By Sandra Nebritova

The recent sanctions imposed on a number of Cypriot companies and individuals has cast yet another shadow on our beautiful island.

As reported previously, the sanctions have been imposed due to the alleged assistance in hiding and disguising the assets belonging to Russian oligarchs.

The reason why this particular case is so damaging to the reputation of Cyprus is that for many years the country has been positioning itself as a financial and services hub for the incorporation of companies, provision of nominee directors, shareholders and registered addresses, as extremely popular.

As the demand for such services was very high, corporate service providers were opening offices all over the island. All these companies will need to be very cautious now and perform a detailed investigation into their client base, as at any point, more sanctions can be imposed if there is even the slightest suspicion that sanctions regulations have been compromised.

While the sanctions have been imposed by the US and UK, but not the EU, this still does not really make a difference.

Funds that are kept in banks will be frozen, as financial institutions that have correspondent relationships with either of the countries will follow suit. Banks require access to other currencies and to be able to perform cross-border transactions, therefore the risk of losing a correspondent account in UK or US is just a way to the financial grave.

There has been a recent outcry from the employees of the sanctioned companies, about not receiving their wages and benefits that lawfully belong to them.

Asset freezes are created in order to prevent further enrichment of the sanctioned individuals, and not threaten the livelihood of associated individuals. However, certain investigations must be performed, and it will certainly take some time to unblock certain funds that are eligible for exception.

It should be noted that the Government of Cyprus did a good proactive move, by taking a decision to form a designated sanctions committee.

While this will not erase the public aftertaste from the imposition of sanctions, it still shows that Cyprus is ready to address the problem, work on it and resolve it.

Let’s hope things will start moving fast and there will be no further damage to the reputation of the country.

Sandra Nebritova is a Certified Anti-Money Laundering Specialist (CAMS)

[email protected]

This post was originally published on https://www.financialmirror.com/2023/05/14/curious-case-of-sanctions/

By Sandra Nebritova

The latest events with the war in Ukraine have shaken the world and had a massive impact on a number of aspects of life, social as well as business.

However, any tragic event that has a major impact, also attracts criminals to use the crisis to their advantage.

These could include:

Fraud

With such a large amount of people willing to help the victims of the war crisis, it is acceptable that donations will be collected in order to provide financial aid.

However, not all of the funds will reach those who need it most. Fraudsters will set up fake donation accounts, share them through social media urging people to help and donate as much as they can. They will use phrases and pictures that will touch people’s emotions and knock them off their guard.

While in such an emotional state, people tend to pay less attention to details, for example, to check the source. Very often, these fraudsters are in blatant violation of anti money laundering regulations and make extra effort to evade authorities.

Funds will be collected and then go directly into the fraudster’s pocket. In order to avoid this, always check whether the organisation you are donating to, actually exists and is properly registered. Check for any misspellings too, as sometimes fraudsters will choose a name that will resemble a well-known charity organisation.

Human Trafficking

As people flee their own country and cross borders to neighboring territories in large numbers, this creates opportunities for human traffickers. With the majority of the migrants and refugees being women and children, it is even more attractive to criminals, as they are more vulnerable and distressed.

Warnings have already been issued, that various individuals have approached women, offering them a ride and a place to sleep. However, once additional questions are asked, those individuals become aggressive.

While there are people who are genuinely trying to help, there are also those who see this as an opportunity to kidnap women and children.

Additionally, there are also cases when individuals approach a group of migrants and offer to take them to countries that currently either do not accept migrants or require specific visas or permits to be allowed to enter. Of course, all this for a hefty price.

In most cases, such arrangements do not end well. People who were forced to leave their country should stay alert and address their needs to the volunteers and government officials.

Front people and front companies

As more and more sanctions are being issued, there will be more and more criminals willing to provide their services in order to bypass them. This includes criminals posing as owners of businesses, while actually they represent an entity that is under sanctions.

They will disguise their relation and open a variety of bank accounts in different countries, including those which have not issued any sanctions against Russian companies or individuals.

Financial institutions should be extra careful now and perform a very thorough due diligence on their current and new customers to ensure that they actually know who their customer is and that they are not breaching their sanctions’ compliance programme.

It is extremely disappointing that such tragic events can be used to someone’s benefit, but this is the reality we are living in and it is better to be well-informed and prepared for any-case scenario.

Sandra Nebritova is a certified AML specialist

[email protected]

This post was originally published on https://www.financialmirror.com/2022/03/19/beware-of-fraudsters-who-thrive-on-crises/

By Sandra Nebritova

The European Commission has presented a new package of changes on the legislation in the approach to Anti-money laundering.

This new package consists of four main points and addresses the weaknesses identified during the study of the latest AML breaches.

How will this affect Cyprus?

One of the most significant changes is creating the unified EU Regulator for AML – the Anti-Money Laundering Agency (AMLA).

While each country still gets to keep their own regulatory authorities supervising the AML programmes of the obliged entities, AMLA will have more powers and have the final say on rulings.

It will also be able to take control of a national agency if it failed to manage and react to risks appropriately.

This will definitely put additional pressure on national agencies (Cyprus being one of them).

Perhaps even jump-start more checks on currently supervised entities so that by the time the AMLA starts its operations at full speed, at least an initial clean-up has been already done.

Another important point is creating a single European Rulebook for AML that should be applied by all member states.

Previously, each Member State had some freedom in their interpretation and application of the EU Directives.

The Rulebook, however, will have a set of directly applicable rules that could not be changed.

This should place all member States in the same position and close some of the existing loopholes.

As some of the Member States are late in applying the EU Directives and still have weaknesses in their AML legislation, those states were more attractive for certain high-risk businesses and criminals trying to launder their proceeds of crime.

For Cyprus, these changes would not cause a lot of turbulence.

While some parts of the legislation take time to be amended and approved, generally, the Laws on Prevention of Money Laundering and Terrorist Financing are extensive, well-defined, and sometimes stricter than the proposed standards mentioned in EU Directives.

Crypto

Third, an equally important point is the coverage of the whole crypto-currency business – the black horse of the financial market.

Proposed amendments will ban anonymous crypto-wallets and impose obligatory due diligence on the customers and transaction tracing.

Cyprus has seen an increase in crypto-businesses establishing themselves in the country.

While local regulators have issued their statements on the approach to such businesses, the proposed amendments will unify the approach for all the EU Member States putting all countries in the same position.

Proposed amendments also suggest covering companies with activities of residency-by-investment schemes, which have been attracting a lot of negative attention, crowdfunding, mortgage/credit intermediaries and consumer credit providers that are not classified as financial institutions.

Additionally, a proposed single limit on cash transactions has been set to €10,000.

However, those Member States that have previously decided to have a lower threshold can still keep their own, lower limit.

Last but not least is the single approach to countries outside the EU, listing “grey countries” – countries that pose risks but are ready to work on them to improve their legislation and control systems, and of “black” ones, countries that pose risks but do not wish to work on them, providing guidance and a set of appropriate measures to be used in such cases.

While it will take quite some time to implement all of the above-proposed changes, this is definitely a big step to an improvement and something to look forward to.

Sandra Nebritova is a certified AML specialist

[email protected]

This post was originally published on https://www.financialmirror.com/2021/08/06/radical-changes-in-eu-aml-rules/

By Sandra Nebritova

Fintechs have been around for a long time now, but in the last three years, they have been the buzz of the financial industry.

Digital wallets, payment gateways, cryptocurrencies – the market has been changing immensely and rapidly.

The key to their success lies in innovation and, of course, convenience – the simpler the processes are for the consumers, the more attractive they are.

Innovation is always appealing, but it should be pointed out that when an industry grows, especially a financial one – it gets noticed by those who are likely to take advantage of it.

Fintechs are vulnerable to money laundering, fraud, and cyber-attacks just as any other traditional financial institution.

The online environment could even raise the risks higher, and some of these risks are unique for this industry.

What are the main challenges that FinTechs are facing?

Fraud

As the business model requires constant online access, it becomes vulnerable to fraudsters and cybercriminals.

Data theft, scams, transfer of confidential information, denial of service, malware – the list goes on.

Since the pandemic started, a huge number of consumers switched to an online life.

Zoom meetings, subscriptions to new apps, online shopping – apart from making it easier to live through the lockdowns-also attracted criminals who keep finding new ways to break into our digital world.

To prevent this, fintech must gear up with sophisticated software, firewalls and security policies and do whatever it takes to protect their consumers from such attacks so that we all feel safe while using their services.

Regulatory Risks

The industry has been developing fast, and at some point, the regulators could not keep abreast.

However, they are picking up the pace. There are new regulations and laws in the pipeline explicitly targeting fintech.

As new products and services emerge, those need to be analysed and risk-scored.

Sometimes, the company itself cannot grasp all the possible risks, so the regulators are trying to step up and set a benchmark.

Fintechs must continuously be up to date with any regulatory changes and ensure that any requirements are implemented into their processes.

The more compliant a business is – the fewer risks there are to run it into the ground, as lawsuits and regulatory fines can ruin any company.

AML Risks

No matter which services fintechs provide, whether it is payment gateways, card issuers, micro-loans – it is still in the financial sector.

These service providers are processing vast amounts of data and money transfers daily.

What made them so successful in the first place? The easy onboarding of clients.

Instead of spending hours filling in applications for banks and similar institutions and then preparing all the necessary documentation for weeks, fintech introduced a seamless process of onboarding the client.

But for this very reason, it might raise more concerns regarding money-laundering. Are the Know Your Customer (KYC) policies sufficient? Are the transactions monitored enough?

While everyone appreciates the fact that we do not need to spend all this time just to get accepted as a client, there still should not be any cutting of the edges.

Fintechs must make sure that their AML policies are effective and capable of spotting things that are not right and keeping any possible crime out of their business.

It is a difficult job, but as these companies are one of the most innovative ones, surely, they can make the most of their resources to tackle the task, understanding the importance of that.

So, is fintech here to stay and make our lives simpler?

It certainly is, if the risks are analysed and managed correctly – there is no reason to go back to the old ways.

This post was originally published on https://www.financialmirror.com/2020/10/23/cysec-embraces-innovation/

Sandra Nebritova is a certified AML specialist

[email protected]

By Sandra Nebritova

This month, the Securities and Exchange Commission (CySEC) published a consultation paper on improving the facilitation of customer due diligence with innovative technologies.

This opens a completely new chapter for the obliged entities.

The regulator is inviting their obliged entities to speak out, assess and introduce instruments that can make them more competitive, save time and make the customer experience by far better than it used to be.

CySEC is willing to allow Companies to use RegTech, to make their internal processes and legal obligations more advanced and rapid.

Moreover, they are giving the chance for the companies to understand and evaluate whether they, actually will be able to use this option and still stay compliant.

What is customer due diligence?

The companies have an obligation to know who their customer is, and they need to be able to prove that.

This normally happens by collecting identification documents such as passport copies, utility bills and so on.

This becomes tricky when you have non-face-to-face clients, as while you might receive the necessary documents, it is very difficult to assert that the person, who is actually using the services is the same as the one for whom the documents have been provided.

Traditionally, such accounts have been classified as high risk due to that reason.

As we work globally, the majority of companies are interested in accepting clients from different jurisdictions.

The fact, that Cyprus is a member of the European Union does automatically mean, that companies based on the island, do not want to limit themselves just to local clientele.

The writer is a certified AML specialist.

This post was originally published on https://www.financialmirror.com/2020/10/23/cysec-embraces-innovation/

Last week, the Swedish Financial Regulator issued yet another fine to SEB Bank – worth 1 billion Swedish Krona (€95.2 mln), one of the biggest fines in the regulator’s history.

The fine is based on the results of investigations into the bank’s operations in the Baltic states –  Latvia, Lithuania, and Estonia.

In December 2019, the bank received a fine of €1.79 mln from the Financial and Capital Market Commission of Latvia and the reasons for the fine were quite similar – deficiencies in the anti-money laundering controls and sanctions violation.

So, what was happening behind the scenes?

The Swedish regulator stated several problems.

One of them, that the bank has insufficient resources for monitoring clients and transactions.

This means that either the systems used by the bank created too many alerts or not enough – due to incorrect risk calculations.

This also might mean that the bank did not have sufficient staff to process all the necessary work.

Another reason mentioned was a large number of their clients were non-residents or residents with non-resident beneficiaries.

Those relationships should have gone through a scrutinised due-diligence process and risk assessment.

Failing to apply all the necessary controls left the operations exposed to money-laundering.

While there is no crime in onboarding non-resident clients, there are particular risks associated with it.

Therefore, such relationships, require more analysis, additional documentation and, of course, time.

Opening an account for a resident might take less than a week, but for non-residents, it may take even longer than a month.

Cyprus found itself in a similar situation not so long ago, when all the banks started reviewing their existing relationships with non-residents and applying additional controls and requirements for such accounts.

It became much harder to open corporate accounts, sometimes, even impossible. This especially affected Russian businesses on the island.

Obviously, excluding such clients, who are quite often high-net-worth, is a loss for banks.

But, surely, it is better than receiving huge regulatory fines and tainting the reputation of the financial institution.

Sandra Nebritova is a Certified AML Specialist

This post was originally published on https://www.financialmirror.com/2020/07/04/sweden-issues-hefty-fine-to-seb-bank-for-aml-breach/

By Sandra Nebritova

Cyprus is one of those countries that actively advertises its real estate market and offers additional perks that can come with the purchase – such as residence permit or even a passport.

Unfortunately, sometimes, this attracts the wrong people.

Or how many times have we heard of arrangements with the developers, paying certain amounts under the table.

All these practices may put the whole sector at risk as there is a chance that the funds used might be of a criminal source.

Looking at recently introduced practices in Germany and their anti-money laundering (AML) framework, and particularly how they are dealing with money laundering threats in the real estate sector, gives an excellent example on how things could be done in Cyprus.

One of the reasons why Germany decided to implement strict rules on buying real estate was the result of the investigations into the Frankfurt real estate market that dominated news headlines for many months.

The investigation clearly showed that bribes, tax evasion and fake invoices were “business as usual” in the world of real estate agents and construction companies.

This prompted the lawmakers to review their legislation and implement changes in their AML framework and their tax law in order to make real estate less attractive for money laundering.

So, what kind of procedures have they implemented?

In Germany, no real estate transaction can take place without a notary, therefore Germany has chosen to put quite a lot of responsibilities regards to prevention of money laundering specifically on notaries.

A special guideline has been issued to notaries on money laundering risks and how to mitigate them, as well as how to submit suspicious transaction reports.

The guideline is written in the best of German traditions – extremely precise, dotting all the i’s and crossing all the t’s.

It should be noted that the system used for submission of such reports, is the same as the one being used in Cyprus.

Notaries are now required to assess the risk, understand the control structure, and identify the ultimate beneficial owner (UBO).

This should be done of all the parties that are entering the agreement (e.g. buyer and seller).

The UBO should always be known and in the event that the notary is having difficulties obtaining that information – no further services can be provided.

In the event that the UBO is a politically exposed person or falls under high risk for other reasons, the notary should also obtain the source of funds, which would in turn, show where the funds are coming from and whether there could be any doubts about their legality.

Should Cyprus follow the same path?

While we do not have a practice of using the services of a notary, perhaps this could be substituted by another body, that would play a similar role.

Surely, this would require a lot of work and law amendments that always seem to take a long time, however, the result would be worth waiting for.

The author is a Certified AML specialist

This post was originally published on https://www.financialmirror.com/2020/06/27/german-lesson-for-cyprus-in-property-transactions/