Governments, like the UK, are facing increased pressure to restrict or suspend immigration policies that effectively grant wealthy individuals visas, residency permits, or passports in exchange for their “investment” in the nation.
International banking specialist Robert Lyddon speaks with Lawyer Monthly about the use of other Golden Visa schemes, why they are so popular, and how frequently they are used in money laundering schemes in light of the UK’s declaration in December that it is suspending its “Golden Visa” program.
Recent issues of the British Airways “High Life” magazine contain a St. Kitts and Nevis insert that at first glance appears to be an advertisement for a cozy winter getaway: “The Perfect Winter Destination.” A donation to the “Sustainable Growth Fund” is promoted as “a faster, less difficult route to acquiring citizenship,” and it is disguised as an eco-play.
A family of four may purchase it for for US$205,500, including a pittance of US$11,500 for so-called “Due Diligence.” The absence of personal income tax in St. Kitts and Nevis is a benefit. The Paradise Papers and the Panama Papers have drawn attention to two additional countries (Panama and Bermuda) and to their shared goal of lowering taxes. They have also disclosed the number of jurisdictions involved in this activity and the fact that anyone can utilize their facilities, regardless of whether they have amassed income through outwardly legal means and want to protect it from taxes.
The findings have revealed a few instances of kleptocratic government officials and “businessmen” whose wealth was acquired by illegal, or at least extremely dubious, means. Their common goals are to keep their assets safe from confiscation and to avoid retribution in their home nations.
Participation in this industry is not just confined to nations described by bankers as having “sunny places with shady people.” Although not all year long, offshore places are good for winter sun. The EU exists to address that. Numerous EU nations have Golden Visa programs, but these are now under the same scrutiny as others as a result of the Panama and Paradise Papers scandals.
According to Reuters, the UK chose to suspend its Tier 1 Investor visas as part of a campaign against organized crime and money laundering on December 6.
In exchange for an investment of £2 million in UK bonds, shares, or loan capital in UK enterprises, these visas allow non-EU citizens who have lived in their current country for more than three years to enter the country. The visas have attracted billions of pounds in investment into luxury real estate, sports teams, and UK enterprises; nonetheless, there is growing worry about the origins of the individuals and their riches.
These visas allow non-European
Union residents over three years’
entry in return for £2 million in
investment in United Kingdom
bonds, share capital or loan
capital in UK companies.
Recently, EUObserver covered the issue of Bulgaria, where anyone can obtain a naturalization certificate. Depending on the person’s income and regardless of the validity of their claim, an informal fee ranging from €500 to €7,000 is imposed, according to a former director of citizenship at the Bulgarian Ministry of Justice quoted by EUObserver.
However, despite these significant obstacles, Cyprus continues to do business as usual. Since it joined the EU, Cyprus has operated on a “Cyprus business model” in which “introducers” created business proposals for clients outside of Cyprus before setting up domestic legal entities and banking relationships with local banks.
It has been established that these introducers—law firms, accountants, and agents for company formation—have close ties to senior politicians and bankers. The current president’s own law firm is a well-known introducer, in fact.
Cyprus has been mentioned in the Paradise Papers, Paul Manafort, Hermitage/Magnitsky, and Liberty Reserve cases, all of which included Bank of Cyprus in one way or another (where Hellenic Bank was prominent).
In exchange for receiving a financial bailout in 2012–2013, Cyprus promised to improve its behavior to the IMF and European authorities.
This assurance, however, was hollow because the bailout’s terms required the conversion of Russians’ savings in the biggest Cypriot banks into shares. Viktor Vekselberg, who is officially sanctioned by the US, is the largest single stakeholder in Bank of Cyprus. The other systemically significant Cypriot bank, Hellenic Bank, lists Wargaming Group Ltd., a Belarusian-Cypriot video game corporation established in Minsk in 1998, among its principal shareholders.
Soon after the bailout, Cyprus implemented its Golden Visa program, which has already attracted over 3,000 users and generated fees of EUR4.8 billion.
The foreign party must invest at least EUR 2 million in a national development fund, a Cyprus company, or Cypriot government bonds, as well as purchase real estate worth more than EUR 500,000. This grants unrestricted entry into the EU and a Cypriot passport.
As it became clear that both Cyprus regulators and local banks were turning a blind eye to the legitimacy of monies entering the nation, the plan came under the attention of EU and US regulators.
Authorities in Cyprus reaffirmed their commitment to enhancing AML/CTF activities, and on paper, the country has robust laws. The execution in practice is still in the hands of the well-connected “introducer” law, accounting, and company formation firms, though, so the gravy train keeps on rolling.