VZCZCXYZ0000
RR RUEHWEB

DE RUEHNC #0235/01 0931321
ZNR UUUUU ZZH
R 031321Z APR 09
FM AMEMBASSY NICOSIA
TO RUEHC/SECSTATE WASHDC 9765
INFO RUEHBS/USEU BRUSSELS

UNCLAS NICOSIA 000235 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EUR/SE 
 
E.O. 12958: N/A 
TAGS: SNAR EFIN CY
SUBJECT: CYPRUS: GOC NEGATIVE REACTION TO INCSR 
 
REF: Demetriou-Silensky e-mail dated December 22, 2008 
 
¶1. (U) This cable is sensitive but unclassified.  Please protect 
accordingly. ACTION REQUEST CONTAINED IN PARA. 5. 
 
¶2. (SBU) On March 27, Embassy Econ Officer and Econ Specialist met 
with Eva Papakyriacou, Head of the local Financial Intelligence Unit 
(known as MOKAS) and Michalis Stylianou, Senior Officer, Bank 
Supervision and Regulation Division, Central Bank of Cyprus to 
discuss the GOC's reaction to the published text of the 
International Narcotics Control Strategy Report (INCSR), Part II, 
concerning money laundering.  The meeting was called at their 
request, to protest various points in the INCSR report. 
Papakyriacou confided that the GOC felt strongly enough about these 
issues (especially, the reference to the "TRNC"), so as to consider, 
initially, making these points "more formally." Papakyriacou 
convinced the rest of the GOC apparatus to downplay its reaction, 
and provide us with more informal feedback via this meeting. 
 
¶3. (SBU) Following is a list of the issues they raised with us 
(reference to contentious INCSR passage first, followed by GOC 
comment): 
 
-- Second para of INCSR: 
 
QUOTE: 
 
Although Cyprus has made progress from its days as an offshore haven 
for tax evasion, money laundering and other types of criminal 
financial activity, Cyprus remains vulnerable to significant money 
laundering and illicit finance activities. 
 
END QUOTE. 
Papakyriakou noted that Cyprus was never an offshore haven for tax 
evasion (typically, a place with zero tax rate).  Even in the days 
of extensive dealings with the Milosevic regime in former the 
Yugoslavia, the issue was money laundering, not acting as a tax 
haven.  Also, the GOC does not agree with the broad-brush statement 
that it remains vulnerable to significant money laundering and 
illicit finance activities and asked if the USG has any specific 
examples of these problems. 
 
-- Third para of INCSR: 
 
QUOTE: 
 
Cyprus' historic ties to organized criminal elements and large 
number of shell companies . . . 
 
END QUOTE. 
 
The GOC strongly disagrees with the conflation of holding companies 
"like Delaware" and implied international organized crime groups 
operating here. Again, our interlocutors requested specific examples 
of USG concerns. 
 
-- Sixth para of INCSR: 
 
QUOTE: 
 
The high number of nonresident businesses raises concern about money 
laundering due to difficulties in monitoring their activities. 
 
END QUOTE. 
 
The GOC does not recognize that there are any such difficulties. 
Cyprus, unlike places like the British Virgin Islands, has a system 
in place allowing full access to information on the beneficial 
owners of each and every registered company. 
 
-- Para eight of INCSR: 
 
QUOTE: 
 
However, regulatory oversight of entities such as lawyers and 
accountants, who are involved in corporate registration and the 
collection of beneficial ownership information, remains low. 
 
END QUOTE. 
 
Accountants and lawyers should not be lumped together in this 
context.  By the GOC's own reckoning, this comment holds true for 
lawyers but not so for accountants. 
 
-- Para 13 of INCSR: 
 
QUOTE: 
 
While the recent AML law addresses many of the previously identified 
gaps in the Cyprus' AML/CTF regime, the effectiveness of these 
measures is unknown, as some provisions have not been fully 
implemented or tested through the detection, investigation and 
prosecution of money laundering cases. 
 
END QUOTE. 
 
The GOC questions the necessity for such a comment.  It also 
believes strongly that the comment casts unnecessary doubts on the 
effectiveness of the GOC's AML system. 
 
--  Para 17 of INCSR (end): 
 
QUOTE: 
 
Cypriot law partially protects reporting individuals with respect to 
their cooperation with law enforcement but does not clearly absolve 
a reporting institution or its personnel from complete criminal or 
civil liability. Banks must retain client identification data, 
transaction records, and business correspondence for five years. 
 
END QUOTE. 
 
This is no longer true.  Since the end of 2007, the GOC has enacted 
legislation addressing this problem quite effectively - a point 
acknowledged by MONEYVAL's Second Progress Report on Cyprus 
(released January 9, 2009, reference page 20, section 26/2/a) 
 
-- Para 24 of INCSR: 
 
QUOTE: 
 
Despite the size of the financial sector and the seemingly 
comprehensive nature of the AML/CTF legislative regime, the number 
of reports, investigations and convictions of money laundering cases 
in Cyprus remains surprisingly low. Furthermore, suspicious 
transaction reporting from the nonfinancial sector, including 
lawyers and accountants, also remains low. 
 
END QUOTE: 
 
The GOC acknowledges that this is a problem, which they helped 
create.  The figures on reports, investigations and convictions 
cited in the report refer only to MOKAS.  Up until recently, the 
Cyprus Police did not keep or share such figures with MOKAS, hence 
the reporting deficit.  Currently, however, the police has improved 
its statistics collection method and agreed to share this 
information with MOKAS to give a more accurate, cumulative picture 
of the situation.  The updated numbers are presented analytically in 
Moneyval's Second Progress Report (page 42). 
 
-- Para 29 of INCSR: 
 
QUOTE: 
 
Cyprus should consider enacting provisions that allow for civil 
forfeiture of assets. Cyprus should ratify the UN Convention against 
Corruption. 
 
END QUOTE. 
 
This has been a long-standing USG request, and the GOC responds in 
the same way every year: noting that in Cypriot jurisprudence, civil 
forfeiture is not/not an international standard, nor a FATF 
requirement.  The only country in the EU following this practice is 
Ireland.  Furthermore, such policy would be against Cyprus' 
Constitution.  In short, it is a pointless comment, from the GOC 
perspective. 
 
¶4. (SBU) Finally, Papakyriacou thanked us for our timely 
intervention through the Cyprus Desk, two weeks ago, resulting in 
changing the terminology used to refer to the northern part of the 
island.  The revised INCSR 2009 text already posted on the Internet 
(Appendix, page 58), now lists the northern part of Cyprus as "Area 
Administered by Turkish Cypriots," as opposed to the "offensive" 
(from the GOC viewpoint) and unrecognized "TRNC." 
 
¶5. (SBU) Comment.  Post values the excellent relationship it enjoys 
with the local FIU.  Furthermore, cooperation between MOKAS and 
FinCEN reportedly remains exemplary. Most of the points that raised 
the Cypriots' hackles refer to language added to Post's initial text 
by Washington.  To provide the latest information, we request the 
opportunity to review a Track-Changes version of the INCSR draft we 
submit to Washington before it becomes final. End Comment 
 
URBANCIC