Cyprus

Cyprus Corruption Report

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Snapshot

Cyprus_250x150.jpgAlthough Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risk in the Cypriot banking sector, public procurement and land administration sector. The close relationship between bankers, businesses and politicians have resulted in the economic crisis that the country recently faced, contributing to corruption in other areas (e.g., bias in the awarding of public tenders). Businesses may encounter demands for irregular payments, but the government has established a strong legal framework to combat corruption. Briberyfacilitation payments and giving or receiving gifts are criminal offences under Cypriot law. The government has a strong anti-corruption framework and has developed effective e-governance systems (the Point of Single Contact and the e-Government Gateway project) to assist businesses. Investors should take into consideration the political situation of the country, which divides the island into two parts: one controlled by the Cypriot government and the other under the administration of Turkish Cypriots.

Last updated: December 2015
GAN Integrity

Judicial System 

The judiciary in Cyprus enjoys the public's trust, and is perceived as non-corrupt and independent European_Commission.svg.pngfrom political interference (ACMC, Mar. 2013; HRR 2014GCR 2015-2016). The judiciary's main shortcoming is its significant lack of staff and resources. The majority of Cypriots believe that speedier trials would decrease corruption, and that the number of prosecutions are too few and too lenient (ACPS, Mar. 2013; European Commission, Feb. 2014). The judicial system provides for the protection of property rights and the enforcement of commercial contracts (ICS 2015). There have recently been no major commercial dispute settlement cases, which can take between three to five years to settle through the courts (ICS 2015). Investors can seek arbitration under the Arbitration Law. Cyprus is signatory to the New York Convention 1958 and the Convention on the Settlement of Investment Disputes.

Police

Companies may encounter a moderate corruption risk when dealing with the police in Cyprus, despite the institution being perceived as efficient in protecting businesses from crime and in enforcing the rule of law (GCR 2015-2016). Several improvements in the area of police corruption have been recorded, yet the institution still suffers from poor ethical values and low salaries, which allegedly raises the risks for seeking illegal gains to supplement incomes (ACMC, Mar. 2013). Most Cypriot citizens believe that police officers are corrupt (GCB 2013), but no citizens reports being expected to pay a bribe to the police (European Commission, Feb. 2014). The Independent Authority for the Investigation of Allegations and Complaints against the Police is in charge of investigating police abuse, illegal financial gain, bribery and other corrupt activities. Five times per year, the police academy organises special training seminars focusing on the fight and protection against corruption (GRECO, Apr. 2015).

Public Services

The process of obtaining public services in Cyprus is plagued by widespread corruption. The overwhelming majority of surveyed firms agree that the easiest way to obtain a public service is through bribery and the use of connections (European Commission, Feb. 2014). More than a third of Cypriots believe bribery and abuse of power are widespread among licensing inspectors and officials issuing business permits (European Commission, Feb. 2014). Another area of concern and important source of administrative corruption is the recruitment process of public officials and civil servants. Respondents believe the reason behind the problem is that many appointments made to public offices are not based on merit (ACPS, Mar. 2013), and more than half of Cypriots believe non-transparent recruiting is the main source of corruption within the public administration (European Commission, Feb. 2012).

Companies report that government regulations are burdensome, and identify inefficient government bureaucracy among the most problematic factors to doing business (GCR 2015-2016). Dealing with property registration is less time-consuming than the regional average, but dealing with construction permits is almost four times more time-consuming (DB 2015).

Land Administration

The Cypriot land administration is not free from corruption. Almost half of surveyed citizens believe that abuse and bribery are widespread among construction inspectors and officials issuing building permits (European Commission, Feb. 2014). The required procedures to acquire land are described as complex, but assistance from professionals and real estate agents can ease the burden of complying with government regulations. Land expropriation may occur only for public purposes and in line with international law. Investors who have to face expropriation receive compensation. The Government’s Department of Lands and Surveys follows internationally accepted procedures (ICS 2015), and the government has eased the process of registering property through the computerisation of the country's land registry (DB 2015).

The land registry is under spotlight due to corruption within the administration. Authorities are investigating at least five corruption cases involving employees suspected of pocketing fees of administrative services. Officials have allegedly received money from people in return for issuing certificates with information on companies and properties in the name of a given individual. The case apparently involves thousands of such applications (Cyprus Property News, Jan. 2015). In another case, five high-profile figures and a legal entity were found guilty of corruption in a case involving the semi-governmental pension fund CyTA's purchase of real estate at an inflated price. The property in question was bought from a Turkish Cypriot for USD 10 million and resold to the CyTA pension fund for USD 22 million. The figures were involved in greasing the property deal in return for kickbacks, the falsification of documents, and bribery (Cyprus Mail, Dec. 2014). Five people, including the former president of the Cyprus Telecommunications Authority's (Cyta) board of directors, have been jailed in connection with the case (Investment & Pensions Europe, Jan. 2015). 

Tax Administration

The tax administration in Cyprus carries a low corruption risk for companies. More than two-thirds of Cypriots perceive bribery and abuse to be widespread among tax officials, yet none report to have paid a bribe (European Commission, Feb. 2014). Despite the corporate tax rates being among the lowest in the EU, representing a competitive advantage for the country (ICS 2015), half of businesses report that tax rates represent an obstacle to doing business (European Commission, Feb. 2014). The government reduced the number of provisional tax instalments for corporate income tax, thus easing the process (DB 2015).

Customs Administration

Businesses perceive the customs administration to be very transparent, and the occurrence of bribes during import and export processes is rare (GETR 2014). While more than half of surveyed Cypriots perceive bribery and abuse to be widespread among customs officials, none report paying a bribe to customs officials (European Commission, Feb. 2014). Companies do not consider customs procedures to be very burdensome (GCR 2015-2016). 

Public Procurement

Companies may contend with corruption risks when dealing with public procurement in Cyprus. The vast majority of businesses think practices of favouritism hamper competition in Cyprus (European Commission, Feb. 2014; GCR 2015-2016). Almost half of respondents believe bribery and abuse are widespread among officials awarding public tenders, while almost nine in ten believe political connections are the only way to succeed in business (European Commission, Feb. 2014). Companies find rules regulating tender processes to be opaque, and decisions made by the technical committees responsible for preparing and reviewing tender specifications to be biased. Some of the main corrupt practices within public procurement include collusive bidding, specifications tailor-made for specific companies, unclear selection or evaluation criteria and conflicts of interest in bid evaluation (European Commission, Feb. 2014).

Cyprus is one of the leaders within Europe in the usage of e-procurement, as 60-90 percent of companies and individuals involved in procurement have recourse to e-procurement (IRCiPP 2013). Despite a well-established e-procurement system, contracting authorities have no specific mechanisms in place to detect potentially corrupt practices at the different stages of the procurement process (European Commission, Feb. 2014). A few years ago, Cypriot courts ordered the extradition of former Cypriot Interior Minister Dinos Michaelides to Greece. Michaelides and his son were involved in money laundering and kickbacks in relation to defence contracts with the Defence Minister of Greece. The laundered money amounted up to millions in euros (Reuters, Feb. 2015). Michaelides and his son were recently sentenced to 15 years in prison, and the courts awarded the state of Greece EUR 500,000 to be paid by Dinos Michaelides (Cyprus Mail, Feb. 2015).

Banking

Cyprus is infamous for being an island for money laundering, primarily due to the lack of transparency of the banking system (Wall Street Journal, May 2013). The banking crisis that hit Cyprus in 2012 has forced the government to seek bailouts from the EU. As a requirement for its assistance, the EU has made a thorough examination of the country’s anti-money laundering measures. The subsequent report published in 2013, Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus, outlined an action plan including several proposed measures inter alia, an overall AML/CFT risk policy document for all Cypriot banks, and consistent implementation of the highest level of due diligence. Moneyval published a later report, Interim report submitted to Moneyval by Cyprus on Progress in respect of Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus, stressing that despite noted progress, not all of the recommendations proposed in 2013 had been implemented.

The banking sector in Cyprus is also where political and business interests overlap. Several cases highlight conflicts of interest and favouritism shown by Cypriot banks to influential members and political figures with ties to the business sector. In one instance, the three biggest banks in Cyprus wrote off millions in euros in loans to MPs, well-connected companies and local authority officials. The Bank of Cyprus wrote off EUR 2.8 million in loans to a hotel connected to members from the AKEL Party, and another company owned by the brother of a former minister of the Democratic Party (DIKO) saw EUR 1.28 million of his loans written off by the bank (Ekathimerini, Mar. 2013). Investigations uncovered several malpractices when revealed that banks accepted forged guarantee documents to approve loans, while other large loans were found to been given at ‘unusually low interest rates’. A recent case revealed that a given bank had granted the borrower a 3-year grace period. Investigations will soon lead to filling charges against people involved in the malpractices (Cyprus Property News, May 2015).

Legislation

The Cypriot Criminal Code criminalises extortion, abuse of office, active and passive bribery, conflict of interest, and trading in influence. Giving and receiving gifts is regulated by the Federal Law on Public Service. Sanctions for corruption can be up to seven years imprisonment and/or a fine of up to EUR 100,000. The Prevention of Corruption Law provides for the sanctioning of corruption within the private and public sectors, and stipulates that prosecutions of corrupt public officials shall only be initiated by the Attorney General. The Political Parties Law provides for transparency and openness around party and campaign financing, but public officials are not subject to any disclosure laws. There are also no laws that allow for public access to government information (HRR 2014). Cyprus has ratified the COE Criminal Law Convention on Corruption and adopted legislation introducing offences stipulated by the convention. The law introduced broader definitions of bribery and agents to include direct and indirect bribery, and the bribery of foreign public officials and officials of international organisations. Amendments introduced to the Cypriot anti-corruption framework eliminated some past inconsistencies (GRECO, Apr. 2015). The government has generally implemented anti-corruption laws effectively and has investigated corruption cases at a faster pace compared to previous years (HRR 2014).

Cyprus has signed and ratified several international anti-corruption conventions, including the United Nations Convention against Corruption, the United Nations Convention against Transnational Organized Crime, the Agreement for the Establishment of the International Anti- Corruption Academy as an International Organisationthe Civil Law Convention on Corruption, and the Additional Protocol to the Criminal Law Convention on Corruption. Cyprus joined the Group of States against Corruption of the Council of Europe (GRECO) in 1999. Access the Lexadin World Law Guide for a collection of legislation in Cyprus.

Civil Society

The Cypriot constitution provides for the freedoms of speech and of the press, and the government respects these freedoms (HRR 2014). Media outlets are owned by private and state entities, but most newspapers are closely linked to political parties (FotP 2014). Journalists who report on controversial political issues may face harassment, intimidation and at times arrest and prosecution, but such cases are rare. The economic downturn and the subsequent tense political climate has led to increased self-censorship among journalists (FotP 2014). Cypriots used the internet without any government restrictions, and the media environment is considered ‘free’ (FotP 2014). 


Cyprus's government generally respects the right of association (HRR 2014), but political influence over education, media, volunteer organisations and other entities have contributed to the under-development of the civil society. The accession of Cyprus to the EU has renewed emphasis on civil society, and efforts have been directed towards improving the work environment for NGOs. Most civil society organisations believe corruption is frequent within the civil society sector (CS 2013).

Sources

Topics: Europe & Central Asia