The Central Bank of Cyprus is tightening rules against money laundering by asking super-vised banks to avoid business with “shell and letterbox companies”.
“The Central Bank of Cyprus shall incorporate in the forthcoming revision of the directive for the prevention of money laundering and terrorist financing, issued to credit institutions certain requirements for business relationships with so-called ‘shell companies’,” the bank supervisor said in a circular emailed to banks last week.
The term ‘shell companies' refers to non-public traded, limited liability companies and other entities to which any of the following could apply: There is no physical presence, i.e. "a meaningful mind and management" in the country they are domiciled other than a mailing address, the companies have no established economic activity, they have little to no independent economic value lacking documentary proof to the contrary, and the jurisdiction in which they are registered does not require the submission of independently audited accounts.
The Central Bank, which introduced a strict, fourth anti-money laundering directive in December 2013 incorporating the recommendations of an independent audit, has recently launched a campaign to inform the global community about the progress Cyprus made in tackling the laundering of illicit funds. The need for the campaign had been prompted by the findings of a disappointing unpublished opinion poll abroad that showed Cyprus's image among supervisors and other financial institutions and bodies were outdated.
Also, shell companies are either tax residents of a "tax haven" or have no tax residence, the central bank said.
"The presence of a third person such as a lawyer, an accountant, or a TCSP (trust or company service provider), acting merely as an agent of the company and (or) providing nominee services including company secretary duties does not constitute a physical presence," the Central Bank said. "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".
Charles Farran comment: With some 15,000 Cypriots directly or indirectly connected to company formation and banking, never mind the restaurants and hotels benefiting from business visitors, we believe this is a move that Cyprus will live to regret and one that that will have a dire impact on the Island economy.