ML is the process of concealing or disguising the existence, source, movement or destination of illicitly derived property or funds to make them appear legitimate. ML typically includes:
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Converting or transferring property, knowing or having reasonable grounds to believe that such property is derived from criminal activity, for the purpose of concealing or disguising its illicit origin;
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Concealing or disguising the true nature, source, location, disposition, movement or ownership of property, knowing or having reasonable grounds to believe that it is derived from criminal activity;
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Acquiring, possessing or using of property, knowing or having reasonable grounds to believe that it is derived from criminal activity;
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Participating in, collaborating or conspiring to commit, aiding and abetting, facilitating or counselling the commission of any of the aforementioned acts;
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Providing information on inquiries made for ML purposes of a predicate offence, in order to enable a person who has benefited from the commission of an offence to maintain income or control the income received from the commission of the offence.
The ML process usually comprises three stages: 1) Placement, 2) Layering and 3) Integration.
During the Placement Phase, “dirty” money or other assets derived from illegal activity are being disposed into the financial system. Common placement techniques include depositing of cash below the reporting threshold (“structuring”), making multiple deposits into multiple accounts across various financial institutions (“smurfing”), repaying of loans by using laundered cash, purchasing foreign exchange with illicit funds or investing in real estate with a reported purchase price below the actual value of the property and then paying the difference “under the table”.
The Layering Phase involves distancing the illicit proceeds from their source by creating complex layers of financial transactions with the aim to disguise the audit trail and make it difficult for the authorities to link the placed funds with the ultimate beneficiary of the money. Techniques used during this stage include wire transfers of funds across multiple accounts and jurisdictions, converting deposited cash into monetary instruments, buying and selling foreign currencies and establishing complex shell companies to circulate large amounts between companies and jurisdictions.
The final stage of the ML process is the phase of placing laundered funds back into the economy as apparently legitimate funds or investments. This may involve investing in real estate, purchasing luxury goods, investing in legitimate cash intensive businesses and getting into financial arrangements or joint ventures. Once funds are successfully integrated, distinguishing between legal and illegal funds becomes increasingly difficult.
To combat ML and secure the integrity of the financial system, the EU has adopted a series of Anti-Money Laundering Directives (AMLDs) and enforces both criminal and administrative sanctions against money launderers. Furthermore, the Financial Action Task Force (FATF) — an intergovernmental body — has developed recommendations that constitute the international standards for countering ML and related threats to the international financial system.
The EU’s Anti-Money Laundering (AML) framework is continuously evolving in order to address emerging risks and vulnerabilities in the financial system. The recent adoption of the 6th AML Directive (6AMLD), as well as the establishment of the Authority for Anti-Money Laundering (AMLA) represent significant advancements in the area.
The 6AMLD aims to harmonise AML requirements across the EU and ensure a consistent and uniform application of AML rules, directly applicable to all obliged entities within the EU, thus enhancing transparency, cross-border cooperation and helps to prevent the misuse of the financial system for ML purposes.
The creation of AMLA, a decentralised EU agency, also marks a significant development in the EU’s efforts to combat ML. The main mission of AMLA is to coordinate national authorities, ensure the correct and consistent application of EU regulations and supervise high-risk financial institutions. This mitigates the risk of regulatory arbitrage and reflects the EU’s strategic shift towards a more centralised, risk-based AML regime, reinforcing the legal framework within which Cyprus and other Member States must operate.
As an EU Member State, Cyprus has fully transposed the AMLDs into its national legislation through the Prevention and Suppression of Money Laundering and Terrorist Financing Law of 2007 (Law 188(I)/2007) (the “AML Law”). This law aligns with the AMLDs and FATF Recommendations, reflecting Cyprus’s commitment to combating ML at both European and international levels.
The AML Law imposes strict compliance obligations on obliged entities – including financial institutions, lawyers, accountants and real estate agents, such as:
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Conducting Customer Due Diligence (CDD) and implementing Know Your Customer (KYC) procedures, including ongoing transaction monitoring and maintaining up-to-date client information;
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Identifying Politically Exposed Persons (PEPs) and applying Enhanced Due Diligence (EDD) measures;
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Establishing risk-based internal policies and controls and conducting risk assessments according to the level of ML risk posed by different clients, products or geographic location;
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Providing ongoing training to employees to detect and prevent ML;
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Submitting Suspicious Transactions Reports (STRs) to the Cyprus Financial Intelligence Unit (MOKAS), when there is knowledge, suspicion or reasonable grounds to suspect that there is ML activity.
MOKAS plays a vital role in Cyprus’s AML regime by collecting, analysing and investigating financial data to detect potential ML activities and referring relevant cases to law enforcement and regulatory bodies. It functions as Cyprus’s national AML hub and cooperates with both domestic and international authorities to disrupt ML schemes.
In compliance with EU requirements, Cyprus has also established a central register of beneficial ownership for legal entities, listing the individuals who ultimately own or control a company. This enhances transparency and assists in identifying the natural persons behind corporate structures, thus preventing the misuse of companies for illicit purposes.
Regarding the penalties for committing an ML offence, Cypriot Courts can impose severe and heavy sanctions. Under the AML Law:
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A person who knowingly commits an ML offence may face up to 14 years of imprisonment or a fine of up to €500,000, or both penalties.
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A person who ought to have known that an ML offence is being committed may face up to 5 years of imprisonment or a fine of up to €50,000, or both penalties.
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Legal persons can also be held criminally liable for ML if the offence was committed on their behalf by an individual holding a leading or controlling position.
In accordance with the same Law, any person who knows or reasonably suspects that another person is engaged in ML and the information on which that knowledge or reasonable suspicion is based comes to his attention in the course of his trade, profession, business or employment, commits an offence if he does not disclose such information to MOKAS. This offence is punishable by imprisonment for up to two years or by a pecuniary penalty for up to €5,000, or by both these penalties.
Conclusion:
ML undermines financial integrity and international security. Cyprus, in alignment with EU and international standards, has established a comprehensive legal and institutional framework to prevent and combat ML and to ensure compliance with EU restrictive measures and sanctions. The criminalisation of ML, combined with preventive measures and enforcement mechanisms, reflects the EU’s zero-tolerance stance on financial crime. For professionals and entities operating in Cyprus and across the EU, compliance is not merely a legal obligation, but a strategic imperative, facilitating effective cross-border cooperation between competent authorities and EU Member States to prevent ML activity.
The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact Rafaela Vasileiadou, Associate at the Athens Office, via email rafaela.vasileiadou@kyprianou.com or telephone +30 210 3387060.