The Central Bank of Cyprus on the 14/6/2018 informed all Cyprus Banks that intends to incorporate in the forthcoming revision of the Directive for the Prevention of Money Laundering and Terrorist Financing, issued to Banks, certain requirements for business relationships with the so-called ‘shell companies’.
To this effect, the following definition of shell companies will be adopted:
«The term ‘‘shell company” refers to a поп-publicly traded, limited liability company (LLC) or any other business entity that fulfils ANYONE of the following criteria:
a) has no physical presence in its country of domicile (other than a mailing address);
b) has no established economic activity, little to no independent economic value and no documentary proof to the contrary;
c) is registered in a jurisdiction where companies are not required to submit to the authorities independently audited financial statements;
d) has a tax residence in a jurisdiction recognised as a ‘tax haven’ or no tax residence whatsoever.
For the purposes of this paragraph, physical presence is construed as a meaningful mind and management located within a country. The presence of a third person such as a lawyer, an accountant or a TCSP, acting merely as an agent of the company and/or providing nominee services including company secretary duties does not constitute physical presence Also, the lack of employed personnel (including the nominal presence of one single person as a staff member) is construed as lack of physical presence».
In this respect, the following regulatory requirement is introduced:
«If a company fulfils any of the above criteria, engaging into or renewing a business relationship should be avoided. Before taking a decision the following should be taken into consideration irrespective of the MLTF risk assessment carried out by the Bank in compliance with article 58A of the AMUCFT Law:
• The company is established for the purpose of holding stock or shares of another business entity or entities with identifiable activities and ownership.
• The company is established solely for the purpose of holding intangible or other assets including real estate or ship vessels.
• The company is established to facilitate currency trades and asset transfers, corporate mergers, acts as group treasurer or in any other case where convincing proof can be provided that the company is engaged in legitimate business and substantiated information is provided about its ultimate beneficial owner/s».
The revised CBC AML Directive will include a requirement for the incorporation of the above definition within the policy and procedures for the prevention of money laundering with immediate effect and application to all new business relationships. Also, the CBC AML Directive will include a requirement for full justification of the decision to engage into or maintain such a business relationship. Such decisions should be recorded in the customer’s file. The Money Laundering Compliance Officer’s opinion on the management decision should also be appropriately documented.
In this respect, you are required to:
(a) review your client base in order to identify those cases which prima facie fall under the aforementioned definition,
(b) assess the future of the business relationship,
(c) inform the CBC about the outcome of your review under point (a) above and provide any comments of substance on the above definition by 31 July 2018.
As from the above it seems that the following companies could be excluded from the definition ‘shell companies’ and thus continue to have an account with Cyprus Banks:
(a) Companies holding stock or shares and with clear activities and ownership;
(b) Companies holding directly intangible assets, including real estate or ships / vessels;
(c) Facilitate currency trades, asset transfers or corporate mergers;
(d) Act as group treasurers, or
(e) Are engaged in legitimate business and substantiated information is provided about their ultimate beneficial owner/s;
(f) Companies with actual substance, economic activity and submitting to the authorities audited financial statements.
The circular is certainly technical and lots depend how the Banks shall interpreted the above provisions.
Our office is willing and able to assist you in all aspects of the above circular including negotiating with the Banks and advising on restructuring plans, mergers, redomiciliation and substance services.
Please contact, Stelios Americanos, [email protected], Juliana Kyriakides, [email protected], Helen Panteli, [email protected]; or any other member of our staff for further information and/or clarifications.