Country Reports on Terrorism 2007 - Cyprus

Cyprus took a clear stand against international terrorism and supported United States counterterrorism efforts. The Government of Cyprus continued to allow blanket overflight and landing rights to U.S. military aircraft supporting operations in Iraq and Afghanistan. Cyprus was responsive to international efforts to block and freeze terrorist assets, implemented the Financial Action Task Force's (FATF) recommendations, and conformed to EU counterterrorism directives.

Cyprus's legal framework for investigating and prosecuting terrorist-related activity remained relatively weak. The United States and the Republic of Cyprus cooperated closely on terrorist finance and money laundering issues. The Cypriot Anti-Money Laundering Authority (MOKAS) implemented new UNSCR 1267 Committee decisions immediately and informally tracked names listed under U.S. Executive Orders.

In the area administered by Turkish Cypriots, issues of status and recognition inevitably restricted the ability of authorities to cooperate on counterterrorism. Turkish Cypriots cannot sign treaties, UN conventions, or other international agreements, for example. Moreover, the Turkish Cypriot-administered area lacked the legal and institutional framework necessary to combat money laundering and terrorist financing effectively. Within these limitations, Turkish Cypriots cooperated in pursuing specific counterterrorism objectives. They shuttered the First Merchant Bank after receiving evidence of illicit financial activity there and conducted a successful criminal investigation into the bank's activities, bringing together law enforcement, financial crimes investigators, and "central bankers" to revoke First Merchant's operating license and seize its assets.

Kurdish-origin communities exist on both sides of the island. The KGK/PKK has a presence in Cyprus, although its activities generally were limited to fundraising and transit en route to third countries; authorities believed there was little risk the group would conduct operations there. Cyprus maintained that it was fulfilling all responsibilities with respect to the EU designation of the KGK/PKK as a terrorist organization.

A large volume of container traffic moves through ports in the government-controlled area, making Cyprus an attractive and convenient venue for terrorist organizations seeking transshipment points for weapons and other items of concern. While Cypriot agencies responsible for nonproliferation assess only a small risk of illicit materials moving through transit cargo, the United States continued to push for increased maritime cooperation. The American Embassy organized and executed training programs to assist Cyprus to create a stronger export control regime and to pursue more proactive nonproliferation enforcement.

While the Turkish Cypriot community took some steps to prevent terrorist financing within its banking institutions, authorities lacked the legal and institutional framework to meet minimum international standards with regard to combating money laundering and terrorist finance. The "TRNC Central Bank" regularly asked financial institutions to search for assets linked to individuals or entities whom the United States and/or the UNSCR 1267 Committee has designated as terrorists. However, the north lacked modern audit control technology, relying instead on antiquated paper-based systems. Consequently, the Turkish Cypriot community's financial sector is vulnerable to abuse by criminals and terrorists. Authorities in the north are aware of the problem and "parliament" recently passed anti-money laundering legislation. Authorities are now looking to the international community for assistance with training and organizing a Financial Crimes Unit that would significantly improve their ability to combat illicit financial activity.