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A.
INTRODUCTION

The Cyprus House of Representatives on 18.02.2021 has enacted
the long-awaited amending law to the Prevention and Suppression of
Money laundering and Terrorist Financing Law 188(I)/2007 thus fully
implementing EU Directive 2018/843 of the European Parliament and
of the Council of 30 May 2018, (“the 5th AML
Directive”).

This new enactment, (“the new Law”), implements the
provisions of the 5th AML Directive that were not
already implemented so far into Cyprus Law. With this new Law, the
5th AML Directive is now fully implemented in
Cyprus.

The new Law will come into force once published in the official
gazette of the Republic.

B. EXTENDED SCOPE
OF APPLICATION OF THE ANTI-MONEY LAUNDERING LEGAL FRAMEWORK

The 5th AML Directive as implemented, extends the
scope of application of the Cyprus anti-money laundering legal
framework by significantly expanding its range of application.

The key changes effected by the new Law are the following:

The obliged entities that will need to strictly follow the Anti
– Money Laundering Law provisions, (“the AML Law”),
have been expanded and including in addition, the following:

  • Cryptoasset Service
    Providers

Service providers of cryptoassets dealing with exchanges between
cryptoassets or exchanges between cryptoassets and fiat currencies
or offering wallet custodian and other financial services for
cryptoassets as these are identified in the new Law, have been
included now among the obliged entities who are regulated and are
subject to the AML Law.

With the new Law, the service providers of cryptoassets must get
registered in the registry to be established and maintained by the
Cyprus Securities and Exchange Commission (“CySEC”) under
relevant application to CySEC and provided they meet the criteria
to be set by CySEC. Once registered they will be able to offer
their services in Cyprus or from Cyprus.

Our observations

It is important to note that, this is a positive development
as cryptoasset service providers can offer their services through
Cyprus under an approved and regulated legal regime and authorised
registration on the relevant registry. It is expected that the
regulation of cryptoasset service providers, will boost the
relevant activity in Cyprus through Cyprus entities.

The Law, as enacted, uses a broader notion as to this issue
than the 5th AML Directive. The Directive refers to
“… providers engaged in exchange services between virtual
currencies and fiat currencies and custodian wallet
providers…” while the new Law covers service providers of
cryptoassets in general with additional services included and
regulated as specified in the Law. It is our understanding that the
broader definition under the Law comes to embrace the provisions of
the upcoming EU law on cryptoassets.

  • Art Dealers and Warehouses
    providing storage services for works of art

Art Dealers and Wearhouse providers of storage services for
works of art are now included in the notion of obliged
entities.

This cover:

(i) persons trading or acting as intermediaries in the trade of
works of art if the value of the transaction or a series of linked
transactions is EUR 10.000 or more and

(ii) persons that own or operate warehouses providing storage
services for works of art if the value of the transaction or a
series of linked transactions is EUR 10.000 or more.

These are persons whose principal business or professional
activity is, directly or through other persons related to them, to
provide material aid, assistance or advice in the field of
taxation. The notion of tax advisers has been expanded with the new
Law, as it was already included in the previous law.

To a certain extent, these persons were already subject to the
AML Law as it was in force, but they are now also required to
comply with the AML Law when acting as intermediaries in the rental
of real estate, but only in respect of transactions for which the
monthly rent is EUR 10.000 or more.

  • Persons trading in goods or
    provision of services

Persons trading in goods or provide services are considered as
obliged entities and are subject to the provisions of the Law once
the payment of the transaction is made in cash and is EUR 10.000 or
more.

  1. Beneficial Ownership
    Registers

The following Beneficial Ownership Registers are set up granting
access, under certain conditions, to the public. The EU companies
have the obligation to have available the information as to their
Beneficial Owners and record it accordingly in the relevant
register.

The registers to be set up are:

  • The Companies’ Register kept with
    the Registrar of companies. This register will be open to the
    public and relevant information, as identified in the Law will
    available.

  • The Express Trusts and Similar Legal
    Arrangements Register kept with CySEC. This register will NOT be
    opened to the public but it may be accessible to those of the
    public who can prove their legitimate interest so that the relevant
    information is disclosed to them. Relevant procedure will be laid
    down.

  • The Register of legal bodies, other
    than those registered with the Registrar of Companies, such as,
    clubs, foundations, federations and unions. This register will be
    kept with the General Commissioner. This register will be open to
    the public and relevant information, as identified in the Law, will
    be available.

  1. Creation of the Service
    Providers of Cryptoassets register

A service providers’ of cryptoassets register will be
created. This register will be kept by CySEC and will be open to
the public. A service provider of cryptoassets to be included must
file the relevant application and meet the conditions set down by
CySEC.

  1. Creation of Electronic
    Registry of Bank Accounts, Payment Accounts and Safe
    Boxes

An electronic registry of bank accounts, payment accounts and
safe boxes, will be established and kept by the Central Bank and
relevant information will be stored in the registry as to the
owners and users of bank accounts opened in banking
institutions.

In effect, the identification and verification
of the identity of clients is now also explicitly allowed by means
of an electronic identification process through the registry which
will be established.

In this respect, the Financial Intelligence Units will have
access to more information through centralised banks and payment
account registers or data retrieval systems.

The Financial Intelligence Units from the different EU Member
States will also be able to cooperate more easily, as well as with
other competent authorities.

  1. Electronic Money
    Payments

An obliged entity may not follow due diligence procedures and
identification processes for its clients’ identity verification
in relation to electronic money transactions, such as payments
through cards, provided, the payment instruments are not
reloadable, or can only be used for the execution of payments for
which a maximum monthly limit of EUR 150 applies, and the maximum
amount stored electronically remains below EUR 150. The threshold
was EUR 250 and reduced to EUR 150.

Moreover, the exemption from customer identification and
identity verification no longer applies in the event that the
redemption or cash withdrawal of the monetary value of the
electronic money exceeds EUR 50 or in the case of remote (online)
payment transactions. The threshold was EUR 100 and reduced to EUR
50.

  1. High – Risk Third
    Countries

Enhanced due diligence must be carried out when dealing with or
transacting with high – risk third countries.

The European Commission has adopted a list of third countries
with deficiencies in their anti-money laundering and
counter-terrorism financing frameworks.

Banks and other obliged entities covered by the provisions of
the AML Law are required to increase due diligence on operations
involving these countries to more effectively identify suspicious
activities.

  1. Politically Exposed Persons
    (“PEPs”)

A new provision under the new Law is that, politically exposed
persons must be identified also through particular public
functions. EU Member States are required now to draw up a list of
the exact functions that qualify as prominent public functions and
consequently identifying a person as PEP.

Member States should also require international organisations
located in their jurisdiction to prepare and update such list.
These lists must then be shared with the European Commission, which
will make them publicly available.

  1. Enhanced Cooperation between
    Supervisory Authorities

The new Law further enhances the exchange of information and
cooperation between anti-money laundering supervisors and financial
supervisory authorities including with the European Central
Bank.

C. MOVING TOWARDS
STRICTER RULES AND REGULATIONS

The implementation of the 5th AML Directive
constitutes an important change to anti-money laundering framework,
as it significantly expands the scope of the application of the AML
Law.

The introduction of new persons as obliged entities, the
registries for Beneficial Owners open to the public and the other
new provisions as to PEPs, electronic money payments, registry of
bank accounts, create an environment fully regulated and controlled
to identify in an easier way illegal transaction.

Various new entities now fall within the scope of the
application of the AML Law and will have to comply with various
customer due diligence and continued monitoring requirements.

A gate is now opened for Service providers on cryptoassets,
offering extended line of services such as the virtual currency
exchanges, custodian wallet services, financial services on
cryptoassets, to be regulated and get registered with CySEC and be
able to offer in an approved way their services.

Although Cyprus has enacted the implementation of the
5th AML Directive, various supplementary directives and
regulations are yet to be adopted by various bodies, to further
clarify the extended scope of its application and to further enable
the application of the provisions of the new Law.

Originally Published by Kinanis LLC, February 2021

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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