision of company services through limited liability companies owned and managed by accounting and law firms is not effectively regulated,’ stated the review.
After the terrorist attacks of 11th September, the government of Cyprus responded swiftly and angrily to allegations made by the former head of the CIA, James Woosley, that Cyprus was used by the Saudi dissident Ossama Bin Laden to launder funds later used for terrorist activities.
Mr Woosley had launched a vitriolic attack on the offshore jurisdiction, advising EU member countries to tell Cyprus: ‘You will enter the European Union, but not before 3-4,000 years have elapsed, unless you immediately provide full information about Bin Laden’s money.’ Mr Woosley went on to add that although there were other countries which he saw as being reluctant to cooperate in the American effort to discover the whereabouts of Bin Laden’s assets, Cyprus was one of the worst offenders. The US embassy in Nicosia was swift to issue a statement making it clear that the views of Mr Woolsey did not represent the official views of the US government.
The country’s Foreign Minister, Ioannis Kasoulides, asked ambassadors from the USA, UK, France, Germany, Italy, Spain, Greece, the EU, and Switzerland to request that their governments send any evidence that they had regarding the possible involvement of Cyyprus in terrorist activities to the government in order that it may be fully investigated, both internally and internationally.
The Governor of the Cyprus Central Bank, Afxentis Afxentiou, also spoke out against the allegations, saying: ‘I’m sure that Bin Laden does not have any money in Cyprus. Two years ago when we investigated the matter, we did not find any accounts in the name of Osama Bin Laden, but a number of offshore companies owned by his brother.’ However, he admitted that he could not confirm whether offshore companies operating in the country now were being indirectly controlled by the Saudi millionaire. He added that the Central Bank, in parallel with the government’s efforts, would be asking the US embassy for further clarification.
In November, the last Yugoslav bank in Cyprus closed. Astra Banka, formerly known as Karic Banka, was once closely linked with the disgraced Yugoslavian dictator, Slobodan Milosevic, but switched sides after his regime collapsed. Along with Beogradska, formerly the largest Yugoslavian banking unit in Cyprus, it had earned a reputation as a conduit for dirty money, and was blamed by many for earning the offshore jurisdiction the reputation as a centre for money laundering.
Spyros Stavrinakis, a Cyprus Central Bank official, explained that the authorities had revoked the bank’s operating license: ‘after the National Bank of Yugoslavia informed us they were winding up operations at Astra Banka in Belgrade.’
In December, the government showed its determination to wage war against terrorism as President Glafcos Clerides officially signed the International Convention to Combat the Financing of Terrorism. Cyprus was the 15th country internationally to ratify the convention.
by LOWTAX.NET
