The new AML Directive by the Central Bank and shell companies-February 2019

The new AML Directive by the Central Bank and shell companies-February 2019

The Central Bank of Cyprus (‘CBC’)  has issued last February 2019  the 5th edition of the Directive on the Prevention of Money Laundering and Terrorist Financing (‘the CBC AML/CFT Directive’) which replaced the previous 4th edition of December 2013 as well as the amendments to the fourth edition of April 2016 and July 2017.

The new CBC AML/CFT Directive makes analytical reference to ways of applying various provisions of the AML/CFT Law.

The CBC has also issued guidelines to credit institutions on key thematic areas, such as customer identification procedures and due diligence measures, ongoing monitoring of accounts and transactions, politically exposed persons, fraudulent tax crimes as predicate offenses and risk management systems for the prevention and suppression of money laundering and terrorism financing.

As regards bank account opening for companies , with particular reference to “shell companies”,  the following should be noted:

4.13.7. Accounts of legal persons (companies)

150. Due to the particular difficulties encountered in determining the real shareholders/beneficial owners of accounts in the name of organisatons with legal identity (companies), these are one of the most “popular” means of money laundering and terrorist financing, particularly when it concerns companies that do not have physical presence and activities in the country of incorporation (shell companies). Credit institutions should take all appropriate measures to fully establish the control structure and ownership of companies and verify the identity of the beneficial owners (natural persons) and the natural persons exercising the actual control of the company.

151. The term “shell company/entity” refers to a limited liability company or any other legal/business entity bearing the following characteristics:

a) Has no physical presence or activity in the country of incorporation/registration (other than a postal address);

The physical presence of a company/entity is interpreted as

• the existence of a place of business or activity (owned or leased buildings) in the country of incorporation/registration.
• Also, the absence of substantial management (meaningful mind) and administration could be interpreted as lack of physical presence.
• The presence of a third person who merely provides services as a representative/proxy person, including the duties of the secretary of the company, is not in itself an indication of physical presence and/or

b) It has no established business activity, little or no independent economic value and no evidence to the contrary.

Nevertheless, the following circumstances could indicate a business activity:

i. the company/entity was established/incorporated for the purpose of holding share capital or shares or equity instruments of another business entity or entities dealing with legitimate business with identifiable ultimate beneficial owner(s),

ii. the company/entity was established/incorporated for the purpose of holding intangible or other assets, including immovable property, ships, aircrafts, investment portfolio, debt and financial instruments,

iii. the company/entity was established/incorporated to facilitate monetary transactions and assets transfers, corporate mergers, and also for the execution of asset management activities and the trading of shares,

iv. the company/entity acts as treasurer for companies recognised as a group or manages the activities of the group,

v. any other case where conclusive evidence can be provided that the company/entity is involved in a legitimate business, with identifiable ultimate beneficial owner(s).

152. If an entity falls under the above definition and

a) is registered in a jurisdiction where the companies/entities are not obliged to submit to the authorities audited financial statements by independent auditors/accountants and do not prepare financial statements voluntarily from independent approved auditors/accountants and/or

b) has tax residency in a jurisdiction which is included in the EU list of non-cooperative jurisdictions for tax purposes or in the list of non-cooperative jurisdictions of the World Forum for transparency and information exchange for tax purposes (Global Forum on Transparency and Exchange of Information for Tax Purposes) or any other list issued by a reputable organisation in relation to harmful tax practices, tax havens or has no tax residency, then, business relations with such an entity should not be concluded or, if they exist, should be terminated.

153. In all cases of companies/entities, the institution must decide whether to engage in or maintain a business relationship by applying a risk-based approach in accordance with the legal and regulatory framework and providing fully substantiated justification of such a decision which should be evidenced/documented and duly recorded.

154. In relation to the above, the credit institution shall establish policies, procedures and controls to ensure its effective implementation and full compliance with the above requirements.

You can read/download the directive at this link 5th-CBC-DIRECTIVE-FEB 2019-ENG