News

Introduction

On 2 November 2018 the Central Bank of Cyprus issued a revised circular to money laundering compliance officers of all regulated credit, payment and e-money institutions on the issue of so-called shell companies. It replaces an earlier circular issued in June 2018 and aims to provide additional clarification to reinforce the effectiveness of anti-money laundering measures and the credibility of Cyprus as a destination for foreign investors and businesses. As per Circular, Cypriot credit institutions would be required to avoid entering into and renewing business relations with entities meeting the criteria of “shell” companies.

The new circular defines a shell company as a limited liability company or any other legal or business entity that has no physical presence or operations in the country in which it is incorporated or registered, and that has no economic substance in that jurisdiction.

The Circular requires banks to review their customer base to identify shell companies and inform the Central Bank on the results of the review.

Definition of Shell Companies:

The term “shell company/entity” refers to a limited liability company or any other legal/business entity that bears the following characteristics:

• it has no physical presence or operations in its country of incorporation/registration (other than a mailing address);

“physical presence of a company/entity is construed as having a place of business or operations (own or rented premises) in the country of registration/incorporation. Also, absence of meaningful mind and management could be construed as lack of physical presence. The presence of a third person providing merely nominee services including company secretary duties does not constitute on its own physical presence”; 

and

• it has no established economic activity in its country of incorporation/registration, little to no independent economic value and no documentary proof to the contrary.

Notably, if a company falls within the aforementioned criteria business relationships (i.e. banking) shall be avoided.

Exceptions:

Further to the above some exceptions may apply, in relation to the presence of economic activity. The following circumstances could indicate such behaviour:

1. the company/entity is established for the purpose of holding stock or shares or other equity instruments of another business entity or entities engaged in legitimate business with identifiable ultimate beneficial owner(s);
2. the company/entity is established for the purpose of holding intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
3. the company/entity is established to facilitate currency trades and asset transfers, corporate mergers as well as carrying out asset management activities and trading of shares;
4. the company/entity acts as a treasurer for companies recognized as a group or manages the activities of the group;
5. any other case where convincing evidence can be provided that the company/entity is engaged in legitimate business, with identifiable ultimate beneficial owner(s).

How we can help

The above is intended to provide a summary of the changes on the subject. Our team of expert lawyers are closely monitoring current developments, and are able to assist you with all possible options for your business strategy.

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