The Central Bank of Cyprus (CBC) is cracking down on shell companies in a bid to boost its anti-money laundering and combating the financing of terrorism efforts. According to World.Tax, the CBC is issuing a new set of definitions on what constitutes a shell company under its Directive for the Prevention of Money Laundering and Terrorist Financing. These changes will make it harder for unregulated brokers to set up fake offices and bank accounts in the small island nation.
The CBC’s decision appears in part due to pressure from the United States. Last month, a counterterrorism treasury official, Marshall Billingslea, visited the island to see how the two countries can improve anti-money laundering efforts.
The US has also listed as Cyprus as a ‘country of primary concern’ with regard to money laundering across the world. A 2015 report by the US State Department noted that Cyprus was used primarily as an intermediary by criminals seeking to launder money.
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If the CBC’s efforts continue, the US may be less concerned by the Cypriot financial industry in the future. The central bank’s new rules will mean that companies with no physical presence in Cyprus or who engage in no economic activity will struggle to do business in the country.
Firms that are registered in jurisdictions where they do not have to submit independently audited accounts to authorities are also going to be cracked down on. Finally, companies based in tax havens, or who have no tax residence, will also be included in the CBC’s new definition of a shell company.
This could make life difficult for unregulated brokers operating outside of the country. Firms frequently base themselves in tax havens, such as the Marshall Islands, and open shell companies in Europe to clear their funds there.
Cyprus is not the only country where such activity takes place, but it is a major base of operations for the retail brokerage industry. The CBC’s new laws are unlikely to change this, but they are certain to ruffle some feathers in the more underhand areas of the industry.