Andreas Michaelides outlines the rise in financial business crime in the wake of the 2013 banking crisis and the evolution of the regulatory landscape
1. What trends, in terms of activity or focus, have you seen in the prosecution of business crimes in your jurisdiction in the last 12 months?
The economic crisis and especially the events of March 2013 made Cyprus a household name around the world. The depositor bail-in in the two largest Cypriot banks was an unprecedented event that shocked Cyprus and reverberated around the world. Proportionately, this was one of the largest crises in financial history. As part of the economic adjustment programme and the financial package agreed in 2013 with the European Commission, the European Central Bank and the International Monetary Fund, Cyprus committed, inter alia, to strengthen its banking supervision and regulatory framework and enhance the transparency of financial information.
As regards the causes of the crisis, mistakes have been identified and blame has been generously assigned. Obviously, it took many errors and omissions and the actions and inactions of multiple players to create such a spectacular collapse. As the relevant investigations have progressed, over the last couple of years, a number of cases in relation to the financial and banking crisis have been filed and are pending before the relevant courts. Cases were brought to the courts for fraud, asset misappropriation, offences under the Insider Dealing and Market Manipulation (Market Abuse) legislation and for bribery and corruption.
The banking crisis, however, has not monopolised the actions of the attorney general’s office. In the last year, we have seen prosecutions in a number of high-profile cases for bribery and corruption, not related to the crisis.
In addition to the above, in the last 12 months the attorney general’s office and the regulatory authorities have had to deal with a number of cases involving asset misappropriation, accounting and tax fraud, mortgage fraud and money laundering.
Business and financial crime is one of the main areas of focus for the attorney general’s office, given the huge blow that Cyprus suffered by the events of 2013 and the potential for financial crime to have a negative impact on the efforts of Cyprus to fully recover from the financial crisis.
2. Are enforcement agencies particularly focused on any specific industries or crimes?
Enforcement authorities are mainly focused on the prosecution of offences related to the economic crisis and the collapse of the second largest bank of the island, as well as on tax-related offences, money laundering, and bribery and corruption.
3. Are enforcement agencies more or less focused on pursuing cases against corporations or individuals?
In Cyprus, a company is a legal person, with a separate legal personality from its directors, employees and shareholders, and is therefore capable of being prosecuted for most criminal offences, unless indicated otherwise in the relevant legislation.
Even though, in principle, there is no need to identify and/or convict the individual offender in order to convict the company, in practice, where companies are involved, cases are normally pursued against both the company and the directors or the persons who manage and control the company. Generally, establishing corporate liability under Cypriot criminal law would require a board member or senior manager to be found to have been personally involved in the commission of the offence.
4. Does the legal framework concerning the prosecution of business crimes allow for extraterritorial enforcement? Are such matters being pursued?
The jurisdiction of the criminal courts of Cyprus is limited to the trial of offences committed within the Republic of Cyprus, unless there is a provision to the contrary. One such provision is Article 5 of the Criminal Code, Cap. 154, which provides, inter alia, that the Criminal Code and any other law establishing criminal offences apply to all the offences that have been committed:
5. What judicial or legislative developments have impacted the prosecution of business crimes in your jurisdiction in the last 12 months? Are there any significant proposals for reform of the legal framework that governs business crimes in your jurisdiction?
As business crime is ever-evolving, so is the regulatory landscape – and Cyprus is not an exception.
In April 2016, Law 58(I)/2016 in relation to the implementation of the resolutions and decisions of the UN Security Council and the decisions or regulations of the Council of the EU in relation to sanctions came into force. Even though UN and EU Sanctions have been binding on Cypriot physical persons and entities, there was no specific domestic provision creating criminal offences in relation to breaches of sanctions and, therefore, it was uncertain whether any person could be successfully prosecuted for a breach of sanctions and what penalties could be imposed. The purpose of this long-awaited legislation is to fill this gap.
Currently, the regulatory authorities are working on the implementation of the 4th EU Money Laundering Directive through the necessary amendments to the domestic AML legislation. The new directive, which widens the extent of personal responsibility and liability for all professionals, must be transposed into domestic legislation by June 2017.
6. How common is it for enforcement agencies in your jurisdiction to exchange information and cooperate internationally with other agencies? What are the consequences of cross-border cooperation on prosecutions of entities and individuals in your jurisdiction?
It is not unusual for cases, in which the Cypriot authorities are involved, to have a cross-border element, which requires cooperation with the relevant authorities of other countries. It is very difficult for such cases to be successfully prosecuted in Cyprus without the cooperation of the agencies or authorities of other countries.
Cyprus offers international cooperation through Interpol and other channels for the exchange of police information, and there is also exchange of information between financial intelligence units.
As a member of the European Union, Cyprus implements measures contained in the European Convention on Mutual Assistance in Criminal Matters of 1959 and the Protocol to the said Convention as well as in Framework Decisions on the freezing of assets and evidence, on combating terrorism, on combating fraud and counterfeiting of non-cash means for payment and on combating corruption in the private sector.
Furthermore, Cyprus is a party to the most important multilateral agreements in this area, including:
Cyprus has also concluded bilateral agreements for judicial cooperation in civil and criminal matters with a number of countries, including the United States, the Russian Federation, China, Ukraine and a number of Arab countries.
In general terms, Cyprus is now required to provide assistance as required under the above agreements to any requesting state.
7. What unique challenges do entities or individuals face when enforcement agencies in your jurisdiction initiate an investigation?
The prohibition of tipping off under the AML legislation usually poses challenges to the directors and employees of a company which is under investigation. Under the Prevention and Suppression of Money Laundering and Terrorist Financing Law, any person who discloses that information or other relevant material regarding knowledge or suspicion of money laundering has been submitted to the FIU or makes a disclosure which may impede or prejudice the interrogation and investigation carried out shall be guilty of an offence punishable by imprisonment not exceeding five years. In the light of the potential criminal liability, companies and individuals should be extremely careful not to disclose relevant information.
Other challenges faced by companies and individuals during an investigation include the difficulties inherent in dealing with multiple regulatory authorities in a specific situation (e.g. the Police and the Securities and Exchange Commission), the pressure on suspects to cooperate with the authorities in the hope of a lighter sentence in the case of conviction, having to give evidence against former or current colleagues or employees in criminal proceedings and the damage to the reputation of the company that is inevitably caused by an investigation.
For companies involved in cross-border activities, investigations will sometimes span multiple jurisdictions and may result in parallel proceedings by regulators or prosecutors in several countries, who may have differing motivations and information. Companies find it very challenging to navigate through administrative and/or criminal investigations or proceedings in multiple jurisdictions.
8. Do enforcement agencies in your jurisdiction provide incentives for individuals or entities to self-report a business crime or otherwise provide assistance to the government? If so, what factors should individuals or entities consider when assessing whether to self-report a business crime or cooperate with a government investigation?
Generally, the expectation of a lighter sentence in case of self-reporting and/or cooperation with the authorities is a strong incentive. On the other hand, the absence of plea bargaining and deferred prosecution agreements in the criminal procedure system of Cyprus may be a disincentive.
For companies involved in cross-border business, the self-reporting decision often may be very complicated where the alleged misconduct involves multiple jurisdictions.
9. Do enforcement agencies in your jurisdiction use non-prosecution agreements ("NPA") or deferred prosecution agreements ("DPA")? If so, how do such agreements work in practice and what can entities or individuals do to reach an NPA or a DPA with enforcement agencies? If not, do you believe it is likely that such agreements will become part of the legal framework in the next five years?
In Cyprus, the alternatives to full-scale criminal prosecution are very limited. Currently, there is no framework for deferred prosecution agreements and there are no indications that such legislation will be introduced in the near future.
Furthermore, plea bargaining is not allowed and it is unacceptable for a judge to influence the plea of an accused person in any way or to give any indication as to the sentence that he is considering to impose. A judge is not allowed to say that in the case of a guilty plea he will impose sentence A and in the case of a plea of not guilty he will impose sentence B if the accused is found guilty. Such an approach is considered as pressure on the accused to plead guilty and is therefore unacceptable. This strict approach is consistent with the principle applied by the Cypriot courts: that the distance of the judge from the hearing and from the freedom of the accused to enter the plea that he chooses should not be undermined.
When trying to prosecute many crimes, the only way that the Attorney General’s office can get some necessary evidence is to get it from people who were involved in the crime being prosecuted. The problem for the prosecutors is that the people involved in the criminal activity will generally try to cover their tracks and will not testify truthfully because by doing so they would be incriminating themselves.
If a testimony is necessary to successfully prosecute a crime, prosecutors may sometimes agree not to prosecute someone who had a minor role in the crime. Alternatively, if time permits, the Attorney General’s office may initiate separate criminal proceedings and prosecute such person with lesser offences. In this case, the person with the minor role in the crime will indirectly receive a lighter sentence in exchange of information and/or their testimony in court. It is also open for a defendant to agree with the prosecution to plead guilty on the basis of particular facts, which could also lead to a lesser sentence. Such agreements are only entered into reluctantly and only if there is no other way for prosecutors to get the information and/or the necessary testimony in court.
Factors that the Attorney General’s office will consider in deciding not to prosecute somebody in exchange for his information and/or testimony include the seriousness and importance of the case, the value and importance of the person’s cooperation to the prosecution’s case and the criminal history, involvement in the offence and culpability of the person.