Before relying on anything in this Blog please read the disclaimer 

The Cyprus beneficial ownership register is a work in the making. Cyprus though being a complete member of the European Union adopted national legislation to transpose EU Directive 2015/849  generally referred to as the “4th AML Directive” into national legislation.

How has the national legislation been applied though and is it sufficient?

Cyprus Transposing Legislation

The Prevention and Suppression of Money Laundering and Terrorist Financing Law 13(I)/2018 (“AML Law”) published on the 4th of April 2018 in the official Newspaper of the Republic of Cyprus. The AML Law aimed at transposing the 4th AML Directive.

Cyprus Beneficial Ownership Register

Amongst various other amendments (see below) the AML Law introduced the requirement for the establishment of a Cyprus beneficial ownership register. Section 61A relates to the creation of a register in Cyprus for the collection of information for companies; whereas 61B relates to the creation of a beneficial ownership register for trusts. In summary, the main provisions of Sections 61A are set out below.

In summary:

  • Every company incorporated in Cyprus is required to maintain adequate information on its beneficial owner.
  • Such information must be provided to obliged entities (banks, lawyers, audit firms, etc).
  • The beneficial owner’s information is kept in a central register of beneficial owners.
  • The creation, operation, access and related matters of the register shall be determined by regulations.
  • The competent authorities have access to the information, the lawyers, bankers, auditors, and any person or organization which can demonstrate a legitimate interest.
  • Information made available shall include the name, the month and year of birth, the nationality and country of residence of the beneficial owner and the % of interest held.

Who is obliged to maintain information?

One of the issues I have spotted is that companies incorporated in a foreign jurisdiction but operating in Cyprus, e.g. Branch, Foreign Companies being tax residents of Cyprus are excluded from the strict interpretation of the AML Law.

Partnerships, mutual funds, and other unincorporated businesses equally fall outside the strict interpretation of the AML Law.

Nevertheless, in practical terms as soon as they apply for a bank account opening; the banks will be required to collect information on their beneficial owner and % of interest that they/he/she holds.

Who is the beneficial owner again?

Beneficial owner means a natural person who ultimately owns or controls the customer and/or the natural person on whose behalf a transaction or activity is being conducted.

Article 2 AML Law

This is a very interesting definition sĪ¹nce its aim is to identify an individual. The definition does not take into account other possible structures and investment vehicles outside the private wealth world. For example:

  • who is the beneficial owner of a stock listed entity listed on the AIM?
  • who is the beneficial owner in a GP/LP structure out of Cayman?

The beneficial owner of a typical GP/LP structure then is the GP. On the other hand in a scenario of examining the beneficial ownership of a stock listed company, we should collect information on the entire management structure (supervisory board, the board of directors, executive management, etc.). We need to pay more attention to this point, otherwise, it will be impossible to service high profile clients outside the private wealth world.

Are they working on the regulations?

On the 15th of March 2019, the Registrar of Companies issued an announcement (the “Announcement“). Its purpose was to inform the public, that per the AML law, the Department of the Registrar of Companies will create and maintain the Cyprus beneficial owners register for companies. The announcement went on to notify everyone and that the Companies Law, Chapter 113 would be amended.

It seems that the registrar of companies is hard at work in the last few months, but again as of July 2019, it is not ready to apply the provision of the Law passed in April 2018.

At the time of writing this article, no regulation has been issued, other than the Announcement. So in the last 16 months, our authorities have not prepared the regulation governing the Cyprus beneficial owners register.

If this sufficient?

Apart from the gaps in the legislation, too little is being done too late, the 5th AML directive is less than a few months from national transposition (January 2020). The entire idea of disclosing beneficial owners is exactly to close the gap in the system where people would hide behind cross-border corporate structures, an initiative agreed upon by the EU legislative bodies 4 years ago.

Did the AML Law have any other material impact?

Other than the above, the AML Law significantly influenced anti-money laundering process, policies, and procedures. Most notable the following amendments where introduced:

  1. Raised the ownership threshold from 10% to 25% + 1 share, increasing the number of individuals who are not captured by the financial system. On the one this means an increased risk of none-detection however on the other it means that the compliance departments can apply their limited resources to matters which have an increased risk.
  2. Introduction of a risk-based framework. The previous AML Law required certain specific high-risk clients (trusts) and also specified who could be classified as low risk (financial institution). The new AML Law grants discretion to the regulated entities to adopt and apply a risk model suitable to the needs and risks that such institution faces.

How can I prepare?

A few pointers on how compliance departments should prepare for the upcoming Cyprus beneficial owners register:

  • Evaluate your existing policies and procedures to align with current legislation;
  • Analyze your business risks;
  • Review existing clients to see whether they fall within a new category of risk;
  • Consider increasing the beneficial ownership threshold to 25% + 1 share or leaving it at 10% as it was.
  • Beneficial owners holding more than 25%, keep the following information:
    • A clear and documented trail leading up to the beneficial owner;
    • The details of the beneficial owner, with the necessary supporting documents, including:
      • Name;
      • Date of Birth;
      • Nationality
      • Country of Residence
      • Ownership and extent of interest.

I hope this is useful to you and your compliance team and I am eager to discuss this post, thank you for your time.