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6th Jun 2020

Cyprus gets €2bn despite money laundering concerns

  • Dijsselbloem (c) and Cypriot finance minister Charis Georgiades (r) in Brussels on Monday (Photo: consilium.europa.eu)

The EU on Monday (13 May) said many Cypriot banks do not know who their customers really are, but wired Nicosia €2 billion anyway.

Commenting on a recent study on money laundering in the Mediterranean island, eurozone finance ministers said in a joint communique that it must do better on "customer due diligence by banks" and must fix "the functioning of [its] company registry."

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Dutch finance chief Jeroen Dijsselbloem, who chairs the ministers' meetings, added: "This report shows that while the legal [anti-money-laundering] framework is OK, the implementation is really lacking."

A branch of the Strasbourg-based Council of Europe and US accountancy firm Deloitte did the audit in March and April.

The full text is available only to a handful of officials in the European Commission, the International Monetary Fund (IMF) and the Cypriot finance ministry.

But eurozone ministers got a two-page resume over the weekend.

One EU official told this website on Monday: "The report has identified significant shortcomings in the implementation of the 'know your customer' principle [in Cypriot banks]."

Another EU official told EUobserver it would make frightening reading for German taxpayers, who are footing a large part of the bailout bill.

"If you look at some of the numbers, it says that Cypriot authorities in recent months identified just one or two suspicious transactions. But Deloitte found 30 times that amount," the contact noted.

"It's politically sensitive because of the German elections [in September] … It could be quite problematic for [German Chancellor] Merkel. If German people saw the report, they might say: 'I would not give my money to such a country'," the source added.

To give some context, Cyprus hosts about 12,000 shell companies which have no physical presence on the island.

But its company registry has a 10-year backlog of paperwork on who owns what.

Meanwhile, one Bank of Cyprus customer is Dmitry Kluyev.

Documents seen by this website show that Kluyev (a convicted Russian fraudster) and his associates used five Cypriot banks to launder $31 million of stolen money linked to the alleged murder of Russian whistleblower Sergei Magnitsky.

For its part, the Luxembourg-based bailout fund, the ESM, on Monday wired Nicosia €2 billion despite the concerns.

It aims to pay another €1 billion out of a total €9 billion by the end of June.

But EU and IMF officials are to draft an "action plan" on what Cyprus must do to combat money laundering in order to keep the money flowing.

"Compliance with the action plan will be monitored over the next years," Dijsselbloem said.

"Cyprus' business model was unsustainable … This problem has to be dealt with," he added.

Investigation

Cyprus launches probe into Russian mafia money

Cyprus has opened an investigation into evidence that stolen Russian tax money linked to the murder of Sergei Magnitsky was laundered through its banks.

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