By Stelios Orphanides
Cyprus will have to convince the European Commission that a naturalization scheme that fetched €3.3bln and kept the economy afloat was not a passport selloff, Interior Minister Socrates Hasikos said on Tuesday.
The minister added that the figures do not include a total of €615m of deposits affected by 2013 banking crisis, in which depositors at Laiki Bank, lost all their uninsured deposits — in excess of €100,000.Following the deposits haircut, the government decided to compensate foreign depositors with a Cypriot passport if their loss exceeded €3m.
“The reason the amount of the write-down is not included in the €3.3bn is that the write-down is not considered an investment,” the minister of interior said.
The speedy naturalisation scheme provides for a Cypriot passport to an investor and his family members in exchange of an investment of as little as €2bn, he said.
An additional amount of roughly €700m in real estate investment flew into the economy from another scheme which provides a permanent residence permit to buyers of homes worth €300,000, Hasikos said.
“The government’s aim is to attract foreign investors to Cyprus and the implied strengthening of the Cypriot economy,” Hasikos said.
“Initially, some service providers attempted to take advantage of the scheme via a so called back to back loans,” which provided for a loan to the investor equal to the amount of the investment, he said.
The government blocked this practice as it was a “white elephant” for the economy, he added.
The target of the government, which treats information about the scheme with outmost secrecy “is not to sell off citizenships,” Hasikos said.
According to information obtained by the Cyprus Business Mail, since 2013, the government has granted more than 1,000 citizenships to investors, a figure confirmed by the €3.3bn in investment inflows.
“I am sad to see that several private persons, in their attempt to promote the scheme, they present it as a method of selling Cypriot passports,” he said. “Aggressive promotional methods and deceiving or unflattering advertisements bring the opposite results. They not only tarnish the scheme’s image but above all, they also cause multiple problems to the government’s effort to defend the scheme before the European Union.”
Political analyst Christophoros Christophorou, author of the author of the Sustainable Governance report on Cyprus for the Bertelsmann Foundation, said recently that the EU may consider the naturalisation of investors as a kind of “Trojan horse” as it has the potential to undermine the policies of the EU and other member states.
“While we managed to offer reassurances to the European Commission, at this moment, because of these unacceptable practices of some service providers and in particular of some aggressive advertisements, mainly in social media, we are asked as a Republic to defend our scheme anew to the European Commission and fight for its existence,” the minister said.
The new scheme, revised in September, includes provisions that strengthen real estate, he said.
“Still, it has been discovered that some developers apply this to get rich quickly.”
In some cases, they sell properties at unjustifiably high prices, which damages Cyprus’s reputation as an attractive investor destination, Hasicos said.