The last few decades have seen the tightening of Anti-Money Laundering rules and regulations worldwide. That is confirmed by numerous AML compliance conferences (e.g. Anti Money Laundering Europe organised a lunch seminar at the European Parliament to discuss the proposed European Commission’s the “4th Anti-Money Laundering Directive”), recent legislative and non-legislative acts (e.g. in March 2012 the EP created the Special Committee on Organised Crime, Corruption and Money Laundering). On a more practical note, we witness that the banks, the law offices, the auditors and the corporate service providers have increased their compliance requirements as the laws demand.
This topic received a new wave of attention due to the introduction of new legislation in Cyprus in December 2012 (the Law Regarding the Regulation of Businesses Providing Fiduciary Services and Related Matters, N.196(I)/2012), the provision of corporate and fiduciary services has now become a fully regulated business sector.
All independent Cyprus-based providers of corporate and fiduciary services are now required to comply with the licensing conditions set out by the Cyprus Securities and Exchange Commission ("CySec") which is the regulator. Independent providers of corporate and fiduciary services will be licensed directly by CySec, while providers owned by law or accounting firms will be regulated by their respective professional associations (the Cyprus Bar Association and the ICPAC).
Korpus Prava Corporate Services Ltd has been granted a licence (registration number 14/196) by CySec for the provision of corporate and fiduciary services.
Going bank to the events in the international economic arena, one can notice the gap between the regulated jurisdictions, mainly the European ones, that offer corporate services, and the unregulated so called offshore jurisdictions is getting bigger and bigger. Needless to say, it is the regulated jurisdictions that attract serious investors as they ensure more security. In this regard, Cyprus should not be misguided that it was unfairly treated and the imposed requirements create a sort of unfair competition. Vice versa, Cyprus has 'joined the hopeful majority' of regulated jurisdictions and this can be used to its advantage.
Let us have a look on the AML regulations of other European countries offering corporate and trustee services.
The UK has had anti-money laundering legislation in place since 1986 and it has been most recently strengthened and updated by the Proceeds of Crime Act 2002 (POCA) as updated by the Serious Organised Crime and Police Act 2005 (SOCPA) and the Money Laundering Regulations 2007. Similar requirements to guard against terrorist financing have been put in place by the Terrorism Act 2000, the Anti-Terrorism Crime and Security Act 2001 and the Counter Terrorism Act 2008.
AML is regulated by HMRC (http://www.hmrc.gov.uk/mlr/). Corporate and fiduciary service providers are subject to the regulations and each of UK trading corporate entities is registered with HMRC for AML purposes.
In Malta fiduciary services are regulated by the Malta Financial Services Authority (MFSA). The Financial Intelligence Analysis Unit (FIAU) is the national agency with responsibility for prevention of money laundering and financing of terrorism and is also responsible for ensuring compliance by all subject persons, the MFSA, as the financial services supervisory Authority has a vested regulatory interest to prevent the use and involvement of authorized persons in such crimes.
The MFSA also carries out on behalf of the FIAU, on-site examinations on subject persons falling under its supervisory competence with the aim of establishing that person’s compliance with the requirements of the PMLA or regulations and reports to the FIAU accordingly.
The Prevention of Money Laundering and Funding of Terrorism Regulations (LN 180/2008) implement the provisions of Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 and of Directive 2006/70/EC of the European Commission of 1 August 2006 laying down implementing measures.
In Ireland AML compliance with controlled by the AML Compliance Unit within the Department of Justice and Equality ( http://www.amlcu.gov.ie). In terms of legislation the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 transposes the third EU Money Laundering Directive (2005/60/EC) and the associated implementing Directive (2006/70/EC), into national law. It also gives effect to certain recommendations of the Financial Action Task Force (FATF) and consolidates Ireland’s existing AML laws, which until now have been contained mainly in the Criminal Justice Act 1994. The Act increases the obligations on a wide range of "designated persons" including credit and financial institutions, lawyers, accountants, estate agents, trust and company service providers, tax advisers, and others in relation to money laundering and terrorist financing.
The business of a Trust or Company Service Provider (TCSP) must obtain an authorisation to do so from the Minister.
The objectives of the Swiss system for combating money laundering, under the Swiss Criminal Code, include protecting Switzerland's integrity and reputation as a financial centre and ensuring the fair fulfilment of the centre’s economic functions (protection of its reputation and functions). It is not aimed at consumer protection.
The cornerstone of the preventive side of the fight against money laundering is formed by the Federal Act on Combating Money Laundering in the Financial Sector (Anti-Money Laundering Act) and the implementing regulations relating to it, which form part of administrative law and which govern the Swiss system of supervision with respect to combating money laundering.
Within the framework of criminal prosecution of money laundering and terrorist financing, the following provisions from the Swiss Criminal Code (SCC) are of the most relevance: Money Laundering, Insufficient Diligence in Financial Transactions and Right to Report, Criminal Organisations, Corporate Criminal Responsibility.
Let us now turn to the practical aspects of the Anti-Money Laundering regulation of the administrative service providers in Cyprus.
Administrative Service Providers (ASPs) are obliged to apply Procedures for preventing Money Laundering and Terrorist Financing as per the provisions of The Prevention and Suppression of Money Laundering and Terrorist Financing Law (the “Law”) and CySec’s Directive DI144-2007-08.
The Law requires ASPs to establish and maintain specific policies and procedures to guard against their business and the financial system in general being used for the purposes of money laundering. These procedures should be designed to achieve two purposes: firstly, to facilitate the recognition and reporting of suspicious transactions and, secondly, to ensure through the strict implementation of the "know-your-customer" principle and the maintenance of adequate record keeping procedures, should a customer come under investigation, that the ASP is able to provide its part of the audit trail.
ASPs are obliged to apply adequate and appropriate systems and procedures in relation to the following:
a) Customer identification and customer due diligence;
b) Record-keeping;
c) Internal reporting and reporting to MOKAS (the Unit for Combatting Money Laundering);
d) Internal control, risk assessment and risk management in order to prevent money laundering and terrorist financing;
e) Detailed examination of each transaction which by its nature may be considered to be particularly vulnerable to be associated with money laundering offences or terrorist financing and in particular complex or unusually large transactions and all other unusual patterns of transactions which have no apparent economic or visible lawful purpose;
f) Informing their employees in relation to:
i. The above systems and procedures;
ii. The Prevention and Suppression of Money Laundering and Terrorist Financing Law;
iii. The Directives issued by the competent Supervisory Authority according to section 59 (4) of the Law and
iv. The European Union’s Directives on the prevention of the use of the financial system for the purpose
of money laundering and terrorist financing.
g) Ongoing training of their employees in the recognition and handling of transactions and activities
which may be related to money laundering or terrorist financing.
Thus, the legislation has been meant to establish a sound system of controls, checks and procedures to combat money laundering and to ensure that the ASPs comply therewith.
One of the speakers at the FIBA Annual AML Compliance Conference, Andres A. Fernandez, Esq.
Shareholder/Practice Leader, Banking & Financial Services, Gunster, has quite fairly noticed that Strict Anti-Money Laundering and Counter-Terrorism Financing regulations continue to set the tone for the financial services industry globally and, as a result, financial institutions must ensure that they have the policies, procedures, controls and systems in place to address these continually evolving standards. The increasing pressure to adhere to rigorous compliance requirements have proven to be costly. Nevertheless, the penalty for non-compliance is not an option as evidenced by recent enforcement actions.
Indeed, with the modern trends, the role of AML compliance cannot be overestimated. We have seen that other European countries have high compliance standards and Cyprus is becoming now part of global AML-regulated market. The new law, combined with Cyprus's existing international trusts law and its robust anti-money laundering legislation, enhances Cyprus's position as a well-regulated international business centre.