Over the past year, the Cypriot Citizenship by Investment (CIP) scheme has endured a thorny chain of events which ultimately led to its very recent suspension.
From the tough berating of the European Union, to the decision (and ultimate failure) of the Cypriot authorities to revoke the passports of its 26 rogue investors – the “golden passport” scheme has been at the centre of controversy for stakeholders in the citizenship-by-investment arena.
Stormy debate over the passport scheme has of course been prevalent since its inception. The island began offering citizenship through investment in 2013.
Close to 4000 passports are reported to have been granted through the scheme, with investments totalling at approximately 6.64 billion euros between 2013 and 2018. Criticisms have centred around dubious applicants tainted with risks of enabling organised crime groups to clandestine infiltration in Europe.
Nonetheless, the more recent road to the programme’s demise started last year in February. In response to the European Commission’s unfavourable report, the Cypriot parliament passed a bill in February 2019 mandating that with effect of 2020, the rules for the naturalisation programme must have the approval of parliament.
Regulation of the passport programme until then had been shaped at the hands of the government cabinet without need for parliamentary support.
Additionally, the Cyprus government announced last November that it would revoke the passports acquired by a specific coterie of 26 individuals who were inappropriately granted citizenship under the scheme. The decision came after retroactive due diligence revealed a number of cases failing to meet the revamped vetting requirements decided a year prior.
Although Cyprus did not release the names of the individuals, the press was naturally swift to identify such applicants. According to local Cypriot news agency’s, the recipients included top Cambodian officials and their relatives who are subject to sanctions for corruption and human rights violations, as well as Kenyan, Chinese, Iranian and Russian nationals implicated or linked to fraud and other criminal cases, some of whom had been named on US blacklists for global “malign activity”.
On the scandal, the Interior Minister Mr Petrides had commented regretfully, “there were mistakes – it was a mistake not have criteria, for instance for high-risk persons”.
Still, the 26 individuals have not yet been in a rush to pack their bags. To add insult to injury for the Cypriot authorities, a mishap in the law has meant that proceedings for citizenship revocation have yet to be initiated. Indeed, lawmakers were informed last month that the decision to revoke the passports had reached an impasse because the relevant legislation lacks a supplementary clause covering cases of naturalised investors.
Around the same time, the Council of Europe’s MONEYVAL committee published its latest (and not exactly favourable) report on Cyprus. The report states:
“The Cyprus Investment Programme (CIP) is inherently vulnerable to abuse for ML purposes, as is real estate, both in general and as the apparent preferred investment to acquire citizenship.”
The committee said that although Cyprus had broadly taken measures to mitigate key money laundering risks, the risk of vulnerabilities in the investment program had increased exponentially via real estate, the investment vehicle of choice. “These risks have not been properly mitigated. The risks related to the Cyprus Investment Programme have not been assessed comprehensively,”
Supervision of the real estate sector should be significantly enhanced, the MONEYVAL report said, saying there should be more preventive measures by real estate agents. While Cyprus was instrumental in assisting other countries, it was “not very proactive” at freezing and confiscating foreign criminal proceeds at its own initiative. Critical gaps were identified in the due diligence process, with the risk-mitigation measures taken by the Cypriot banks considered to be so inadequate that they “cannot be relied upon to police the CIP.”
With all of this taken into account, it is perhaps then unsurprising that last month the Cyprus parliament took the decision to temporarily block the issuing of passports under the CIP scheme until new regulations have been approved by parliament. Consequently, applications submitted after January 31st 2020 are not being reviewed by the government.
Consequently, despite plentiful attempts to transform the programme and tighten the vetting process since its inception seven years ago, the Cypriot authorities have still yet to get it quite right. Redemption of the Cyprus programme will require careful treading in waters already severely tainted by turmoil. Although comparisons can be deemed odious, one cannot but congratulate Identity Malta for having avoided the temptation to lighten its due diligence filters when onboarding Golden passport applicants. Alex Muscat, the Maltese parliamentary secretary responsible for Identity Malta has recently announced that improvements will be introduced as the old scheme exhausts its threshold limit.