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U.S. Department of State
1997 International Narcotics Control Strategy Report, March 1998

United States Department of State

Bureau for International Narcotics and Law Enforcement Affairs


Europe and Central Asia

CYPRUS

I. Summary

Cyprus does not produce or consume significant amounts of narcotics, but its geographic location and relatively sophisticated business and communications infrastructure make it vulnerable to drug trafficking and international money laundering activities. Cyprus is a party to the 1988 UN Drug Trafficking Convention (Vienna Convention) and the government (GOC) enforces tough anti-drug laws. Law enforcement authorities maintain excellent relations with United States government (USG) and other foreign government counterparts. Legislation to implement the EU Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime was passed in April of 1996. An essential element of the new GOC law was the formation of a money laundering investigations unit (SIU) which began operations in 1997 and coordinates the GOC's efforts. In 1997, GOC authorities used the law to freeze assets involved in a fraud case valued at more than USD $12 million.

Cyprus monitors the importation and exportation of chemicals for local markets. However Cyprus' geographic location and the free-port status of its two main seaports make it an ideal transit country for trade in chemicals and other goods between Europe and the Middle East.

II: Status of Country

Cypriots do not produce or consume significant quantities of drugs. The island's strategic location in the Eastern Mediterranean and its current status as a gateway to and from Lebanon and elsewhere make it a convenient stopover for traffickers, especially from Lebanon and Turkey (for northern Cyprus). Still low by international standards, drug-related crime has been steadily rising since the 1980's.

Cyprus' success as an international offshore center has made it vulnerable to international money laundering activities. The significant presence of Russian and other Eastern European persons and entities who have chosen to incorporate among Cyprus' more than 25,000 off-shore companies has raised questions as to whether these companies have been used to shelter the proceeds of illicit activities, such as drug trafficking, arms sales, or theft of state resources, or have been used simply for tax fraud. The SIU believes Cyprus' efforts in this area have reduced money laundering activity. The Central Bank's efforts in recent years are encouraging. There has been a falloff in detected illicit financial activity on Cyprus during the last two years.

Cypriot law now carries a maximum prison term of one year for drug users under 25 years of age with no police record. Sentences for drug traffickers range from four years to life, depending on the substances involved and the offender's criminal record. Cypriot law allows for the confiscation of drug-related assets and the freezing of profits (or a special investigation of the suspect's financial records), although no drug-related assets have ever been seized under this law (Note: The USD $12 million in assets frozen under the 1996 law involved fraud.)

III. Country Actions Against Drugs in 1997

Policy Initiatives. The SIU began operations in January 1997. It is comprised of three representatives each from the Department of Customs, Police, and the Attorney General's office. The Unit's coordinator works directly for the Attorney General. In late 1997, the Council of Ministers approved a key provision of the 1996 money laundering law creating an advisory committee made up of representatives of Cypriot banks, accounting firms, legal firms, and other bodies well-placed to fight such crimes. In November, the GOC closed the law's most important loopholes by appointing supervisory authorities to oversee banks, insurance companies and the stock exchange.

In February, the Central Bank issued guidance to Cypriot banks on customer identification procedures and, in August, regulations regarding prohibitions against the opening of bank accounts in Cyprus by certain individuals. Seminars and training to combat money laundering have been provided to an ever expanding audience of police and banking officials. The SIU has issued 16 information disclosure orders and the Central Bank issued customer identification regulations to combat money laundering through domestic and offshore banking facilities. Cyprus has had an asset forfeiture statute since 1992.

Law Enforcement Efforts. There were no significant changes in the GOC's law enforcement structure in 1997. Police authorities act aggressively to combat the small amount of illicit production of cannabis and equally low level of illicit drug use. GOC law enforcement agencies, in cooperation with the SIU, trained more than 500 police officers in the rules and procedures of the 1996 law against money laundering. They also made such training an element of basic training. The GOC has excellent cooperative relations with its neighbors and Western nations, including the US, and is quick to assist when requested. Both the SIU and law enforcement officials acquired extensive training in 1997 from the US, UK, EU and others.

International enforcement cooperation is constrained by the political division of the island into the internationally recognized Republic of Cyprus (GOC) in the south and the "Turkish Republic of Northern Cyprus" in the north. GOC authorities have no working relations with enforcement authorities in the "Turkish Republic of Northern Cyprus." Turkish Cypriots have their own law enforcement organization responsible for the investigation of all narcotics-related matters. Turkish Cypriot authorities have shown willingness to pursue narcotics traffickers and provide assistance when asked by foreign law enforcement authorities.

Corruption. Corruption in Cyprus is limited. There is no evidence of senior or other officials facilitating the production, processing, or shipment of drugs or the laundering of drug-related assets.

Agreements and Treaties. A new extradition treaty between the USG and GOC was signed in June 1996, replacing one in effect since 1931. The ratification process is under way in both countries. An initial round of negotiations on a proposed mutual legal assistance treaty took place in Washington in October 1997, and we expect the negotiation process to continue in 1998.

Precursor Chemical Control. There is no production of precursor chemicals in Cyprus nor is there any indication of illicit diversion. Precursor chemicals manufactured in Europe do transit Cyprus to third countries. Cyprus Customs no longer receives manifests of transit goods because the seaports of Larnaca and Limassol have been declared "free ports." Cyprus Customs is considered an income generating rather than law enforcement agency. Goods entering Cypriot free ports can be legally re-exported using different customs documents as long as there is no change in the description of the goods transported.

Cultivation/Production. The only known production is the limited, but increasing, cultivation of cannabis for individual use and, on a smaller scale, for resale.

Drug Flow/Transit. No significant increase was observed in 1997. Cyprus police maintain that their efforts in combating drug trafficking have mostly converted Cyprus from a drug transit point to a "broker point" for dealers, most likely the result of improved conditions in Lebanon from which containerized freight now moves directly to third countries without transiting Cyprus. As in 1996, there were occasions in 1997 when kilograms of heroin seized in London were identified as transiting northern Cyprus from Turkey. There were also seizures in Cyprus of heroin coming from Iran. Cyprus is also a transit point for cocaine transported by commercial air from Brazil and destined for the Middle East and the former Soviet countries.

Domestic Programs. Drug abuse remains relatively mild in Cyprus and is concentrated among the young and tourists. Hashish is the most commonly used drug, followed by heroin and cocaine, all of which are available in most major cities. Recent increases in drug use have prompted the government to promote demand reduction programs through the school system and social organizations, occasionally with DEA-Nicosia participation. Drug treatment is available.

IV. US Policy Initiatives and Programs

The US supports the GOC's efforts to deter money laundering activities in Cyprus through a number of activities:

  • The Ambassador and other members of the US Embassy in Nicosia raised the issue repeatedly during 1997 with key GOC officials;
  • An intergency team of senior USG officials met in February with high ranking GOC officials to discuss money laundering policy and to implement cooperative measures;
  • A US money laundering assessment team (led by representatives of the US Comptroller of the Currency) visited Cyprus in April and made recommendations for domestic enforcement improvements and planned on-going bilateral cooperation;
  • The SIU, and a representative of the Central Bank, completed a two-week USG-funded on-site training program in the US; the SIU also participated in a DEA-led regional money laundering/asset forfeiture training seminar in Israel.

The Road Ahead. The GOC's aggressive advances on the anti-money laundering front and its excellent cooperation on drug law enforcement during 1997 warrant USG optimism for even stronger bilateral cooperation in 1998. We will continue to track closely government efforts to prevent the use of Cyprus' offshore sector as a money laundering center and will be vigilant in further assessing the possible presence of organized crime on Cyprus.

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