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According to the head of the Cyprus anti-money-laundering unit, MOKAS, Eva Papakyriacou, Cyprus compares favorably with other Eurozone members in relation to the measures taken to combat money laundering.

The comparative table that was published by the Cyprus Ministry of Finance shows that Germany has a worse record on money-laundering than Cyprus, according to assessments by the Financial Action Task Force (FATF), the global body charged with tackling money-laundering.

Cyprus is totally compliant in 12 areas, whereas Germany is totally compliant in only 5. On the basis of the number of areas in full compliance, Cyprus ranks 7th out of 17, whereas Germany ranks close to the bottom, at 14th, ahead of Greece, Slovakia and financial centre Luxembourg.

According to the table, Cyprus complies with the 49 recommendations of the Financial Action Task Force, unlike some other Eurozone countries such as Finland, Germany, Greece, Ireland, Italy and Luxembourg, which fail to comply with all recommendations.

Cyprus also has the toughest regime in the EU for identification of beneficial ownership, with the obligation to identify ownership kicking in at 10%, instead of the obligation 25% threshold provided for in the 3rd EU anti-money-laundering directive.

In the past few weeks German media and lawmakers have accused Cyprus of being a centre for money-laundering and threatened to veto a bailout for Cyprus, whose banks were severely hit when eurozone leaders agreed to a massive write-down of Greek sovereign debt.

From the 17 EURO countries 12 are member of the FATF and 5 are member of MONEYVAL.

FATF: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain

MONEYVAL: Cyprus, Estonia, Slovak Republic, Slovenia

A comparison of the "Mutual Evaluations" does not reflect the reality of AMF/CFT implementation and enforcement in the 17 EURO countries

The FATF, IMF and FSRBs conduct peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system.

These peer reviews called "mutual evaluations" are based on self-declarations provided by the evaluated countries. Little or no independent review takes place which makes the mutual evaluation process prone to manipulation by the evaluated countries.

The MOKAS table compares the mutual evaluation reports of the 17 Euro countries, which have very different reviewing and reporting dates. Mutual evaluations with different reviewing dates are in general not comparable.

2006 the IMF stated in its report “Review of the Quality and Consistency of Assessment Reports and the Effectiveness of Coordination” a high degree of variability in the quality and consistency of reports prepared by the different assessor bodies as well as within the same assessor group.

“While a large majority of reports were of high- or medium quality with respect to key components of the assessments, the treatment of ratings gave rise to greater problems”.

In 2011 the IMF confirmed in its “Report on the Review of the Effectiveness of the Program” that the difficulties related to the poor quality of the reports prepared by some assessor bodies have risen.

The 2011 IMF report underlined:
  • "Compliance by countries with the standard is low. Of the 161 countries assessed using the current methodology from 2004 to April 2011, full compliance with any principle was rare, occurring in only 12.3 percent of the cases. 11 Countries achieved the second highest score, largely compliant, only 25.5 percent of the time".
The FATF, IMF and FSRBs have yet to move from evaluating whether a jurisdiction has put into place anti-money laundering laws that meet FATF’s standards, to taking action against countries for failure effectively to implement those laws.

The mutual evaluation process has led to a gap between FATF’s professed standards, and their actual implementation at national level in many states.

While this problem has begun to be addressed during 2008 through warnings issued to a few states, much of FATF’s process has remained confidential and most of its activities are carried out by financial regulatory and enforcement officials with minimal public participation (Global Witness Report - 04.03.2009).

All of these limitations could be addressed if FATF chose to address these four principal current weaknesses:
    Increasing the impact of FATF recommendations
    Making FATF’s activities more accountable and accessible to the public
    Strengthening FATF’s capacities to combat the laundering of the proceeds of corruption
    Providing sufficient transparency about ownership of assets
In its June 2012 report “How FATF can measure and promote an effective anti-money laundering system” Global Witness underlined that the current FATF Methodology does say that it is essential that the competent authorities ensure that the whole system is effectively implemented.

"However the current FATF methodology is not focused on the full, effective and consistent implementation of the new FATF Recommendations as suggested by the G-20 Leaders at the Los Cabos Summit. It is rather skewed towards measuring legal frameworks, in minute detail and great length".

Based on our experience dealing with the FATF over the past years, Frank CS GmbH (FCS) strongly supports the Global Witness observations.

The best estimates of criminal proceeds worldwide for the year 2009 are close to US$2.1 trillion of which US$1.6 trillion is laundered according to UNODC. Less than 1 per cent of global illicit financial flows is currently being seized and frozen (Estimating illicit financial flows resulting from drug trafficking and other transnational organized crime). Organized Crime ranks under the 20 largest economies by 2011 nominal GNP.

Implemenation and Enforcement of the EU Money Laundering Directive (AMLD):

The rating table proves that the 17 EURO countries are not implementing and enforcing all of the FATF recommendations. Since the EU Money Laundering Directive is based on the FATF recommendations, all of the 17 EURO countries should violate the AMLD.

The task of monitoring the application of Community law should be carried out by the European Commission as the guardian of the Treaties. Since the European Union is based on law, such monitoring is essential to ensure compliance with and proper application of Community law by and in the Member States.

The FATF compliance rating table clearly demonstrates that the EU commission is not able to enforce EU law as mandated by the Treaty on European Union.

Since 2004 FCS has initiated with the EU Commission the infringement cases 2005/4572 and 2009/4572 against Germany for violating the AMLD.

Under the pressure from the EU infringement cases and the 2010 FATF review, several bills to amend the German Money Laundering Act were passed by the Bundestag since 2011. FCS was nominated as a special advisor to Bundestag Finance Committee. In several papers to the Ministry of Finance and the Bundestag FCS addressed the unresolved deficits.

In the bill “Gesetz zur Optimierung der Geldwäscheprävention” from August 18th 2011 the German government confirmed that the German Laundering Act was not enforced since it was enacted in 1993. For more than 18 years Germany, a founding member of the FATF, was prone to ML/TF operations by Transnational Organized Crime with low risk for the money launderers being detected.

Recent documentary evidence proves that for the Designated Non-Financial Businesses and Professions (DNFBPs) sector no improvement to the 2010 FATF “non-compliant” (N/C) status can be observed - Monitor (9.8.2012), Financial Times Deutschland (6.7.2012) and Handelsblatt (08.11.2011).

On October 29th 2012 the Federal Criminal Police Office (BKA) and the Federal Financial Supervisory Authority (BaFin) confirmed at the joint annual press conference the serious AML/CFT deficits in Germany. BKA President Joerg Ziercke highlighted the DNFBP sector’s rather low level of AML/CFT awareness by presenting the conclusions of the sector study “money laundering in the real estate sector” which the BKA had commissioned at Deloitte.

This means that Germany still does not comply with the FATF Recommendations and violates the EU Money Laundering Directive. The existing deficits were acknowledged to FCS by the competent authorities of the Länder. The Länder have the responsibility for the AML/CFT supervison of Germany's DNFBP sector. Nevertheless the German government confirmed with notifications from 18.01.2011 and 25.03.2011 to the EU Commission that Germany was in full compliance with the EU money laundering directive. Based on this information the Commission closed the infringement case 2009/4572 on September 29th 2011.

After carefully examining all documents submitted by FCS, the Commission has requested the German authorities to explain the deficits by the end of August 2012. Based on the FCS’s complaint and further evidence the case was reopened and is pending.

Eight years after FCS’s intitial complaint with the EU Commission, Germany’s status of compliance with the AMLD and the FATF recommendations is still in limbo.

For more than five years German finance minister Dr. Schäuble bears the responsibility for the implementation and enforcement of the FATF recommendations and the AMLD in Germany. Since five yeas FCS is informing Dr. Schäuble about the deficits in Germany’s AML/CFT regime as was documented in a biography about Dr. Schäuble titled “Zwei Leben”. The biography was published in September 2012 with the consent of Dr. Schäuble.

Before becoming Minister of Finance Wolfgang Schäuble served as Federal Minister of the Interior from 2005 to 2009.

Until January 2011 the implementation and enforcement of the AML/CFT requirement in Germany was under the overall control of the Federal Ministry of Interior. Within the Ministry of Interior the department “Öffentliche Sicherheit” held the overall responsibility for the Germany’s compliance with FATF recommendations and the AMLD.

Before being named president of the German intelligence service (BND), Gerhard Schindler was the head of the department “Öffentliche Sicherheit”. Confronted by FCS in 2009 and 2010 Gerhard Schindler had claimed in several letters that Germany would comply with the AMLD. The letters were made public by FCS in its Feruary 11th 2011 advisory opinion to the Bundestag. The FCS advisory opinion is available on the official Bundestag portal.

Schindler`s insistence that Germany would comply with the AMLD was proven wrong by the EU Commission. On January 27th 2011 the Commission opened the infringement case 2009/4572 against Germany for not complying with AMLD. The infringement case 2009/4572 was initiated by FCS.

The temporal concurrence of the opening of the infringement case 2009/4572 and the transfer of the AML/CFT responsibilities from the Federal Ministry of Interior to the Ministry of Finance in January 2011 has to be seen as a political move to protect the career of Gerhard Schindler who was named BND president in December 2011.

One year later, in December 2012, the BND president Gerhard Schindler presented the BND’s money laundering report on Cyprus to the German parliament.

Germany AML/CFT related reports:

29.10.2012 The BKA released the Sector Study on “Money Laundering in the Real Estate Sector”

21.09.2012 BMWi Evaluation of Gambling Machines in German Gaming Halls

16.08.2012 UNODC Press Release "German CEOs urge lawmakers to step up action against corruption"

02.04.2012 CoE Group of States against Corruption (Greco), Compliance Report on Germany - Third Evaluation Round; ”Incriminations (ETS 173 and 191, GPC 2), Transparency of Party Funding”

17.03.2011 The OECD Working Group on Bribery Phase 3 Report on Germany

27.01.2011 EC Internal Market: Commission acts to enforce anti-money laundering rules in Germany - Infringement Procedure 2009/4572

19.02.2010 FATF: Mutual Evaluation Report Anti-money Laundering and Combating the Financing of Terrorism - Germany.

Cyprus AML/CFT related reports:

30.11.2012 Draft Memorandum of Understanding on Specific Economic Policy Conditionality (MoU) between the Troika and the Cyprus government

28.08.2012 Zypern: Steueroase und Pleiteinsel - Frontal 21

27.09.2011 MONEYVAL mutual evaluation report on the 4th assessment visit in Cyprus

Other related reports:

08.01.2013 OECD Phase 3 Report on Implementing the OECD Anti-Bribery Convention in the Netherlands

08.01.2013 OECD Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Spain

08.01.2013 OECD Phase 3 Report on Implementing the OECD Anti-Bribery Convention in Austria

14.12.2012 IMF Paper “Anti-Money Laundering and Combating the Financing Of Terrorism Inclusion in Surveillance and Financial Stability Assessments - Guidance Note

19.07.2012 Letter of Peter Doyle to Shakour Shaalan, dean of the executive board of the IMF

MOKAS Presentation: Cyprus AML efforts in comparison with other Eurozone member states

Central Bank of Cyprus Presentation: Anti money Laundering measures in the financial sector of Cyprus

International Tax Affairs Division (ITAD) Presentation