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 territory, 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 by 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 into the region in bank notes 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 northern Cyprus would rely on banks and authorities in countries where wire transfers originate to ensure 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 said 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 the assembly 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. 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 cryptocurrency 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 aims to “ensure economic revival, increase liquidity and increase tax revenues by encouraging the addition of foreign currency and/or Turkish lira fiat currencies abroad into the economy.”
Cyprus was divided in 1974, when Turkey’s military took control of the island’s north. The move came in response to a Greek-backed coup against the Republic of Cyprus government at the time, which aimed at annexing the whole island to Greece.
The northern third of the island is now under the effective control of Turkey, which has troops stationed there. Greek Cypriots control the internationally recognized Republic of Cyprus. United Nations peacekeepers have been stationed in Cyprus for decades.
