EU Report Reveals Alarming Money Laundering Risks and Inaccuracies in Cypriot Banks

According to a leaked EU report, Cyprus’s anti-money laundering measures are under scrutiny due to concerning findings in six of its largest banks. The assessment was carried out by Moneyval, a European Council of Europe unit, and Deloitte on behalf of eurozone finance ministers.

Key Findings

• Almost 60% of clients in one Cypriot bank were classified as “high risk” for money laundering.
• Approximately one-third of depositors’ and borrowers’ records had errors or incomplete information.
• Banks relied heavily on professional intermediaries for international business, making it challenging to verify customer identity.
• Proper identity verification and KYC (Know Your Customer) checks were only performed in 9% of complex structures.
• Banks reported a low number of internally initiated investigations and suspicious transactions to authorities.

Concerning Discoveries

Deloitte analyzed the 90 largest borrowers, 180 large depositors, and 120 random customers. Among these, about 10% were identified as “politically exposed persons,” and 58% of customers in one particular bank ranked as “high risk.” These customers seemed overlooked by the banks themselves.

Incomplete or inaccurate customer information was found in 27% of depositors’ files and 11% of borrowers’ files. Furthermore, banks heavily depended on professional intermediaries like law firms and accounting firms for 75% of their international business, obscuring the real clients’ identities.

Complex Structures and Lack of Proper Checks

When examining complex structures (accounts held by companies with multiple layers of ostensible owners), only 9% of such cases underwent proper identity verification and KYC checks. The reviewed banks had initiated only four internal investigations concerning potential money laundering in the sample clients between 2008 and 2012 and reported zero “suspicious transactions” to Cypriot authorities in 2008-2010. However, Deloitte identified 29 potentially suspicious transactions in the preceding 12 months alone.

EU’s Response and Implications

EU officials are expected to draft an “action plan” for Cyprus to address these issues if they wish to maintain access to bailout funds. The revelations have raised concerns among European diplomats that the findings could damage Chancellor Merkel’s reputation if made public during German elections.

These developments also call into question the robustness of Moneyval’s previous assessments of Cyprus’s anti-money laundering system. Diplomats and politicians in Cyprus have emphasized the island’s adherence to international standards in the media. However, the EU report challenges these assertions and exposes significant gaps in the implementation of preventive measures by the audited financial institutions.