CYPRUS’ banks suffer from “systemic deficiencies” in implementing anti-money laundering (AML) measures, according to a troika report summarising the results of two audits on credit institutions on the island.
The four-page summary drawn up by international lenders was distributed to the Finnish media yesterday summarising the assessments by the Council of Europe’s money-laundering watchdog Moneyval and private firm Deloitte.
The summary, seen by the Cyprus Mail, states that between 2008 and 2010, Cypriot banks reported not a single suspicious transaction under anti-money laundering regulations, and flagging only one in 2011 and “a few” in 2012.
This despite Deloitte’s forensic analysis of sample customer transactions during its short investigation, identifying 29 potentially suspicious transactions during the last 12 months, none of which were reported by the Cypriot banks.
Banks’ current customer due diligence measures, i.e. the steps taken to ensure the institutions know their clients and understand what risks are inherent by doing business with them, are insufficient, the summary said.
Audited institutions did not appear to uphold accurate and well-documented customer profiles “and therefore were not consistently in a position to understand the purpose of the account, define the customer’s business economic profile and evaluate the expected pattern and level of transactions,” the report said.
Cited examples included “missing or insufficiently detailed” documentation on customers’ source and size of wealth and annual income, where customers’ money came from and where it was expected to go, as well as “overly generic descriptions of business activity and account purpose”.
Banks also appeared to be “overly reliant on third parties in providing customer due diligence information in the absence of a risk-based verification of the underlying information provided”.
According to the summary, an estimated 75 per cent of banks’ international business was not directly sourced by the banks themselves but came from Cypriot introducers - rather than being directly sourced - who would also provide the customer due diligence information.
In some cases, banks are at least one step removed from direct contact with the beneficial owners, i.e. the true owners of assets and property, “and even further removed where chains of introducers are used”.
Deloitte said that 70 per cent of “the most complex ownership structures” have nominee shareholders and an average of three layers between the customer and beneficial owner, the summary said. But the identity of the beneficial owners through an independent source was only identified in 9 per cent of those cases.
“While identifying no regulatory weaknesses, both reports suggest that there are substantial shortcomings in the implementation, by banks, of AML preventive measures,” the document said.
The summary also said that Moneyval’s findings significantly revised “its previous, more favourable assessment of Cyprus’ AML system” without specifying why.
Deloitte looked at 390 customers, most of whom were top depositors and top borrowers, across six credit institutions with over €2.0 billion in deposits. Top borrowers accounted for 15 per cent of total loans while top depositors accounted for 10 per cent of total banking system deposits.
Cyprus’ Finance Minister Harris Georgiades said this week that the AML reports did not justify a stricter approach by Cyprus’ EU partners but deficiencies needed to be integrated in an AML action plan.
Cyprus has shut down its second largest bank and is restructuring its biggest bank, as part of the conditions for a €10 billion bailout. Last night the IMF approved €1 billion for three years as its part of the deal. The approval allows for the immediate disbursement of around €86 million.
Workmen dismantled all 'Laiki' and 'Popular' signs from the bank's landmark headquarters in Nicosia yesterday. (Christos Theodorides)
