With the announcement last December that the UK is suspending its 'Golden Visa' scheme, international banking expert Robert Lyddon discusses with Lawyer Monthly the use of other Golden Visa schemes, why they are so popular and their frequent use in money laundering schemes.
Recent editions of the British Airways “High Life” magazine have included an insert from St Kitts and Nevis that reads initially like an offer of a warm winter break – “The Perfect Winter Destination”. Its proposition for citizenship is dressed up as an ecology play: a contribution to the “Sustainable Growth Fund” is presented as “a faster, less complicated route to receiving citizenship”. It is cheap as well: US$205,500 for a family of four, including a nominal US$11,500 for so-called “Due Diligence”. The benefit is that St Kitts and Nevis levies no personal income tax.
The Paradise Papers and the Panama Papers have focused attention on two other jurisdictions (Bermuda and Panama) and on the common objective of tax-reduction. They have also revealed how many jurisdictions are involved in this business, and how access to their facilities is not limited to those who have obtained their wealth through overtly legal means and who wish to shield it from taxation.
The revelations have included a smattering of cases of corrupt governmental kleptocrats and of “businessmen” whose wealth has been derived from criminal, or at least highly suspicious, activities: shared objectives are shielding their wealth from seizure and evading justice in their countries of origin.
Involvement in this business is not limited to countries referred to by bankers as “sunny places with shady people”. Offshore locations do for winter sun, but not all year round. For that there is the EU. Numerous EU countries have a Golden Visa scheme, but the same concerns that surfaced on the back of the Panama and Paradise Papers are now casting a shadow over these.
Reuters reported on December 6th that the UK had decided to suspend its Tier 1 Investor visas, as part of a crack-down on organised crime and money laundering.
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. The visas have brought in billions of pounds of investment, into high-end property, soccer clubs and UK businesses, but the provenance of the individuals – and of their wealth – has been an issue of increasing concern.
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.
EUObserver recently reported on the case of Bulgaria, where naturalisation certificates are available to all-comers. EUObserver quoted a former Director of Citizenship at Bulgaria's Ministry of Justice, who said that an informal charge of between €500 up to €7,000 was being levied, depending on the wealth of the individual, regardless of their claim’s legitimacy.
In the face of these strong headwinds Cyprus, however, continues its operations unabashed. Ever since its accession to the EU it has had its “Cyprus business model”, whereby “introducers” developed business propositions for customers outside Cyprus, and then established legal entities domiciled in Cyprus and banking facilities with indigenous banks.
Close connections have been shown to exist between these introducers – in the form of law offices, accountants and company formation agents - and senior politicians and bankers. Indeed, the current president’s own law firm is a prominent introducer.
Cyprus has featured in the Panama Papers, the Paradise Papers, the Paul Manafort and Hermitage/Magnitsky affairs (in both of which Bank of Cyprus was heavily involved), and Liberty Reserve (where Hellenic Bank was prominent).
Cyprus undertook to the European authorities and the IMF to clean up its act, in exchange for its financial bailout in 2012/13.
However, this promise was a dead letter: the deposits of Russian persons in the largest Cyprus banks were converted into shares under the terms of the bailout. The largest single shareholder in Bank of Cyprus is Viktor Vekselberg, who is subject to formal US sanctions. Hellenic Bank – the other systemically important Cypriot bank – counts amongst its main shareholders Wargaming Group Ltd, a Belarusian-Cypriot video game company founded in Minsk in 1998.
Cyprus put in place its Golden Visa scheme soon after the bailout, and it has since attracted over 3,000 users, and brought in fees of EUR4.8 billion.
The foreign party must purchase property with a value in excess of EUR500,000, and invest at least EUR2 million in a national development fund, Cyprus businesses or Cypriot government bonds. This buys a Cypriot passport and unfettered access to the EU.
The scheme has come under the scrutiny of EU and US regulators as it has emerged that both Cyprus regulators and local banks were turning a blind eye to the bona fides of funds coming into the country.
Cyprus’ authorities again pledged to improve their AML/CTF efforts and indeed, on paper, Cyprus has strong legislation. Yet the gravy train keeps rolling, as implementation in practice remains in the hands of the well-connected “introducer” law, accountancy, and company formation firms.
