Offshore bank of Cyprus

 As the international community has been drawn to Cyprus as an efficient, convenient and reputable offshore business center, the government has responded by upgrading its traditional banking system. Today the country provides the highest European standards of financial services to both individuals and the corporate sector, offering modern infrastructure, a diverse range of activities and maximum safety procedures. The Central Bank of Cyprus, established in 1963, is the regulatory body, fulfilling the multiple roles of supervising the banks, formulating monetary and credits policy, administers foreign exchange reserves and acting as the financial agent of the government. There are twelve commercial banks in Cyprus, three of which are located in the Turkish- occupied part of the country. Of the other nine, two are foreign controlled and seven locally incorporated. In addition, there are two branches of foreign commercial banks, twenty-nine offshore banking units, two administered banking units and seven offshore representative offices of foreign banks.

There are also two specialized financial institutions: the Housing Finance Corporation and Mortgage Bank of Cyprus Ltd. for long-term housing loans, and The Cyprus Development Bank Ltd., for medium and long-term financing, as well as providing technical and management consulting services to companies. Bank of Cyprus, Popular Bank and the Hellenic Bank are the three largest commercial banks on the island, each with a wide network of allied companies, subsidiaries and local and international branches. Being well trusted and reputable, the bulk of Russian business has been funneled into these three banks. The banks do not rely on trade finance alone, they also cater to a large number of Russian offshore entities and their resident employees. In addition, they serve many Russian tourists, temporary residents and retired expatriates. The most important link, though, was during Russia's market boom, when most of the direct and indirect investment flowing into Russia, including that of billionaire George Soros, was routed through Cyprus. All the services available in the best financial capitals of Europe are obtainable in Cyprus. In a technologically advanced environment, the services provided include personal and corporate banking , trade finance and fund purchases. They also offer specialized services like general and life insurance, property management and investment banking. The private banking services are supported by alternative sources of cash like ATMs and cards. The banks have correspondent relationships with other financial institutions in most of the big cities of the world as well as having their own operations abroad. These banks are full members of S.W.I.F.T. and transactions are negotiated in most major currencies.

In Cyprus, the government's prime concern has been to combat the continual charges of money laundering. The government says these allegations proliferate because of the country's geographical location and its eagerness to encourage offshore enterprises. It says the Central Bank has extensive guidelines to check the laundering of dirty money in the country. Banks are required to investigate thoroughly the source of all money. Clients' credentials require detailed vetting and signatures to be verified by what are described as banks "we know" and which "in our opinion" exercise adequate banking supervision. The Central Bank has stringent regulations and makes both periodic and random checks of clients' files, as well as on-site inspections and off-site monitoring. The Central Bank also demands that the banks strictly adhere to its reporting requirements. Since 1982, the Central Bank of Cyprus has been a member of the Offshore Group of Banking Supervisors, which was set up with the encouragement of the Basle Committee on Banking Supervision. Cyprus has always followed the recommendations of the Committee very closely and has, from the beginning, established and implemented effective supervisory standards and procedures. Bankers also argue that most reports appearing in the international press about money laundering actually refer to business being conducted in the Turkish occupied northern area. Even reputable publications in the occupied region have reported that businessmen come in with huge amounts of cash and launder it after paying out between 10 percent to 20 percent in commissions. This, it has been written, is done with the approval of the authorities. Moreover, there is no requirement for the source of the money does not have to be revealed. A report published by the U.S. government says that along with countries like the U.S., U.K., Canada, France and Switzerland, Cyprus also appears to be an ideal breeding ground for money laundering. The report, while spelling out the pitfalls, describes the Cypriot government's efforts to combat money laundering as "notable and encouraging." Cyprus no longer ranks as a priority country on the list of the Financial Action Task Force - a global anti-money laundering body. Indeed, the U.S. Government report says Cyprus is insulated from traditional forms of money laundering by its strict foreign exchange regulations, absence of casinos and the restricted role of cash in its economy. International bodies, however, are concerned at the presence of so many East European enterprises on the island and suspect illegal activity. But the government says that all offshore companies registering in the country go through the same rigorous checks, irrespective of their origin. The financial community has taken very positive steps to distance itself from these charges. Both the banking sector and the government are involved in a campaign to ensure all stipulated laws and measures are implemented. The police department has a special section called the Unit for Combating Money Laundering, and there is also a proposal for American instructors to train Cypriot police and customs officials.

Recently, fresh rumors surfaced in the press about dirty money in Cyprus, this time in relation to ex-Yugoslav President, Slobodan Milosevic. The island country, however, is determined to project itself as an international business center and is forging ahead in this course, despite the persistent rumors.The U.S. Government is proposing to take action against an offshore bank in north Cyprus, the First Merchant Bank, under Section 311 of the U.S. Patriot Act as a financial institution of primary money laundering concern. On August 24, the U.S. Government published in the Federal Register a Notice of Proposed Rule Making beginning a 30-day public comment period after which a notice of Final Rulemaking can be issued. This would require all U.S. financial institutions to close any correspondent account with this bank as well as any correspondent account maintained by another financial institution that is used by this bank. The rule would also prohibit the opening or maintaining of such an account. The proposed action is in regard only to this one particular financial institution. The U.S. Embassy notes that the integrity of financial institutions will be an essential element of sustainable economic growth in north Cyprus. Thus, it is important that the Turkish Cypriot financial sector meet European and international standards. Another step to protect the integrity of the U.S. financial system and identify rogue financial institutions, the U.S. Department of the Treasury today designated two foreign banks  First Merchant Bank of the "Turkish Republic of Northern Cyprus" ("TRNC") as financial institutions of "primary money laundering concern," pursuant to Section 311 of the USA PATRIOT Act."We continue to use our authority under Section 311 of the USA PATRIOT Act to protect the U.S. financial system from corrupt financial institutions such as these," said Stuart Levey, Treasury's Under Secretary for Terrorism and Financial Intelligence.  "Today's designation alerts the global financial community of the threat posed by these entities.  It also serves notice to others that there will be significant consequences for institutions that launder tainted money or engage in similar corruption: we will cut you off from the U.S financial system." 

In conjunction with this designation, Treasury's Financial Crimes Enforcement Network issued two Notices of Proposed Rulemaking (NPRM) imposing a special measure against the two banks that would prohibit covered financial institutions from establishing, maintaining, administering or managing in the any correspondent account in the United States for or on behalf of First Merchant Bank or Infobank.  In addition, covered financial institutions would be required to apply special due diligence to their correspondent accounts to guard against their indirect use by First Merchant Bank or Infobank.First Merchant Bank, which operates out of offices in Lefkosa/Nicosia, "TRNC," is a privately owned commercial bank specializing in the provision of commercial and investment banking services to individual and corporate offshore customers.  First Merchant Bank is licensed as an offshore bank in the "TRNC," a jurisdiction with inadequate anti-money laundering controls, particularly those applicable to the jurisdiction's offshore sector.  First Merchant Bank is also involved in the marketing and sale of fraudulent financial products and services.  The institution has been used as a conduit for the laundering of fraudulently obtained funds.  In addition, the individuals who own, control, and operate First Merchant Bank have links with organized crime and apparently have used First Merchant Bank to launder criminal proceeds. 

Marina, Reporter of Ecommerce Journal