Financial Crime World

Sanctions Screening in Cyprus: A Guide for Financial Institutions and Individuals

In light of the recent EU sanctions imposed on Russia, it is essential for financial institutions and individuals to understand the implications of these regulations in Cyprus. The European Union has enacted several Regulations, including Council Regulation (EU) 269/2014 and Council Regulation (EU) 833/2014, which have immediate effect across all member states.

The Sanctions Regime in Cyprus

As a result, citizens of EU member states, legal entities, national authorities, and EU institutions are required to comply with these sanctions. Cyprus authorities are bound by the relevant EU legislation passed in response to Russia’s actions in Ukraine. The country has established a working committee to coordinate the implementation of restrictive measures, providing guidance to financial institutions.

The Working Committee

The committee includes representatives from various government agencies, including:

  • Legal Service
  • Central Bank
  • Ministry of Foreign Affairs
  • Ministry of Finance

It addresses questions requiring clarification and provides information to financial stakeholders for proper interpretation and implementation of EU regulations.

Prohibitions Under the Sanctions Regime

EU sanctions prohibit transactions with designated individuals and entities in Annex I of Regulation (EU) 269/2014. These sanctions aim to prevent the misuse of funds and restrict financial flows.

Enforcement Bodies

The sanctions regime is enforced through two main bodies:

  • Advisory Body on Economic Sanctions (SEOK): considers motions from financial institutions seeking exemptions and unfreezing of specific frozen resources or capital, subject to certain conditions.
  • Unit for the Implementation of Sanctions in the Financial Sector (MEK): handles applications for exemptions to prohibitions related to the financial sector.

Cyprus Ministry of Finance Guidance

The Cyprus Ministry of Finance has provided guidance on several aspects of sanctions compliance:

Definitions and Exemptions

  • Definition of entities established in Russia: The CMoF views that this definition refers only to entities incorporated or registered under Russian law, including their branches. Entities registered or incorporated in other countries are not captured by this regulation.
  • Deposits from Russian nationals: The CMoF believes the prohibition on accepting deposits over €100,000 per person per credit institution should not apply when amounts are intended for repayment of own liabilities (e.g., loans, current accounts).

Services Provided to Sanctioned Persons/Entities

The CMoF permits services strictly limited to what is necessary for a company to continue existing and essential activities.

General Authorisation of Specific Payments from Sanctioned Persons/Entities

  • The release of frozen funds by credit institutions for payment of amounts due to public authorities (e.g., tax, social insurance) is deemed authorized under the general authorisation.
  • Credit institutions are responsible for ensuring that these amounts are paid to public services and disclosing the released amounts to the competent authority. Any other amount released without authorization may be considered as making funds available to designated persons without permission.

Conclusion

Financial institutions and individuals must be aware of the sanctions regime in Cyprus and comply with the relevant regulations. The CMoF’s guidance provides clarity on specific aspects of sanctions compliance, ensuring that credit institutions and individuals can operate within the law while avoiding unintended consequences.