The administration of the breakaway region has drafted legislation to bring international funds into local banks, with few questions asked. The proposed legislation would charge 3 percent interest on imported funds. Once the money is deposited in the local banks in the north, it would be possible to introduce them into the international financial system via intermediary banks in Turkey.
A draft law allowing offshore funds to be brought into northern Cyprus with little oversight could turn the breakaway territory into a money laundering hub, experts warn.
The draft law was discussed on Tuesday by the assembly that governs the region, which is recognized as a state only by Turkey.
The proposed legislation — which would charge 3 percent interest on imported funds until the end of 2025 — still needs to be voted on in the Turkish Cypriot assembly. But the proposal has already raised concerns.
“Once the 3 percent tax is paid and the money is deposited in the local banks in the north, it would be possible to transfer it abroad via intermediary banks in Turkey,” said Mertkan Hamit, a Turkish Cypriot economist.
“Therefore, this questionable money would be introduced into the international financial system,” Hamit told OCCRP’s Cypriot member center, CIReN.
The draft law, which was published in the territory’s official gazette on March 17, states that a person or company can open an account in northern Cyprus and deposit any currency.
Funds brought in cash require a “declaration form to be obtained from the Customs authorities,” the draft law states. However, it does not mention such provisions for wire transfers.
Erhan Arikli, minister of public works and transportation, told the local Yeniduzen newspaper that banks and authorities in countries where wire transfers originate would be responsible for ensuring the funds are legitimate.
That does not reassure Devrim Barcin from the opposition Republican Turkish Party.
“They have prepared a law to introduce black money into the country,” he told CIReN in an interview. “When I read the draft, I thought, ‘How can a government be so blatant?’ It prepared a law so that some individuals or entities can legitimize the money they cannot declare the source of.”
The Turkish Cypriot administration’s finance ministry did not respond to a request for comment. Ozdemir Berova, finance minister for the breakaway region, said in parliament on Tuesday that the legislation “will not be in violation of the law on the prevention of laundering of proceeds of crime.”
If the proposed legislation is passed, it would not be the first time northern Cyprus introduced an opportunity for dubious funds to be brought into the territory for a set period of time. A 2021 statutory decree created a 20-day window, allowing unregistered money to be integrated into the economy with a maximum of 2.5 per cent tax.
One person who reportedly took advantage of that decree was Halil Falyali, a Turkish Cypriot businessman who was the subject of an OCCRP investigation into allegations that he ran an illegal online betting empire. Falyali was shot and killed in 2022, but he imported tens of millions in cash and crypto the previous year, according to a report from Turkey’s online T24 newspaper.
In total, more than $100 million entered the northern Cyprus economy during the 20-day period in 2021, providing the administration with about $2.6 million in tax revenue.
The current draft legislation states that it aims to “ensure economic revival, increase liquidity and increase tax revenues by encouraging the addition of fiduciary money” to northern Cyprus.