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  1. 1. CYPRUS - Basic Concepts of Company’s Law and Tax Legislation
  2. 2. The Limited Liability Company <ul><li>Liability of the shareholders in relation to debts incurred by the company is limited. </li></ul><ul><li>No exact definition in Companies Law, CAP113. In O’Neill v. Phillipps [1992]: “A company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality”. </li></ul>
  3. 3. Methods of Limitation of Liability <ul><li>Limited by shares – “A company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them”. </li></ul><ul><li>Limited by guarantee – “A company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up” </li></ul>
  4. 4. Types of Companies <ul><li>Public Companies </li></ul><ul><li>Private Companies </li></ul><ul><li>Other forms </li></ul>
  5. 5. Public Companies <ul><li>“ Any seven or more persons, or, where the company to be formed will be a private company, any one or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Law in respect of registration, form an incorporated company, with limited liability” </li></ul>
  6. 6. Private Companies <ul><li>“ For the purposes of this Law, the expression “private company” means a company which by its articles: </li></ul><ul><li>i. restricts the right to transfer its shares; and </li></ul><ul><li>ii. limits the number of its members to fifty, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be, members of the company; and </li></ul><ul><li>iii. prohibits any invitation to the public to subscribe for any shares or debentures of the company </li></ul><ul><li>Provided that it shall be possible for a single person to hold the shares of a private company, either from the time of the company’s formation or where such single person comes to hold the shares thereafter”. </li></ul>
  7. 7. Other similar entities <ul><li>Partnerships </li></ul><ul><li>Foundations </li></ul><ul><li>Societies </li></ul><ul><li>Clubs </li></ul><ul><li>Public corporations (CYTA, EAC) </li></ul>
  8. 8. Parent / Subsidiary Companies <ul><li>Section 148 of the Law : One company is deemed to be the subsidiary of the other if the following conditions are met: </li></ul><ul><li>The other company is its member and controls the composition of the Board of Directors of the company; or </li></ul><ul><li>The other company holds more than 50% of the shares in nominal value of the company; or </li></ul><ul><li>The company is a subsidiary of a third company which is a subsidiary of the said company. </li></ul>
  9. 9. Parent / Subsidiary Companies <ul><li>A company is considered that it controls the board of directors if: </li></ul><ul><li>A person cannot be appointed as director without the consent of the other company; or </li></ul><ul><li>The appointment of one person in the Board of Directors is based on his/her appointment at the board to the controlling company; or </li></ul><ul><li>If the position of the director is held by the other company itself or by one of tis subsidiaries </li></ul>
  10. 10. Single Member Companies <ul><li>Sections 170 and 171 of the Law. </li></ul><ul><li>A private company may have one shareholder, one director and one secretary. </li></ul><ul><li>When the company has only one member, then the director and secretary can be the same person. </li></ul>
  11. 11. SE – Societas Europeas <ul><li>The European Public Limited Company </li></ul><ul><li>Established formally in 2001, but with historical traces back to 1948 </li></ul><ul><li>SE’s are Public Companies </li></ul><ul><li>There must be a European (EU) element </li></ul><ul><li>Countries also cover Norway, Iceland and Liechtenstein. </li></ul>
  12. 12. Formation of the S.E. <ul><li>The four ways to form an S.E.: </li></ul><ul><li>1. Merger of two pre-existing public companies from different member states </li></ul><ul><li>2. Incorporation of a holding joint venture company S.E. by two members </li></ul><ul><li>3. Setup of a subsidiary S.E. </li></ul><ul><li>4. Conversion of a current Public Limited Company to S.E. </li></ul>
  13. 13. S.E. facts <ul><li>Minimum capital €120.000 </li></ul><ul><li>Two possible management structures: </li></ul><ul><li>A. One – Tier System: Much like the system of Cyprus companies </li></ul><ul><li>B. Two – Tier System: General Meeting, Board of Directors (Administrative Organ) plus a Supervisory Organ (similar to Hungary) </li></ul>
  14. 14. Involvement of the Employees <ul><li>Necessary requirement </li></ul><ul><li>Provision of information to the employees </li></ul><ul><li>Consultation with employees </li></ul><ul><li>Participation of the employees </li></ul><ul><li>All these are effected through their representatives </li></ul>
  15. 15. Transfer of the registered office of the S.E. <ul><li>The Companies Registrar must be satisfied that matters relating to creditors, state authorities and other affected parties have been sufficiently addressed. </li></ul><ul><li>Initial application is made to the Companies Registrar, with translated M&A plus a certificate from the source country that formalities in that jurisdiction have been completed. </li></ul>
  16. 16. Advantages of the S.E. <ul><li>European Brand (eg. Kyprianou & Co. S.E.) </li></ul><ul><li>Possible reduction of administrative costs and legal costs </li></ul><ul><li>Possible operation in the EU under a common regulatory framework </li></ul><ul><li>Unified management system </li></ul><ul><li>Seat transfer is possible without the need to liquidate the company </li></ul><ul><li>It may lead to a simple corporate structure </li></ul>
  17. 17. Disadvantages of the S.E. <ul><li>Wide discretion still lies with the Member States </li></ul><ul><li>Employee participation can be a very lengthy and even costly process </li></ul><ul><li>No Tax harmonisation to the operation of the S.E. This can lead to increased tax exposure </li></ul>
  18. 18. Services offered to Companies in Cyprus <ul><li>Incorporation and Management </li></ul><ul><li>Registered Office </li></ul><ul><li>File maintenance – Requirements </li></ul><ul><li>Everyday problems that service providers face </li></ul>
  19. 19. Incorporation <ul><li>Cyprus as a jurisdiction displays a steady growth in relation to incorporation of new companies. </li></ul><ul><li>2003 – 9.080 new companies </li></ul><ul><li>2006 - 20.280 new companies </li></ul><ul><li>2007 - 29.016 new companies </li></ul><ul><li>2008 - 24.453 new companies. </li></ul>
  20. 20. Documents that need to be maintained in the Company’s file <ul><li>Due Diligence Documents - KYC </li></ul><ul><li>Corporate Certificates </li></ul><ul><li>Trust Deed and Management Agreement </li></ul><ul><li>Certified copies of the Memorandum & Articles of the company (Greek & English) </li></ul><ul><li>Copies of forms which have been sent to the Registrar </li></ul><ul><li>Audited Accounts, Annual Returns and Banking Documents </li></ul><ul><li>Correspondence relating to the company and the provision of services. </li></ul><ul><li>Power of Attorney documents </li></ul><ul><li>Minutes / Resolutions of the company </li></ul><ul><li>Annual General Meeting documents </li></ul>
  21. 21. The Company Secretary <ul><li>Required by Law </li></ul><ul><li>Duties and Responsibilities </li></ul><ul><li>Routine actions </li></ul><ul><li>Ad hoc actions </li></ul>
  22. 22. Secretary – Everyday Duties <ul><li>Maintenance of the company’s file </li></ul><ul><li>Accept service of documents </li></ul><ul><li>Ensure legal compliance – Annual Returns etc </li></ul><ul><li>Maintain registry of members </li></ul><ul><li>Ensure correspondence is conveyed to the client </li></ul>
  23. 23. The Director – Duties <ul><li>Director duties go to two directions: </li></ul><ul><li>A. to the Company (the Client) </li></ul><ul><li>B. to the authorities </li></ul><ul><li>Established in Common Law and in Companies Law CAP 113 </li></ul>
  24. 24. Director’s Duties to the Company <ul><li>Duty of skill </li></ul><ul><li>Duty of diligence </li></ul><ul><li>Duty of care </li></ul><ul><li>Duty of acting in good faith </li></ul><ul><li>Avoidance and management of conflicts of interest of Directors </li></ul>
  25. 25. Ad hoc duties of the Directors <ul><li>Directors must undertake these actions required to execute the instructions of the client. </li></ul><ul><li>Commonly, sign resolutions in order for the company to perform a task. </li></ul><ul><li>Often, issuance of a power of attorney </li></ul>
  26. 26. Cyprus regime in brief <ul><li>Tax differences , globalisation and the fact that assets are becoming more and more mobile and responsive to changes. </li></ul><ul><li>Barriers to capital movements disappearing, free movement of capital goods </li></ul><ul><li>Taking all the above into consideration there is a worldwide trend towards lower taxes </li></ul><ul><li>As a result we have become an ideal international business center for investment between the EU and the rapidly developing economies of Central and Eastern Europe and now increasingly India and China </li></ul>
  27. 27. Cyprus regime in brief <ul><li>Attractive taxation system and excellent infrastructure </li></ul><ul><li>We used to be regarded as a tax heaven mainly due to the old offshore regime </li></ul><ul><li>During the last 10 years- undergone substantial changes in respect to our taxation system , Anti-money laundering regulation and compliance with OECD standards- RESULT: NO longer in the OECD blacklist </li></ul>
  28. 28. Cyprus regime in brief <ul><li>Fundamental Changes were introduced with the enactment of Income tax law 118(I)/2002 and the Special Contribution for Defence Tax Law 117(I)2002 </li></ul><ul><li>Both laws came into force in January 2003 </li></ul><ul><li>Change in the tax system was deemed necessary for the harmonization of Tax laws of Cyprus with EU Law </li></ul><ul><li>We have developed into a ‘hub’ and are now a popular platform from where investors and multinationals companies hold and manage their cross boarder investments </li></ul>
  29. 29. CYPRUS HOLDING COMPANIES MAIN FEATURES <ul><li>DEFINITION: </li></ul><ul><li>There is no definition of a holding company in Cyprus, hence there are no restrictions as to its activities. However a holding company is a legal entity which is primarily set up for the purpose of holding shares in another companies known as subsidiaries. </li></ul><ul><li>TAXATION: </li></ul><ul><li>EU Parent Subsidiary Directive: </li></ul><ul><li>EU passed 90/435/EC directive which is known as the parent subsidiary Directive and which has been implemented in Cyprus by the Special Contribution for defense Tax 223 (i) 2002 (SCDT). </li></ul><ul><li>Most importantly the directive stipulates that under certain circumstances EU Member States could offer withholding tax exemption for dividend distributions for subsidiaries resident in Member States to holding companies also resident in member states with at least 10% since a shareholding in the subsidiary </li></ul>
  30. 30. CYPRUS HOLDING COMPANIES MAIN FEATURES <ul><li>Dividends received by a Cyprus Holding Company form a foreign (Non-EU) subsidiary are however subject to a defense Tax of 15%. The tax is totally waived if dividends are received form a foreign company in which the Cyprus Holdings owns more than 1% unless: </li></ul><ul><ul><li>Directly or indirectly more than 50% of the activities of the paying company/P.E. result in investment income AND </li></ul></ul><ul><ul><li>The paying company is subject to tax at a rate substantially lower than the Cypriot rate. </li></ul></ul><ul><li>Please note the word ‘and’ included in the provisions above was specifically added so that both provisions must be present for the exception not to apply </li></ul>
  31. 31. SDC on INTEREST RECEIVED <ul><li>e) Interest received in Cyprus </li></ul><ul><li>Where a Cyprus company receives interest, only 50% of such interest is taxed at a rate of 10%. What is more important is that the whole interest income will be further subject to a SCDT tax at a 10% rate and therefore, interest income is totally taxed at a rate of 15%. </li></ul><ul><li>SCDT tax will not apply, when interest income is earned “in the ordinary course of the business” by a Cypriot company or is “closely connected to the ordinary carrying on of the activities” of such a company. </li></ul><ul><li>The law does not define what “ordinary carrying on of its business” is and some controversy on this exists. The authorities have attempted to clarify the matter have issued a circular by which the ordinary carrying on of a business was deemed to include banking activities, companies of which the primary object is the provision of loans, financing business and finance leasing whereas closely connected with the ordinary carrying on of the business would include interest from trade debtors, interest income of insurance companies, interest income on current accounts and interest income of companies acting as SPVs for financing operations of the group. </li></ul><ul><li>Despite the circular, since a circular though is not a legally binding document there is still room for discussion. </li></ul>
  32. 32. So why Cyprus should be a part of a structure: <ul><li>The lowest corporate tax in Europe with no Credit rules like other EU jurisdictions and this is applicable to all companies </li></ul><ul><li>No withholding Taxes on dividends payments, interest and Royalties irrespective of the recipient and the existence of a double Tax treaty </li></ul><ul><li>Dividend income (participation exemption is subject to non stringent conditions) </li></ul><ul><li>No taxation of profits from the sale of securities </li></ul><ul><li>No taxation on profits of Permanent establishments </li></ul><ul><li>No taxation on the liquidation of a Cypriot company </li></ul><ul><li>No thin capitalisation rules </li></ul><ul><li>We are now a non tax heaven jurisdiction </li></ul><ul><li>Full access to EU law </li></ul><ul><li>Access to wide and beneficial double Tax treaty network </li></ul><ul><li>No capital gains tax (except from assets situated in Cyprus) </li></ul><ul><li>Foreign beneficiaries are not liable to pay additional tax on dividends or profit over and above the amount paid by the legal entities </li></ul>
  33. 33. So why Cyprus should be a part of a structure: <ul><li>Unilateral tax relief for foreign Tax suffered is granted to all Cy companies </li></ul><ul><li>Mergers, takeovers and other reorganizations can take place within groups without Tax consequences </li></ul><ul><li>New tax Law incorporated the provisions of the EU Merger Directive to cover domestic and trans-border re-organizations covers Mergers, Divisions, transfer of Business and exchange of Shares </li></ul><ul><li>Tax losses can be carried forward indefinitely and can be suffered as a group relief </li></ul><ul><li>EU VAT number in Cyprus </li></ul><ul><li>No CFC regulation –can exempt from Hu tax laws </li></ul><ul><li>Low operating costs and capital requirements </li></ul>
  34. 34. So why Cyprus should be a part of a structure: <ul><li>The government very prudently also removed potential ‘problems’ of the Cyprus Holding regime </li></ul><ul><li>1) the income Tax law has been amended to expressly provide for the availability of Cyprus Tax credits in the hands of a Cyprus Holding company for EU Member State tax suffered by an indirect subsidiary operating at a tier lower than the direct EU subsidiary of the Holding company </li></ul><ul><li>2) The maximum amount of stamp duty in large transactions has been capped at 17100 euros, which will significantly reduce the amount of stamp duty payable on transactions with a value in excess of 8.550.000 Euros and further enhance Cyprus’s effectiveness as a financial centre particularly for bond issues </li></ul>
  35. 35. Shelf companies are available! <ul><li>Shelf companies also called ‘ Dormant , inactive companies, ready made companies that were incorporated in previous years but they were never active </li></ul><ul><li>These companies never traded or carried any business transactions </li></ul><ul><li>The company was created and left without activity, metaphorically’ put on the Shelf to age’ </li></ul><ul><li>The company can then be sold to a person or a group of persons who wish to start a company without going through all the procedures of creating a new one </li></ul><ul><li>Reasons: </li></ul><ul><ul><li>Save time involved in taking the steps to create a new corporation </li></ul></ul><ul><ul><li>Opportunity to bid on contracts .Some jurisdictions require that a company be in a business for a certain length of time to have this ability </li></ul></ul><ul><ul><li>To create an appearance of corporate longevity which may boost investor confidence </li></ul></ul><ul><ul><li>Gain access to investment capital </li></ul></ul><ul><ul><li>Easier access to corporate credit </li></ul></ul><ul><ul><li>Business and banking relationships are more easily established with an older registered company rather than a newly formed brand new company </li></ul></ul><ul><ul><li>Government agencies and suppliers often require a company to have been in business for a reasonable period of time and the age of the company is very often a major factor in establishing these relationships </li></ul></ul><ul><ul><li>A shelf company gives an establish history that can improve and enhance your corporate image </li></ul></ul>
  36. 36. Shelf companies are Available! <ul><li>However please note the due diligence the banks or any other investors will perform prior of investing into the company: </li></ul><ul><li>The potential problem: </li></ul><ul><li>“ the beneficial owner acquiring the company through nominees, bearing in mind that you only have to file accounts 18 months after incorporation asks you to perform backdated transactions and contracts ? Potential risks?” </li></ul>
  37. 37. THE USE OF A CYPRUS HOLDING COMPANY FOR TAX PURPOSES –SCENARIO 1 Non resident Shareholder Cyprus Holding 0% tax jurisdiction company No SCDT taxes on dividends paid to non residents The dividends paid will not be subject to taxation under Income tax law or under SCDT although the tax burden is significantly lower, the income the subsidiary company derives from activities do not lead to more than 50% trading income
  38. 38. THE USE OF A CYPRUS HOLDING COMPANY FOR TAX PURPOSES SCENARIO 2 <ul><li>dividends paid with nil percent </li></ul><ul><li>withholding tax </li></ul>Shareholder Shareholder Cyprus Holding Russian Business No tax on dividend income Dividends paid with 5%witholding tax
  39. 39. <ul><li>Comments on Scenario 2 </li></ul><ul><li>If the investment (shares) in the Russian entity is sold there is no tax on the profit realised </li></ul><ul><li>Unlike other holding company regimes CY has no minimum holding requirements </li></ul><ul><li>There is no cfc rules or restrictions </li></ul>
  40. 40. Holding investments in other European countries SCENARIO 3 Foreign Shareholder Cyprus Company UK Manufacturing company Dividend paid with 0% withholding Tax Dividend paid with 0% withholding Tax
  41. 41. Holding investments in other European countries <ul><li>Comments on Scenario 3 </li></ul><ul><li>No tax in Cyprus on dividends remitted in Cyprus </li></ul><ul><li>No tax on profit realised on the sale of the UK company </li></ul>
  42. 42. ROYALTY STRUCTURE: <ul><li>Ideal is when the client has a new IP right when there is a little difference between the fiscal book and the real value and this can in effect transferred to an off shore company at little value </li></ul><ul><li>Once they are transferred then they are licensed to onshore i.e. Cyprus </li></ul>
  43. 43. ROYALTY STRUCTURE: <ul><li>An EU company software company is developing software for which it intends to register the patent rights. The company registers the patent not under its own name but under the name of a 100% owned off shore company. The offshore company, registered in for example in the Seychelles and then enters into a license agreement with a Cypriot company for the offshore company’s European patent rights </li></ul>
  44. 44. ROYALTY STRUCTURE: <ul><li>The Cyprus company now has the exclusive right to exploit those rights within Europe. As a result it enters into contracts with European customers </li></ul><ul><li>Contract one: with the same Austrian Company for the right to subscribe to the software </li></ul><ul><li>Contract 2: with a Greek company for the right to subscribe to the software for which the CY company holds the right </li></ul><ul><li>Contract 3 : with an Italian software company for the same rights </li></ul>
  45. 45. ROYALTY STRUCTURE: Trademark. Patent Offshore company Cyprus company Italian Company Greek Company Legal ownership Beneficial ownership License Any other EU or DDT Country SUBLEASING
  46. 46. ROYALTY STRUCTURE: Tax implications <ul><li>The Cypriot company retains a 10% license fee and pays tax on this income but it will be able to pass 90% to the offshore company where no further tax is paid </li></ul><ul><li>If the Austrian company had entered into the contract itself it could suffer up to 34% tax on income </li></ul><ul><li>Also the Austrian company will pay for the right to utilise the patent and thus this will Tax deductible as an expense </li></ul><ul><li>Moreover if there is a sale the will be tax on gains , however the offshore can sell the rights and the capital gain will be nil </li></ul>
  47. 47. Holding property real estate companies SCENARIO 5 Foreign Shareholder Cyprus Holding Company Russian Property Holding Company Dividends paid With zero withholding Tax Dividends paid with 5% Withholding tax Income from property Taxed in Russia No tax on dividend income
  48. 48. Holding property real estate companies <ul><li>The holding company does not pay tax on the dividends it receives because the underlying income is taxed in Russia </li></ul><ul><li>If the property is held directly by the Cyprus holding company and receives rent through a branch in Russia then there is no dividend withholding tax in Russia and the only tax is the Russian tax on property income </li></ul><ul><li>Examples of Cy company holding Romanian and Bulgarian Property </li></ul>
  49. 49. Cyprus Holding company receiving interest form its Group <ul><li>A Cyprus holding company may receive interest income from loans it extends to group companies as part of a general group financing. At the same time, the Cy holding may borrow funds for its group financing purposes. </li></ul><ul><li>No defence tax is payable on interest receivable as it is In the ordinary activities of the companies to finance group </li></ul><ul><li>Corporation tax is applicable at 10% nevertheless , the effective tax is significantly less than the 10% as long as the Cyprus holding company borrows funds at interest payable is set off against interest receivable </li></ul>
  50. 50. The NOMINEE concept <ul><li>What is it? Who can be a nominee? </li></ul><ul><li>Relationship between nominees and beneficiaries </li></ul><ul><li>How did this development occur? Is it unique to Cyprus? Compare and contrast with other jurisdictions. </li></ul>
  51. 51. MANAGEMENT AND CONTROL <ul><li>According to income tax law resident in the republic is a company who's management and control is exercised in the republic </li></ul><ul><li>There is no definition of management and control in the law , it is suggested that management and control is present in those cases where the majority of the members of the board of directors are tax residents of Cyprus, moreover the registered office should be situated in Cyprus and the secretary should also be a Cyprus resident. </li></ul>
  52. 52. MANAGEMENT AND CONTROL <ul><li>The important decisions of the company should be taken in Cyprus. </li></ul><ul><li>Hence the nominee director concept. </li></ul><ul><li>POA if very general-can potentially create problems </li></ul><ul><li>Holding companies VS Trading companies </li></ul>
  53. 53. The NOMINEE concept <ul><li>A Nominee is basically a person or legal entity who/which appears in the public authorities’ register as the owner of the property without actually having ownership of the property vested in him/it. The purpose for creating a Nominee-Beneficiary relationship lie mainly on the fact of securing confidentiality of the Beneficiary. </li></ul>
  54. 54. The Trust Deed <ul><li>What is it? </li></ul><ul><li>Why is it necessary? </li></ul><ul><li>What are the necessary formalities? </li></ul><ul><li>What is the effect of the Trust Deed on the management of the Company? </li></ul>
  55. 55. The Trust Deed <ul><li>The instrument of trust, the so-called trust deed, is the means by which the nominee – beneficiary relationship is primarily regulated; the Nominee’s professional license is another threshold of regulating the relationship. The trust deed ultimately, is a declaration whereby the Nominee declares that it holds shares (or other property/assets etc.) in trust for the beneficiary and the Nominee can only act upon the instructions of the Beneficiary </li></ul>
  56. 56. Risks, dangers and liabilities associated with the provision of these services <ul><li>Compliance with the Anti-Money laundering legislation </li></ul><ul><li>Need for due diligence </li></ul><ul><li>Criminal liability - Anti-Money Laundering / Fraud </li></ul><ul><li>Civil liability – Tort / Negligence / Fraud </li></ul>
  57. 57. Risks, dangers and liabilities associated with the provision of these services <ul><li>Directors Liability </li></ul><ul><li>The Directors are in a fiduciary position with the company which means that amongst others, they have duties of loyalty, compliance, fairness and independence. A breach of these duties by a director will in effect give rise to the director’s personal liability for damages. </li></ul><ul><li>The law further imposes duties on directors of companies and breach of any statutory duty may lead to:- </li></ul><ul><li>criminal liability (violation of Companies Law up to 2 years imprisonment); </li></ul><ul><li>prosecution for aiding and abetting the company in committing of criminal offence; </li></ul><ul><li>criminal and personal liability both to the directors and the general manager if VAT is not paid or VAT declarations are not filed </li></ul>
  58. 58. <ul><li>Main purpose of the Law: </li></ul><ul><li>Section 3: </li></ul><ul><li>– The law has effect in relation to which are listed and they are referred to as prescribed offences </li></ul><ul><ul><li>Laundering offences </li></ul></ul><ul><ul><li>Predicate offences </li></ul></ul><ul><li>Section 4: </li></ul><ul><ul><li>Under the law , every Person who knows or ought to have Known that any kind of property proceeds form a predicate offence is guilty of an offence if he carries any of the following: </li></ul></ul>THE LAW - PREVENTION AND SUPPRESSION OF MONEY LAUNDERING ACTIVITIES 2007
  59. 59. SECTION 4 <ul><li>Iii) acquires, possesses or uses such property </li></ul><ul><li>iv) participates in , associates or conspires to commit or attempts to commit and aids and abets and provides counselling or advice for the commission of any of the offences referred to above </li></ul><ul><li>v) provides information with respect to investigations that are being performed for laundering offences for the purpose of enabling the person who acquired a benefit form the commission of a predicate offence to retain the proceeds or the control of the proceeds form the commission of the said offence </li></ul>
  60. 60. SECTION 4 <ul><li>Commitment of the above offences is punishable on conviction by a maximum of 14 years imprisonment or a fine or both of these penalties </li></ul><ul><li>In case of a person who knows that the property is proceeds from a predicate offence , or by a maximum of 5 years imprisonment or a fine or both of these penalties , in a case of a person who ought to have known </li></ul>
  61. 61. <ul><li>PREDICATED OFFENCES </li></ul><ul><ul><li>All criminal offences punishable with imprisonment exceeding one year as a result of which proceeds have been derived which may constitute the subject of a money laundering offence as defined above; </li></ul></ul><ul><ul><li>Financing of terrorism offences as these are specified in Article 4 of the financing of terrorism (ratification and other provisions) Laws of 2001 and 2005 as well as the collection of funds for the financing of persons or organizations associated with terrorism; </li></ul></ul><ul><ul><li>Drug trafficking offences as specified in the law (Section 2) </li></ul></ul>TERMS AND DEFINITIONS
  62. 62. TERMS AND DEFINITIONS (CONT’D) <ul><li>Predicate offence – it includes any conduct wherever it takes place , which would constitute an indictable offence if committed in Cyprus. In general such offences are those which are serious enough to be tried in court </li></ul><ul><li>There will be criminal conduct, which can give rise to money laundering offences in Cyprus even if the conduct was not criminal in the country where it actually occurred </li></ul>
  63. 63. TERMS AND DEFINITIONS (CONT.) <ul><li>The law does not impose a duty on firms to look into criminal law of any other country in which the criminal conduct may have occurred. </li></ul><ul><li>The basis for determining whether the assets derive from criminal conduct is that the activity from which the assets are generated would be an indictable offence if it occurred in Cyprus </li></ul><ul><li>Firms would not be expected to know the exact nature of the Criminal activity concerned , or tha particular assets are definitely those arising from Crime </li></ul>
  64. 64. KNOWLEDGE <ul><li>This term is not strictly defined in the Law and there is no case law to support what constitutes knowledge. </li></ul><ul><li>However reading the law one can infer the following that potentially can be constituted to be Knowledge: </li></ul><ul><li>a) actual knowledge </li></ul><ul><li>b) not making any enquiries </li></ul><ul><li>c) requesting all necessary information which would indicate that the person (UBO) is an honest person </li></ul><ul><li>d) Shutting the eyes to the obvious </li></ul><ul><li>e) knowledge of circumstances which would have put an honest and reasonable person on suspicion, enquiry to ascertain and find out by making reasonable enquiries </li></ul>
  65. 65. DEFENCES - SECTION 26 <ul><li>Section 26 provides for special defences for persons assisting another for the commission of laundering offences and financing of terrorism offences </li></ul><ul><ul><li>If you find yourself in breach of the laws inadvertly, or </li></ul></ul><ul><ul><li>under duress, the situation should be corrected by </li></ul></ul><ul><ul><li>reporting the matter as soon as reasonably possible to the </li></ul></ul><ul><ul><li>responsible authority </li></ul></ul>
  66. 66. CLIENT CONFIDENTIALITY <ul><li>Breach of confidentiality if you report suspicion of money laundering? </li></ul><ul><li>Legislation seems to protect those reporting , even if the suspicions are ill founded </li></ul><ul><li>Protection though only to disclosure on suspicion or belief that funds derive from money laundering </li></ul>
  67. 67. <ul><li>KNOWN OR OUGHT TO HAVE KNOWN </li></ul><ul><li>Failure to report: </li></ul><ul><li>It constitutes an offence for any person (advocates , auditors, </li></ul><ul><li>fiduciary service providers) who in the course of his business </li></ul><ul><li>trade, profession, employment acquires knowledge or </li></ul><ul><li>reasonable suspicion that another person in engaged in money </li></ul><ul><li>laundering not to report his knowledge or suspicion as soon as it </li></ul><ul><li>is reasonably practical after the information came to his </li></ul><ul><li>attention </li></ul>TERMS AND DEFINITIONS
  68. 68. <ul><li>A trustee is personably liable on the contracts into which he enters , unless he excludes personal liability by express stipulation and the knowledge of those who deal with him that he is contracting in his capacity as a trustee is immaterial </li></ul><ul><li>If a trustee holds shares in a company, he has the same liabilities in respect of them as if he were the beneficial owner even though the fact of the trusteeships noted in the company’s books but he is entitled to immunity </li></ul>TERMS AND DEFINITIONS (CONT.)
  69. 69. THE LAW <ul><li>Anyone who knows or suspects money laundering is occurring has to report this to a police officer or M.O.K.A.S. </li></ul><ul><li>An offence under this law is punishable by imprisonment not exceeding 5 years or by a penalty not exceeding 5000 Euros or both </li></ul><ul><li>It shall not constitute an offence for an advocate to fail to disclose any privileged information which has come to his attention </li></ul>
  70. 70. Tipping-off ( section 48 of the Law) <ul><li>Further to the offence (known or ought to have known) under money laundering offences above, </li></ul><ul><li>it is an offence for any person to prejudice the search and investigation in respect of the prescribed offences by making a disclosure either to the person who is subject of a suspicion or any third party, knowing or suspecting that the authorities are carrying out such an investigation and search. Tipping off under these circumstances is punishable by imprisonment not exceeding 5 years </li></ul>
  71. 71. <ul><li>Any person carrying on financial or other business activities, is obliged to apply adequate and appropriate systems and procedures in relation to the following: </li></ul><ul><li>A) KYC- Customer identification and customer due diligence in accordance with section 60-66 of this law </li></ul><ul><li>B) Record-keeping in accordance with section 68 </li></ul><ul><li>C) Internal reporting and reporting to Mokas, in accordance with the provision of Section 69 of this law </li></ul>THE OBLIGATIONS
  72. 72. THE OBLIGATIONS <ul><li>D) Internal control, risk assessment and risk management in order to prevent money laundering and terrorist financing </li></ul><ul><li>E) Detailed examination of each transaction which by its nature may be considered to be particularly vulnerable to be associated with money laundering offences </li></ul>
  73. 73. THE OBLIGATIONS <ul><li>F) Informing their employees in relation to the regulations </li></ul><ul><li>and procedures in accordance with the above </li></ul><ul><li>1. Present law </li></ul><ul><li>2. Directives issued by the Authorities </li></ul><ul><li>3. EU directives </li></ul><ul><li>G) Ongoing training of their employees in the recognition and handling of transactions and activities which may be related to money laundering or terrorism financing </li></ul>
  74. 74. Disclosure Orders <ul><li>WHEN CAN BANKS DISCLOSE THE NAMES OF THE BENEFICIAL OWNERS OF COMPANIES? The law for Banking Services Law Ν. 66(1)/97 – Article 29 </li></ul><ul><li>Forbids a bank employee to make such disclosure except if it is in the public interest to do so. Therefore, public interest overrides the bank secrecy principle. </li></ul>