Cyprus Mail
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‘Golden visas’ risk being exposed to fraud, insider says

It is estimated that Cyprus raised 4.8 billion euros from its passport scheme

By Stelios Orphanides

Foreign investors applying for a Cypriot ‘golden visa’ may be exposed to malpractice and fraud if the government decides to grant companies or individuals selling investments the right to operate as licensed advisors, a stakeholder said this week.

“This is like allowing the producers of medicines to act as doctors as well,” said Akis Kyradjis, vice president at Arton Capital, which advises high-net-worth individuals (HNWI) on residency and citizenship matters. “We find it hard to believe that the government will make Cyprus the only country in the world to declare officially that it allows conflict of interest in providing professional services to investors.”

Kyradjis said that while the government had taken measures to reduce the risk of abuse in other areas, it had not taken a final decision over the licences, and “rumours” suggested that it was considering this.

The criteria for applicants, as published on the website of the “Committee of Supervision and Control for the Cyprus Investment Programme” requiring applicants to present clean criminal record and various other certificates, do not address the question raised by Kyradjis. A code of conduct which applicants must sign merely stipulates that registered advisors must avoid conflicts of interest “between their organisations and their clients, business associates, government officers and other professional associates” or inform their clients “in writing”. The supervisory committee is already reviewing applications after the submission deadline expired on Wednesday and the register is scheduled to be published on July 31. Finance Minister Harris Georgiades and Interior Minister Constantinos Petrides did not respond to a request for comment.

The scheme, introduced in its current form four years ago, was last updated in May, when the government announced new measures to regulate the business. Last year alone the scheme allowed 503 investors to acquire a Cypriot passport for themselves and a further 510 for family members.

Investors are required to invest at least €2m in real estate or a company or shares in one. Alternatively, investors may also invest €2m in securities offered by investment companies licensed by the Cyprus Securities and Exchange Commission, or a combination of the above.

The supervisory committee was introduced based on a decision of the council of ministers in June. The code of conduct which is also a novelty, also includes “know your customer’s customer” practices aiming at reducing the risk of money laundering, in addition to a ban on advertising the passport as a product. The government also announced the introduction of an annual 700 cap in the number of passports offered to high net-worth individuals seeking to acquire Cypriot citizenship.

But should investment sellers also become eligible to register as service providers, the island  – which in the past offered citizenship to controversial individuals – could “suffer another huge blow to its reputation as a transparent, dependable and ethical destination for foreign investors”, said Kyradjis.

“Cyprus will thus become the object of international ridicule.”

According to official documents leaked earlier this year, a total of 148 entities, mainly law firms and corporate and accounting services providers, helped foreign investors acquire a Cypriot passport. The figure also included firms with family links to the ruling elite, including current and former members of the government and the parliament.

“The citizenship by investment industry [globally]is ‘huge,’ as (US) President (Donald) Trump likes to say,” Kyradjis continued. “Since its inception 40 years ago, it continues to grow at a rapid pace of over 20 per cent per year and has the potential to become a $20bn industry. Every year, more and more countries are discovering that they can attract significant amounts of foreign direct investments by leveraging their citizenship.”

Cyprus, which boasts an inflow of €5bn in foreign investment triggered by its ‘golden visa’ programme in recent years, is already facing increasing competition in the European Union.

“In Europe alone, seven new countries including Hungary, Ireland, Portugal, Greece, Latvia, Spain and Malta, have launched their programmes in the past six years,” the Arton Capital executive said.

Cyprus, while an EU member with an undiversified economy relying mainly “on tourism and foreign direct investment”, is still “ideal” as a destination for investment in residence or citizenship, Kyradjis.  This could allow it to attract a portion of the 20,000 citizenships offered to investors every year worldwide, or 10,000 in the EU alone.

Compared to the 2.5m in total residence permits and citizenships awarded by the EU every year, the ratio of those benefiting from golden visa schemes is “negligible” and does not exceed 0.5 per cent, he said.

In March, the European Commission announced its intention to scrutinise the golden visa programmes of member states after anti-corruption watchdog Transparency International said that such schemes undermined the EU’s fight against corruption and money laundering.

Documents seen by the Cyprus Business Mail show that the Cypriot scheme attracted mainly candidates from Russia, Ukraine, the Middle East and South and East Asian countries, many of which are considered high-risk jurisdictions in terms of money laundering.

Five years ago, the island took drastic measures to improve its legislation and regulations against money laundering. Two months ago, it also launched a PR campaign to improve its image abroad, tarnished by reports in the past linking it to the legalisation of illicit funds.

Kyradjis said that he was confident that the EU will still not “close down” the golden visa programmes, which will allow Cyprus to attract investment this way from abroad.

“The awarding and revoking of citizenships remains a sovereign responsibility, as already confirmed by the European Parliament,” he said. “This means that countries are free to decide how they will attract foreign direct investments, just as long as their efforts do not undermine the security and stability of the region.”

Despite his reservations over the possibility the government will change the regulations over who can operate as licensed advisors, Kyradjis said the impact the passport scheme has had in boosting the economy was clear.

The Cypriot economy, which in 2015 emerged from a prolonged recession caused by a twin fiscal and banking crisis in 2013, preceded by a property bubble bust five years before, expanded last year 3.9 per cent and is expected to grow at a similar pace or faster this year. This is expected to help further reduce the unemployment rate which until last year was in the double-digit area.

“Although there aren’t any reliable published statistics, it is evident that the Cyprus programme has been driving the high-end property market and leading to a drastic reduction in unemployment in the construction sector,” Kyradjis said.

It has also created employment for lawyers, accountants, architects, engineers and administrative staff in the private sector, while at the same time boosting tourism.

“So, the benefits are widely spread and the notion that only developers benefit is entirely wrong.”

In addition, the scheme also led to a “rapid de-escalation” of non-performing loans in the banking system, which account for €20bn or 43 per cent of the total, Kyradjis said.

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