REVISED DEFINITION OF “SHELL COMPANIES” BY THE CENTRAL BANK OF CYPRUS
On the 2nd of November 2018, the Central Bank of Cyprus (“CBC”) issued a circular, with the purpose of clarifying the definition of shell companies and entities in Cyprus and providing instructions on how banks and service providers should deal with them.
The revised definition of shell companies comes in as a means of facilitating banks during account opening for international business companies as well as Service Providers offering corporate services in combating money laundering.
As provided by the CBC, the term “shell company/entity” refers to a limited liability company or any other legal entity that:
Has no physical presence or operations in its country of incorporation. “Physical presence” includes the presence of employees, office space, etc. In the absence of someone undertaking the effective management of the company, the mere presence of a third person providing nominee services including secretarial duties does not constitute on its own physical presence; and
Has no established economic activity in its country of incorporation, little to no independent economic value and no documentary proof to the contrary.” If an entity falls within the above definition and (i) it is registered in a jurisdiction where companies/entities are not required to submit to the authorities independently audited financial statements and does not voluntarily prepare audited financial statements by independent qualified professional accountants who are licensed or regulated and/or (ii) it has a tax residence in a jurisdiction included in the EU list of non-cooperative jurisdictions for tax purposes or the OECD’s list of non-cooperative jurisdictions for tax purposes or has no tax residence whatsoever, then business relationships with such an entity shall be avoided.
In all other cases of companies/entities falling within the definition in 1 above, the institution shall decide on whether to engage in or maintain a business relationship applying a risk based approach in accordance with the legal and regulatory framework and providing fully substantiated justification of such a decision which should be appropriately documented and recorded.
The customer acceptance policy of the institution should be appropriately revised by the Money Laundering Compliance Officer in order to comply with this circular with immediate effect.
Companies Excluded from the Shell Companies Criteria
In the same circular, the circumstances that indicate economic activity have been set out, excluding the below companies from the definition of “shell company”:
Companies established for the purpose of holding stock or shares or other equity instruments of another business entity with identifiable ultimate beneficial owner(s);
Companies established for the purpose of holding intangible or other assets including real estate, ship, aircraft, portfolio of investments, debt and financial instruments;
Companies established to facilitate currency trades and asset transfers, corporate mergers, as well as carrying out asset management activities and trading of shares;
Companies acting as treasurers for companies recognised as a group or manage the activities of the group.