Prohibited Persons List added to the Cyprus Investment Programme

In an attempt to enhance the credibility and reliability of the Cyprus Investment Programme, the Cabinet of Ministers issued a prohibited persons list to which the Cyprus Investment Programme will be restricted.

This article analyses the cabinet of ministers decision No. 963 of the 25th of July 2019 issue 4637 (available in the Greek language only) a freeform English translation of the Prohibited Persons List may be found by following this link in this article into English. The decision is effective as of the 30th of August 2019 when it was issued in the official newspaper of the Republic of Cyprus.

Prohibited Persons List added to the Cyprus Investment Programme

The list has a similar look and feel for that which would be found in a Cyprus CiF, ASP or a banking anti-money laundering compliance manual since it aims to generally restrict the class of individuals if they fall within one or more general categories.

Key Highlights of the Prohibited Persons List

Risk-based approach

The general guidance towards anti-money laundering and terrorist financing preemption measures has been lately the development and deployment of a risk-based approach. More importantly, the Joint Committee of the European Supervisory Authorities issued “The Risk Guidelines” as a guide towards regulated entities on what risk factors to take into account for the purposes of complying with the provisions of the Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007 – 2019.

Nevertheless, the Risk Guidelines also provide valuable information on building and applying a risk-based approach. In highlight:

Paragraph 34 requires that firm take a holistic view of the risk factors they identified. In Paragraph 35 firms may decide to weigh factors differently depending on their relative importance and most importantly Paragraph 17:

[…] the presence of isolated risk factors does not necessarily move a relationship into a higher or lower risk category.

Paragraph 17, The Risk Guidelines, of the Joint Committee of the European Supervisory Authority

With all the above in mind, and having reviewed the list (included below) it is quite clear that the Cyprus Government, acting via the cabinet of ministers has not exercised a risk-based approach informing the prohibited persons’list for the Cyprus Investment Programme. On the contrary, a single risk factor approach has been taken which ultimately means that significant factors have been omitted and that by default the list is either too restrictive or incomplete either way, the Governments consultants should have advised constructing a more suitable risk scoring and risk analysis matrix.

Criminal Activity

The prohibited persons list of the Cyprus Investment Program prohibits any person who is involved with criminal activity. The prohibition is applicable to simple allegations, persons who have been pardoned, people wanted by EUROPOL and INTERPOL and others.

Sanctions

The prohibited persons list includes persons associated with legal entities to which sanctions have been applied. On the face of it, the sanctions adopted are those imposed by the European Union, the United Nations Security Council and persons who have been sanctioned by third countries. I will not stand on the EU and UN sanctions but rather to the mention of prohibiting persons from the investment program who are associated entities sanctioned by “third coutries”.

Third Countries might mean any country other than the EU which has issued and such list of third countries might include sanctions against:

• Individuals
• Companies
• Industries
• Vessels and aircraft
• State-wide

A few of these third countries include, to the best of my knowledge:

• The United States of America
• Canadian sanctions
• Australian sanctions
• Norway
• Israel
• Saudi Arabia
• UAE
• Bahrain
• Egypt

And the list, subjects and individuals may vary from time to time.

The latest sanctions which come to mind are those that US may impose on Turkey for the sale of the S-400 missile system as well as the China sanctions against the US for imposing sanctions on China.

As can be understood the possible list of people and sanction issuing authorities vary and by extension, the Government of Cyprus might even be seen to have adopted to national legislation the foreign policy of several “third parties’ without having any event authority.

Politically Exposed Persons

Important to note is the restriction on Politically Exposed Persons and their families and derogates from the provisions provided in the Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007 – 2019 in that it treats Politically Exposed Persons a person who held a public office in the previous five years.

Note that the law requires obliged entities to take into account, for at least 12 months, the continuing risk posed by Politically Exposed Persons and apply appropriate and risk-sensitive measures until such time as that person is deemed to pose no further risk specific to politically exposed persons.

Section 64(1) of the Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007 – 2019

Comparing the two authorities we note that, generally a longer period of treating individuals as politically exposed persons means that lower risk tolerance is present. Whereas a shorter period of time from when the person was as politically exposed person typically indicates a higher risk tolerance.