The Kalogirou dossier released on Tuesday documents a litany of shortcomings concerning background checks on people applying for the citizenship-by-investment (CBI) programme – weak spots that enabled apparently highly suspicious – sometimes outright fraudulent – activities to go undetected.
From the interior ministry – which until recently did little more than rubberstamp applications filed by promoters – all the way to the banks, the process was severely flawed.
“It transpires the interior ministry essentially acted as a processor (expediter), something akin to a filing office, lacking substantive capability to check and assess the investors. For any checks that did take place, the ministry seems to have relied exclusively on third parties… and its role was limited to gathering the relevant documents (without conducting a substantive check on their content or authenticity),” the dossier said.
“Moreover, following naturalisation, no ongoing monitoring appears to have taken place, not even for cases where subsequently negative media reports came to their attention or where the ministry received other negative information from other government agencies.”
The M127 application form was outdated, while on several forms filed the fields with the names of the applicant’s spouse/children were missing, as were the names of those referring (vouching for) the applicant.
The ‘references’ field was often signed by two to three employees of the promoter declaring they knew the investor.
“We consider these statements as potentially false and/or misleading, given that the signatories usually consisted of secretarial staff or interns in accounting/law firms without actual knowledge of the investors,” the dossier noted.
Another field concerned a ‘certificate of good standing’ – involving convictions or other judicial proceedings brought against the applicant. In most instances this field was not filled out, and “it appears the interior ministry did not insist on the meticulous completion of all the fields on the application forms.”
Providing false information during the application process is grounds for rescinding a citizenship.
Applicants’ resumes were at times too generic, and in some cases not provided at all. The resumes contained no information allowing for an assessment of the person’s financial standing, nor a “convincing explanation as to how the investor was in a position to set aside €3 million to invest in Cyprus.”
In many cases, the bills of sale provided to prove the investment in Cyprus or the purchase of property lacked details, such as the house plans or the title deed.
What’s more, in the majority of instances the applicants appear to have paid over 200 per cent of the true market value of the investment: “Often the service providers/promoters were the same entities offering the investment opportunities – or else had close ties to them – if one takes into account that the same promoter always appears to have promoted investments by the same developer.
“The value of the ‘investment’ seems to have been artificially inflated in order to comply with the criteria of the investment programme.”
In one instance the investor purchased a number of properties for a stated price of €2.25 million – whereas the value based on land registry data came to €935,000 – a 240 per cent overvaluation.
In two cases it appears the investors did not meet the financial criteria. While their applications were initially denied, they later got the green light after the same rejected application was re-examined, “following an intervention by the then Finance Minister and the subsequent change of the criteria in the CBI.”
According to the report, there currently exists no mechanism ensuring that a permanent residence purchased for the purposes of the CBI, is maintained for life.
In its findings, the panel strongly recommends that for each of the promoters listed (names redacted), the appropriate regulatory bodies should check whether they carried out due diligence when entering into a client relationship with the programme’s investors.
That’s because in many cases these promoters were also offering other administrative services to the applicants beyond the citizenship scheme.
In one instance the application – with a law firm being the promoter -stated that it was signed in the presence of the registrar of a district court. However a check of arrivals and departures from Cyprus revealed that the two persons named were not in Cyprus on the date in question, making this a false sworn statement – a criminal offence.
Regarding the role of the banking system, the report identifies loopholes which could be exploited by applicants to conceal the source of origin of their funds.
In short, the Kalogirou dossier explained, in most cases the checks done by Cypriot banks were on the client accounts – developers or other promoters who collected the cash from the investor via a foreign bank.
“Such land developers and other promoters held accounts with Cypriot banks for a long period of time, and therefore transactions relating to these accounts could not easily be categorised as ‘suspicious’ given that these companies were known to the banks…”