Experts question EU money laundering probe on Cyprus
As anti-money-laundering auditors begin work in Cyprus, some experts, such as the head of European operations for US due-diligence firm Kroll, are questioning the value of the exercise.
EU lenders want it to shed light on whether bailout money will be used to protect the savings of Russian criminals.
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But for a pro-transparency task force, its work is so far shrouded in secrecy.
The operation is being co-ordinated by the European Commission, the International Monetary Fund and the Cypriot central bank.
Its terms of reference, which stipulate, for example, the cut-off point for the size of Cypriot banks to be inspected, have not been made public. The central bank is hiring a private firm to do the work alongside Moneyval, a branch of the Council of Europe in Strasbourg, but the tender is being done behind closed doors.
Meanwhile, Moneyval's people are already in Cyprus and preliminary findings are due by the end of March.
For his part, Tommy Helsby, the head of European operations for US firm Kroll, which recently did similar work in Afghanistan and in Iceland, told EUobserver that the choice of Moneyval is dubious.
He noted that it already did four reports on Cyprus in recent years.
"The last one is full of glowing words - that they have put in place this and this statute or legislation. Only the last paragraph says that Cyprus doesn't have the resources to actually implement them. That's going to be the central issue," he said.
He pointed out that the March deadline for the new Moneyval study is a problem.
It took Kroll nine months to audit one Afghan bank which managed $1 billion and two and a half years to audit Iceland's Glitnir bank, but Cyprus hosts more than 40 large banks with more than €130 billion in assets.
"Can anybody produce a comprehensive and reliable answer in a week? No," Helsby said.
"But you might say: 'We need a scoping study to determine what needs to be done and … we get the agreement of the Cypriot central bank that they will undertake that effort and that effort might take two years'," he noted.
He said a bigger problem is that money laundering is a global issue rather than a Cypriot one, however.
He also said it is a "red herring" in terms of safeguarding EU taxpayers' bailout money.
"You might ask: 'Has there been money laundering going on in Cyprus that people have turned a blind eye to?' The answer is: 'Yes. Of course. But why does that surprise you? It happens in every country'," he explained.
"Swiss banks, German banks, British banks, American banks - they launder all sorts of people's money … It's wrong to point the finger at Cypriot banks because they have Russian money, some of which is from Russian organised crime. You could just the same look at Miami banks and Latin American money laundering, or Swiss banks, which launder money for everybody," he added.
He said the EU should instead be looking at "related-party lending."
"In Iceland, you had a situation in which one shareholder in one bank lent money to a shareholder of another bank, who later returned the favour. So you're not doing it via legitimate channels within the bank. Then it creates a system in which people say: 'You scratch my back, I scratch yours.' It may not break the letter of the law, but it creates a kind of systemic risk," he noted.
"If you're concerned about the integrity of the Cypriot bailout, you ought to focus on improper lending practices," he said.
Michel Koutouzis, a Paris-based criminologist who advises the UN, the EU and the French government and who has written several books on money laundering, agreed with Kroll.
"The problem is global and it is a radical injustice to point the finger at one country just because it is in financial difficulty when you do not point the finger at other ones who aren't," he told this website.
"Money laundering does not take place within a national territory. It takes place in an international space, a network, which also covers London, Vienna, Berlin, Helsinki, Luxembourg, Malta and Tel Aviv as well as Cyprus. The thing [for perpetrators] is to be present in all these places and to exploit the specificities of each jurisdiction," he said.
Citing his own sources inside the EU-Cyprus bailout talks, he said that Luxembourg and the UK took Cyprus' side on limiting the scope of the audit.
"The Cypriot negotiators said: 'OK. Let's take measures. But if you really want to ask questions, let's also ask them about Luxembourg as well.' When the EU got this answer, they couldn't go much further," Koutouzis said.
"Cyprus knows very well what's going on in Luxembourg and in London. That's why it's very difficult to really push them," he added.
Going back to Kroll, Helsby gave an insight into what the EU-mandated inspectors should be doing.
He said that an auditor's job is not to catch banks red-handed on specific cases, but to see if they implement rules.
"It's not a bank's job to investigate if you are a criminal or a fugitive from justice. But it is their job to make sure they identify who their clients really are. If you've come to Cyprus with $3 million in cash, they have a reason to be suspicious. You should have a very good story. But if the banks just say: "Thank you. Would you like to open a savings account?" then that's a violation," he noted.
He said a forensic accountant is someone who "marries technical accounting skills with scepticism and with the investigative nose of a policeman."
"There's a side of accounting which is ticking boxes … but there's also a side with attitude, people who say: 'I looked at that, but it's a bit unclear. The ink looks a bit wet on this document. I'm going to look at the properties of this document and not just the contents. OK. So, it was created six months after it is dated'," he explained.