Cyprus has declared war on international financial crime, adopting tough anti-money laundering laws in its drive towards EU accession, but is finding it difficult to shake off a tax-haven stigma.
"I think government anti-money laundering legislation is among the strictest in the world, and the real problem is with this image of a tax haven, which needs to be rectified," said financial analyst Pambos Papageorgiou.
"We need to be seen to be clean and the government needs a coordinated PR campaign to address that fact."
A preferential tax regime, a web of double-taxation agreements and the country's strategic location have made Cyprus an important international financial hub.
Foreign companies account for some five percent of the island's GDP, while resident international companies are important employers.
"The fact that Cyprus is an international business center brings it under scrutiny, but I don't think all this [bad publicity] is really justified because it is doing everything that it needs to do to combat money-laundering," said Phidias Pilides of PricewaterhouseCoopers.
"You can never safeguard 100 percent, but Cyprus is minimizing any exposure to money-laundering."
Even though Cyprus has managed to stay off offshore tax haven blacklists by satisfying international monitoring bodies, damaging allegations abound.
Only last week it was forced to give a roll call of international organizations backing its stance on money-laundering when ex-CIA director James Woolsey was quoted in Italian daily
The unwanted allegations were accompanied by other media reports linking the island to the prime suspect for the Sept. 11 suicide attacks on the US.
"We are happy the government, in the last two to three years, has made a concerted effort to remove its money-laundering tag, and we look forward to it taking further steps in lifting this shadow," Cyprus International Business Association (CIBA) president Mehran Eftekhar said.
Eftekhar blames the "ignorance" of foreign journalists by not distinguishing between the government-controlled south and the Turkish-held north of the island.
"The problem is there are ignorant journalists, say in America, that don't make the distinction between north and south Cyprus. They should make clear that north Cyprus is a money laundering center."
This view was backed by Papageorgiou. "Bin Laden was using banks in the occupied part to fund organizations."
A decade ago the image of Cyprus as a safe haven for dirty money may have been justified, but a raft of legislation approved as part of the drive for EU membership has enabled the island to clean up its act.
"What is happening now was not in practice 10 years ago ... there has been OECD pressure for greater transparency," said Eftekhar.
The fact that the IMF, the G8's Financial Action Task Force, the EU, the Council of Europe and the OECD have all given Cyprus a clean bill of health is testimony to its efforts against financial crime.
The latest pat on the back came from the IMF which issued its report in July, after carrying out an inquiry at the government's request.
Cyprus had grown accustomed to tarnishing media allegations suggesting offshore banks held fortunes belonging to deposed Yugoslav leader Slobodan Milosevic or the ill-gotten gains of the Russian mafia.
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