Guidance to Financial Institutions on the Money Laundering Threat Involving the Turkish Cypriot Administered Area of Cyprus

Advisory
FIN-2008-A003
Issued: March 20, 2008
Subject: Guidance to Financial Institutions on the Money Laundering Threat Involving the Turkish Cypriot Administered Area of Cyprus The Financial Crimes Enforcement Network (FinCEN) is issuing this advisory to inform banks and other financial institutions operating in the United States of serious deficiencies in the anti-money laundering regime of the Turkish Cypriot administered area of Cyprus. On February 28, 2008, the Financial Action Task Force (FATF) issued a statement on the need for financial institutions to pay special attention to money laundering and financing of terrorism risks in transactions with financial institutions operating in the Turkish Cypriot administered area of Cyprus. Cyprus has been de facto divided since 1974. The southern two thirds of the country is under the control of the Government of the Republic of Cyprus. The northern one third of the country is under the control of a Turkish Cypriot administration that in 1983 proclaimed itself the ‘‘Turkish Republic of Northern Cyprus” (“TRNC”). The United States does not recognize the “TRNC,” nor does any country other than Turkey. This advisory refers only to financial institutions in the area administered by Turkish Cypriots, which are not controlled or supervised by authorities of the Government of the Republic of Cyprus. A two-tiered banking system exists within the Turkish Cypriot administered area of Cyprus, including a group of offshore banks that can effectively opt out of many rules and regulations governing their operating conditions, including anti-money laundering and combating the financing of terrorism (AML/CFT) requirements. While the Turkish Cypriot “Central Bank” is not an internationally recognized banking supervisor, it does impose some level of regulatory scrutiny on its onshore banks. The offshore banks, however, are almost entirely exempt from supervision. As of the time of publication of this advisory, 24 onshore banks and 14 offshore banks are believed to operate in the Turkish Cypriot administered area.1 Collectively, banks in the Turkish Cypriot administered area do not have the ability to initiate or receive SWIFT wire transfers without the assistance of third-country based financial institutions. For this reason, transactions involving banks in the Turkish Cypriot administered area may not be readily apparent to financial institutions. In addition to AML/CFT deficiencies present in the banking sector, casinos operating in the Turkish Cypriot administered area have been noted as being conduits for money laundering.