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Cash-For-Citizenship: What’s Next for Europe’s ‘Golden Passport’ Holders?

In the years following Cyprus’s 2013 financial crisis, the country began to witness an investor boom.

High-rise buildings sprung up along the Limassol seafront. Luxury new villas dotted the Paphos skyline. And in Nicosia, boutique hotels hummed with activity.

Extraordinarily, this period of dramatic growth followed what is considered by many to be the darkest era in Cypriot history since the 1974 invasion. At its peak, the financial crash, which was caused by the country’s large exposure to the then failing Greek economy, saw banks shut down, unemployment hit 17.5%, and protesters routinely gathered outside parliament.

Yet in just a few years, Cyprus went from boom to bust and by 2017 had the highest rate of economic growth and employment in the eurozone.

At the heart of this recovery was Cyprus’s ‘golden passport’ scheme, officially termed the Citizenship for Investment Programme (CIP) which afforded high net worth individuals the chance to obtain Cypriot and consequently European citizenship following an investmentof at least $2 million. The scheme delivered a large chunk of Cyprus’s national income – around $1.7 billion annually – and played a key role in  in helping Cyprus’s economy return to positive growth rates.

Yet this turnaround came at a cost.

In 2020, a covertly filmed documentary by Al Jazeera claimed that the Citizenship for Investment Programme served as a gateway for crime and corruption. According to the report, authorities had rubber-stamped a number of citizenship requests without following due process or proper background checks. And so, individuals under criminal investigation, international sanctions or even serving prison sentences, slipped through the cracks to secure Cypriot passports and in turn access to banking, work and visa-free travel in the European Union.

The scale of the scandal surrounding CIP is unprecedented. Indeed, an official inquiry headed by Myron Nicolatos, the former Cypriot chief justice, found that 51 per cent of those who received passports for investment should have been rejected under Cyprus’s due diligence rules, which are put in place to prevent money laundering, tax evasion, and sanctions-busting. It was recommended that a further 860 should have their citizenship revoked immediately.

As Laure Brillaud, an anti-money laundering policy expert at Transparency International, explains: ‘Several of the billionaires named in the Cyprus Papers are politically exposed persons in their home countries. They should not have qualified under the programme since 2019, though it appears that this rule may have been routinely flouted.’

Leaked documents reveal that those who bought Cypriot passports include Ali Beglov, a Russian national who served a prison sentence for extortion, Vietnamese businessman Pham Nhat Vu, whose passport was approved a month after he was charged with giving millions of dollars in bribes in a telecommunications deal, and Jho Low, the Malaysian financial fugitive who has become the face of the infamous 1MDB scandal.

Leaked documents also reveal that billionaire Russian brothers Alexei and Dmitry Ananyev, who along with their wives make up four of the 860 individuals deserving a cancellation of their passports, secured Cypriot passports just 6 months before they were accused of embezzling close to $2bn out of their own bank, Promsvyabank (PSB), and just days after the Russian central bank finalised their inspection of PSB, which eventually led to a decision to place the bank into administration. Alexei and Dimitry deny all wrongdoing.

The brothers, who face criminal charges in Russia, have over the last three years been taken to court by former clients of the bank, many of whom are ordinary Russians who lost their entire life savings, in London, New York, and The Netherlands, in an attempt to retrieve the stolen funds. They are currently on trial in Switzerland.

All the while, the brothers have continued to enjoy the luxuries and freedoms that a Cypriot citizenship affords, such as being able to transfer funds with reduce risk of investigation due to their EU citizenship.

With the likes of Jho Low and the Ananyev brothers able to use their Cypriot passports to evade justice and operate around Europe without repercussion, it is clear the CIP scheme was not fit for purpose.

As this reality became increasingly apparent, and political pressure grew, leaders of the Mediterranean island-nation were forced to react, with the office of Cypriot President Nico Anastasiades announcing on Twitter the ‘abolition of this investment program,’ in November 2020.

The decision was welcomed by anti-corruption advocates and international leaders. EU Commissioner for Justice Didier Reynders praised the decision on Twitter, citing EU President Ursula von der Leyen’s ‘concerns’ over the program.

As the dust now begins to settle on Cyprus’s ‘golden passport’ scandal, questions remain about what the future will bring for citizenship by investment schemes. Laure Brillaud suggests that passports already issued could be revoked, particularly if there is suspicion the applicant used the scheme to ‘launder money or evade justice’. This move will likely be met with resistance, with many already enlisting lawyers to fight for their citizenship.

Meanwhile, others turn their attention to the two remaining EU countries that still offer citizenship by investment schemes—Malta and Bulgaria. With the European Commission issuing letters of formal notice to both countries regarding their programmes, only time will tell if Europe unanimously agrees that citizenship cannot be bought and sold, particularly by the likes of international criminals and sanctioned businessmen.

There are still steps ahead before citizenship by investment schemes are eradicated across Europe. Nonetheless, the majority of European leaders recognise that too often, such schemes are taken advantage of by those that seek to escape justice, avoid sanctions, and transfer illicit funds. It is clear that the days of ‘golden passports’ are now numbered.

 

 

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Cash-For-Citizenship: What’s Next for Europe’s ‘Golden Passport’ Holders?



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