Avoiding Penalties VS. AML and Reporting Costs

In today’s complex and highly regulated business environment, corporate compliance is more critical than ever. Businesses operating in Cyprus and globally must adhere to strict legal and regulatory frameworks, and failure to do so can result in severe financial and reputational consequences. AGPLAW, a regulated law firm in Cyprus, has been at the forefront of providing professional legal and administrative services since 2006. As a regulated Law Firm and Administrative Services Provider (ASP), authorized by the Cyprus Bar Association, we offer comprehensive corporate services, ensuring businesses remain compliant while minimizing risks and penalties.

Despite the definite benefits of engaging a professional ASP, some clients have questioned the costs associated with compliance obligations, particularly those related to AML/KYC monitoring and DAC6 reporting. While we understand cost concerns, it is essential to recognize that these regulatory requirements are non-negotiable and are mandated by EU and Cyprus law. Opting out of professional secretarial and administrative services, in order to save costs, could expose businesses to significant risks, both financially and operationally. This article examines the importance of engaging an expert ASP like AGPLAW and highlights the pitfalls of non-compliance.

Understanding Our Role as an Administrative Services Provider

AGPLAW provides a full spectrum of administrative services, including:

• Company formations and maintenance in Cyprus and worldwide.
• Appointment of directors and nominee/trustee shareholders.
• Secretarial services, including appointment of company secretary and provision of a registered office address.

Under Cyprus law, all ASPs, including those providing secretarial services alone, must comply with AML and DAC6 obligations. Whether we provide directorship services, registered office services, or solely secretarial support, we remain bound by legal requirements to conduct full AML/KYC due diligence and ongoing AML monitoring. This ensures that our clients operate within the law and avoid the risks of regulatory non-compliance.

The Cost vs. The Consequence: Why Cutting Corners Can Be Costly

Some businesses express dissatisfaction with the additional costs for AML monitoring and DAC6 compliance when using our secretarial services. However, it is crucial to understand that these compliance obligations are imposed by law, not by AGPLAW, to the Company and to the ASP. While the annual secretarial fee is relatively low, the risks associated with non-compliance far outweigh any perceived savings from terminating professional secretarial services.

Avoiding Regulatory Penalties

One of the most overlooked aspects of administrative services is the potential penalties for non-compliance. In Cyprus, corporate compliance failures can result in severe financial consequences. For example:

• Ultimate Beneficial Owner (UBO) Register Penalties: In January 2024, many companies faced substantial penalties due to delays in submitting their UBO register filings. Companies administered by AGPLAW were shielded from these risks, whereas many companies that had opted for zero administrative support incurred avoidable fines. Currently, the penalties for late UBO register submissions are at €100 for non-compliance on the first day of the deadline and thereafter at €50 per day, with a maximum cumulative penalty of €5,000. These requirements apply annually for all companies.
• DAC6 Reporting Penalties: DAC6 is a European directive that mandates the disclosure of cross-border tax arrangements. Companies that fail to meet reporting requirements face significant fines. DAC6 non-compliance can result in penalties of up to €20,000 per infringement in Cyprus, with further penalties imposed on a daily basis for continued failure to report. This is a complicated arrangement that requires expertise, which comes to relatively low cost compared to the penalties applied.
• Missed Compliance Deadlines: Many companies underestimate the importance of timely correspondence with regulatory authorities. In Cyprus, official government correspondence is primarily in Greek. Businesses without an expert ASP risk missing crucial deadlines, leading to penalties and even legal repercussions.

The Value of a Professional ASP.

More Than Just Compliance.

While cost-conscious businesses may view secretarial services as a mere formality, the reality is that professional ASPs provide invaluable benefits beyond compliance:

• Expertise and Risk Mitigation

AGPLAW’s deep understanding of corporate regulations ensures that clients remain fully compliant at all times. Our expertise saves clients from inadvertent regulatory breaches and the associated financial and reputational risks.

• Proactive Compliance Monitoring

Our AML monitoring ensures that companies operate with transparency and integrity, reducing exposure to financial crime allegations. We provide proactive alerts and solutions to potential compliance issues, safeguarding businesses from unexpected legal challenges.

• Efficient Handling of Government Correspondence

With governmental notices issued in Greek, AGPLAW ensures timely and accurate communication with government agencies. Clients avoid the risk of missing critical filings, renewal deadlines, and other obligations that could lead to penalties or operational disruptions.

• A Global Perspective with Local Expertise

With 20 years of experience, AGPLAW has built a reputation as a global force in corporate services. Our clients benefit from a seamless combination of international expertise and in-depth knowledge of Cyprus’s regulatory landscape.

An Investment in Peace of Mind

Consider the case of a business that opted for a minimal administrative services package to save costs. Without professional monitoring, they missed a crucial regulatory deadline, leading to penalties that far exceeded the cost of professional secretarial services. Eventually, they turned to AGPLAW to rectify their compliance issues—after having already incurred significant financial losses.

By contrast, companies that partner with AGPLAW from the outset benefit from our proactive compliance management, eliminating costly surprises and ensuring long-term business stability.

The Cost of Non-Compliance

Choosing to work with a professional ASP like AGPLAW is not an unnecessary expense; it is an investment in business stability, compliance, and risk management. The legal industry is evolving, and regulatory obligations such as AML and DAC6 reporting are becoming more stringent. By entrusting your administrative and secretarial services to a firm with a proven track record, you ensure that your business remains compliant, operationally efficient, and free from unnecessary penalties.

Rather than viewing compliance costs as a burden, businesses should recognize the immense value of professional guidance. AGPLAW stands as a trusted partner, providing expert administrative services that safeguard clients from financial and legal risks while ensuring smooth corporate operations.

If you are considering terminating your secretarial services due to AML and DAC6 compliance costs, think again. The potential penalties for non-compliance far outweigh any perceived savings.

The information provided in this document/article is for general informational purposes only and should not be considered legal or professional advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, the author, publisher, or any related parties make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information. Any reliance you place on such information is therefore strictly at your own risk. In no event will the author, publisher, or any related parties be liable for any loss or damage, including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of this document/article. It is recommended to seek independent legal advice for any specific legal concerns or decisions.