Prevention and monitoring of money laundering, as well as the financing of criminal and terrorist activities, is a significant factor that influences the efficient and effective operation of the global economy. Moreover, any connection with these activities has a negative influence on the reputation of institutions which might lead to a potential undermining of the banking sector and the local economy. As a result, governments should take the necessary measures in order to monitor and prevent money laundering practices.
According to Article 6 of UN Convention Against Transnational Organized Crime (Palermo Convention) money laundering can be defined as[1]:
- “The conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action;
- The concealment or disguise of the true nature, source, location, disposition, movement or ownership of or rights with respect to property, knowing that such property is the proceeds of crime;
- The acquisition, possession or use of property, knowing, at the time of receipt, that such property is the proceeds of crime;
- Participation in, association with or conspiracy to commit, attempts to commit and aiding, abetting, facilitating and counselling the commission of any of the offences established in accordance with this article.”
In Cyprus, the Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007–2010 (188 (I)/2007) and Directive DI144–2007–08 of 2012 for the Prevention of Money Laundering and Terrorist Financing, issued by the Cyprus Securities and Exchange Commission (CySEC), contain the regulations for the combat of money laundering and terrorist financing activities. The competent authority is the Unit for Combating Money Laundering (MOKAS).
The three stages of money laundering are:
- Placement: The money enters into the financial system. Specifically, the money derived from criminal activities is placed in a bank or any other enterprise that can accept cash.
- Layering: This is a complicated step and involves many transactions in order to make it difficult for the authorities to identify an association between the placed funds with the ultimate beneficiary of the money. This stage may involve purchasing and selling foreign currencies, shares or bonds, investing in collective investment schemes or insurance-based investment products, or moving the money from one country to another.
- Integration: This is the final stage. The money integrates into the legal hence, it can be used for any purpose.
Nowadays, globalisation and ongoing development of Internet solutions facilitate the transfer of funds from one country to another. As a result, financial companies must develop their own written anti-money laundering processes and programmes according to the necessary regulations in order to prevent and detect money laundering practices.
Regarding the operation of financial firms, national and international anti-money laundering legislations contain procedures that involve:
- Customer identification. That is to say, know your client and his/her business activities. Therefore, the financial companies must establish the necessary Know-Your-Client (KYC) procedures.
- Record-keeping. Client and transaction data must be kept for five years.
- Transaction monitoring. Particularly, transactions that are considered to be vulnerable to money laundering and terrorist financing, complex, remarkably large transactions, and transactions with strange patterns.
- Reporting suspicious activity. The appointed money laundering compliance officer is obliged to report any suspicious transactions internally and to the Unit for Combating Money Laundering (MOKAS).
The legal team of Michael Chambers & Co. LLC recommends to financial firms to follow the anti-money laundering regulations and develop adequate KYC procedures. For further clarifications, regarding KYC policies and anti-money laundering legislations contact us. Our lawyers will provide you with a professional legal advice and custom-made solutions. If you wish to speak to one of our lawyers, then please contact us: info@chambers.law
