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Cyprus

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Cyprus risk report

Updated: Thursday. November 5, 2020

Although Cyprus is generally free from corruption, high-profile corruption cases in recent years have highlighted the presence of corruption risks 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 faced in 2012-2013, 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 and generally implements it effectively. Bribery, facilitation payments and giving or receiving gifts are criminal offenses 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.

Judicial system iconJudicial system

Moderate risk

There is a moderate risk of corruption in Cyprus' judicial system. Companies indicate that bribes and irregular payments in return for favorable judgments are fairly rare (GCR 2015-2016). Two out of five businesses consider the degree of independence of the judiciary as fairly or very bad (ECJS 2017). Companies do not have sufficient confidence in the ability of the legal framework to facilitate dispute settlement and challenge government regulations (GCR 2017-2018). Among the general public, one out of five Cypriots believe the degree of independence of the judiciary as fairly or very bad (ECJS 2017) and majority of Cypriots believe that speedier trials would decrease corruption, and prosecutions are too few and too lenient (ACPS, Mar. 2013; European Commission, Feb. 2014). The judiciary's main shortcoming is a significant lack of staff and resources, leading to poor contract enforcement and significant delays (ICS 2017). Courts have the necessary power to enforce judgments on non-compliant parties (ICS 2017). Cyprus is a signatory to the New York Convention 1958 and the Convention on the Settlement of Investment Disputes.

Enforcing a contract takes almost three years, more than double the regional average (DB 2018)

Police iconPolice

Moderate risk

Companies may encounter a moderate corruption risk when dealing with the police in Cyprus. The police are perceived as moderately efficient in protecting businesses from crime and in enforcing the rule of law (GCR 2017-2018). 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 citizen 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 organizes special training seminars focusing on the fight and protection against corruption (GRECO 2015).

A corruption probe has been launched following an incident in which a prominent businessman and several police officers, who were dining with the businessman at the time of the incident, were killed (CyprusMail, Apr. 2017). There are suspicions that the policemen had ties to the Cypriot underworld, with some moonlighting as private security for the businessman; leaked recommendations show that a report to the Attorney-General recommended seven individuals be charged in the case (CyprusMail, Apr. 2017). A police sergeant and three officers have been suspended (CyprusMail, May 2017).

Public services iconPublic services

High risk

There is a moderate to high risk of corruption when dealing with Cyprus' public service sector. 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. 2014). Companies identify inefficient government bureaucracy as among the most problematic factors to doing business (GCR 2017-2018). Legal certainty in Cyprus is not always guaranteed; the soundness of laws and policies is often contested in the courts, leading to delays on important matters (SGI 2017). However, overall procedures and regulations are transparent and applied without bias to foreign investors (ICS 2017).

Starting a business takes the same number of steps as the European average, but the time required is significantly shorter (DB 2018). Dealing with construction permits in Cyprus is almost three times more time-consuming than the regional average (DB 2018).

Land administration iconLand administration

Moderate risk

There is a moderate risk of corruption when dealing with the Cypriot land administration. Almost half of surveyed citizens believe that abuse and bribery are widespread among construction inspectors and officials issuing building permits (European Commission, Feb. 2014). Companies report moderate confidence in the government's ability to protect property rights (GCR 2017-2018). 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 (ICS 2017). The government is currently attempting to reform the property registration system (Cyprus Property News, Sept. 2017). Land expropriation may occur only for public purposes and in line with international law; investors who have to face expropriation receive compensation (ICS 2017). The Government's Department of Lands and Surveys follows internationally accepted procedures (ICS 2017). Registering property takes slightly less time than the regional average (DB 2018).

The land registry is under the 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, stemming from 2012 (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 iconTax administration

Moderate risk

The tax administration in Cyprus carries a moderate corruption risk for companies. Companies indicate that irregular payments and bribes in the processes of making tax payments are fairly rare (GCR 2015-2016). 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, half of businesses report that tax rates represent an obstacle to doing business (ICS 2017, European Commission, Feb. 2014). Cyprus' tax administration does show weaknesses in its tax collection and processing mechanisms, leading to tax evasion and avoidance (SGI 2017). Uncollected taxes in Cyprus amounted to EUR 2.5 billion in 2016 (SGI 2017).

While companies make tax payments more frequently than elsewhere in the region, the total time spent on filing taxes is significantly below the regional average (DB 2018).

Customs administration iconCustoms administration

Low risk

There is a moderately low risk of corruption in Cyprus' customs administration. Companies indicate that bribes and irregular payments during customs procedures are fairly uncommon (GETR 2016). 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). Businesses give satisfactory scores to the efficiency and time-predictability of the clearance process (GETR 2016). Burdensome import procedures are mentioned as among the most problematic factors for importing, while corruption at the border is infrequently cited as a problem (GETR 2016).

Companies require less time to comply with border compliance procedures, but the costs involved significantly exceed regional averages (DB 2018).

Public procurement iconPublic procurement

Very high risk

There is a high risk of corruption in Cyprus' public procurement sector. The vast majority of businesses think practices of favoritism hamper competition in Cyprus (European Commission, Feb. 2014; GCR 2017-2018). Diversion of public funds is seen as frequently occurring (GCR 2017-2018). 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 (European Commission, Feb. 2014). 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). Foreign companies submitting applications for tenders in Cyprus have expressed concerns about opaque rules and possible bias by technical committees responsible for formulating specifications and reviewing tender submissions (ICS 2017).

Former Paphos mayor, Fidias Sarikas, was sentenced to four years of imprisonment in connection with corruption in the Paphos' sewerage system (Cyprus Mail, May. 2017). Four other municipal councilors were also sentenced to between four and five and half years of imprisonment each for their role in the case (Cyprus Mail, May. 2017). The charges were related to a scheme where private contractors paid kickbacks to board members of the municipal sewage system in Paphos in a bid to gain construction and operation contracts (Cyprus Mail, May. 2017).

Legislation iconLegislation

The Cypriot Criminal Code criminalizes 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 (GLI 2017). 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. Corporations can be held liable for corruption offenses (GLI 2017). 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 2016). Cyprus has ratified the COE Criminal Law Convention on Corruption and adopted legislation introducing offenses 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 organizations. Gifts and facilitation payments may be illegal depending on intent (GLI 2017). Amendments introduced to the Cypriot anti-corruption framework eliminated some past inconsistencies (GRECO 2016). The government has generally implemented anti-corruption laws effectively (HRR 2016). However, the European Commission has criticized Cyprus for investigating a relatively small number of corruption cases (GLI 2017).

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 Organisation, the 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.

Civil society iconCivil society

The Cypriot constitution provides for the freedoms of speech and of the press, and the government respects these freedoms (HRR 2016). Media outlets are owned by private and state entities, and private media outlets are effectively able to compete with public media outlets (FitW 2016). There are concerns that financial interests are increasingly limiting the degree to which reporters are able to report critically (SGI 2017). Cypriots used the internet without any government restrictions (FitW 2016), and the media environment is considered 'free' (FotP 2017).

Cyprus's government generally respects the right of association (HRR 2016). The role of civil society organizations (CSOs) is increasing and many CSOs come up with policy proposals (SGI 2017). Fighting corruption is one of the top priorities of civil society (SGI 2017). The government does not regularly consult outside actors in the policy-making process (SGI 2017).

Sources iconSources