Cyprus has made further progress in reinforcing its anti-money laundering and counter-terrorist financing (AML/CFT) system, according to a new report published by MONEYVAL, the Council of Europe’s expert committee responsible for evaluating such measures. However, the report also highlights persistent weaknesses in how the country oversees nonprofit organizations, warning that these shortcomings leave vulnerabilities in the fight against terrorism financing.

The 4th Enhanced Follow-Up Report shows that Cyprus improved its technical compliance with Recommendation 13 on correspondent banking under the Financial Action Task Force (FATF) standards, earning an upgraded rating of “largely compliant.” The country had previously been flagged for applying inconsistent due diligence between EU and non-EU partners. A 2023 amendment to the AML law closed that gap by ensuring equal scrutiny for all foreign correspondent relationships.

>>Money Laundering: 62% Surge in Suspicious Transaction Reports, Says Cyprus’s MOKAS<<

MONEYVAL acknowledged this as a “notable step forward” and welcomed the alignment with EU-wide guidelines that better safeguard against the use of shell banks and opaque financial arrangements.

Despite progress in some areas, Cyprus again failed to convince MONEYVAL that it has a fully robust framework for preventing the abuse of nonprofit organizations (NPOs) for terrorist financing. The country’s rating for Recommendation 8 remains stuck at “partially compliant” — a status it has held since the 2019 mutual evaluation.

The committee noted that although Cyprus completed its first terrorism financing (TF) risk assessment of the nonprofit sector in 2024 and introduced new best practice guidance, several critical deficiencies remain:

• Nonprofit companies were left out of the risk assessment, with authorities providing no conclusive evidence to justify their exclusion.

• No specific mechanisms are in place to promptly share information between authorities when terrorist financing suspicions arise.

• Sanctions and oversight tools for charities and nonprofit companies remain incomplete or untested.

• Outreach and training efforts still lack depth on TF-specific risks, both for authorities and the NPO community.

Only 2% of assessed NPOs were found to have medium-high or high exposure to terrorist financing risks, but MONEYVAL cautioned that without a full picture—including nonprofit companies—this figure may be misleading.

Out of the 40 FATF recommendations, Cyprus is now rated:

• Compliant with 16;

• Largely compliant with 22;

• Partially compliant with 2 (Recommendations 8 and 31).

No recommendations were rated “non-compliant”—a positive sign compared to some regional peers.

Still, Cyprus remains under MONEYVAL’s enhanced follow-up procedure, a designation for countries needing to make significant improvements. The country must report back within two years with further evidence of reforms, particularly in areas where deficiencies persist.

>>Money Laundering: 62% Surge in Suspicious Transaction Reports, Says Cyprus’s MOKAS<<