The citizenship by investment scheme remained “fragile until the end”, resulting in the loss of millions in public revenue, the Audit Office said on Monday as it published its report into ‘golden passports’.
Following a cabinet meeting later in the day, government spokesman Marios Pelekanos said a response would come on behalf of the government “as soon as possible, after the findings of the report are studied with due diligence, alongside the findings of the [separate] Nicolatos inquiry and always taking into account the opinions of the attorney-general”.
The Audit Office dossier contains the findings of a probe into 3,517 cases of individuals who acquired citizenship as investors, but stresses insufficient information was provided by the interior ministry to the cabinet and parliament.
In the main conclusions of the report, it is noted that a very large number of people who used the scheme did not meet the criteria, while least 3,810 additional people were naturalised as relatives (spouses, adult dependent children, or parents) of the investors without any authorisation in the relevant law.
The report added that a number of minors were also given citizenships as children of investors without enough evidence, but were not included in the present audit.
The report emphasised the fact that both the cabinet and the House of Representatives received insufficient information about the features of the applications.
Specifically, it said the interior minister failed to attach the memos he received from the interior and finance ministries on the subject when presenting the proposal to the cabinet.
As a rule, the interior ministry would inform the minister on the applications to be brought before the cabinet, while the finance ministry would inform him whether or not the applicants fulfilled the investment criteria.
Some of these memos, the report said, raised important issues that could either lead to the immediate rejection of the applications or lead the cabinet to question how to exercise its discretionary jurisdiction.
However, the audit showed that the minister either completely omitted said memos or made just a general reference to their contents when presenting information to the cabinet.
The audit office called this “reprehensible and illegal, since it lacked essential information from the body that had the decisive authority”, stressing that parliament was also kept in the dark.
At the same time, the cabinet approved a number of applications in full knowledge that the applicant did not meet the eligibility criteria, on the grounds that they “fell within the spirit of the criteria”.
The audit office stressed that these missteps cost millions in public funds, “among other things from the illegal use of the reduced VAT rate and the illegal naturalisation of the thousands of people who were given Cypriot citizenship as members of the investors’ families, without these persons making any investment”.
According to the report, €200 million were lost from VAT, as well as €25 million from the non-payment of fees.
In addition, €1 billion worth of contracts were cancelled while contracts worth an additional €3.5 billion are still pending, with the report observing that no satisfactory mechanisms were ever in place to prevent the likelihood of fake investments or their premature abandonment.
In addition to the possible revocation of citizenships, which should be considered by the independent committee on the matter, there are issues that should be considered by the tax department, the audit office said.
The impression created, the report said, is that in addition to the scheme’s existing shortcomings, some public authorities did not take into account the current legal and regulatory framework and essentially acted as they pleased.
“Through these examples, the possibility of abuse of power by persons who exercised public authority can be seen and the problem is not limited only to the astute ones who abused the Cyprus Investment Programme, taking advantage of its loopholes, shortcomings and weaknesses,” the report said.
In a tweet, auditor-general Odysseas Michaelides said the report is his office’s contribution to auditing “a scheme that defamed Cyprus internationally, so that there is accountability, attribution of responsibilities and revocation of citizenships”.
Asked about this, Pelekanos declined to comment, repeating that the government would respond after studying the report.
The report concluded that its very existence “confirms the position that was expressed from the very beginning, that enquiries by the audit office and [Nicolatos’] research committee were not mutually exclusive, but on the contrary could complement each other while running in parallel”.
The European Commission had launched infringement proceedings against Cyprus initially in October 2020, but the citizenships programme was axed in November of the same year after an undercover Al Jazeera video showed former House president Demetris Syllouris and former Akel MP Christakis Giovanis offering help to a pretend Chinese businessman with a criminal record to secure citizenship.
The commission had flagged the Cypriot scheme over concerns that people with no links to the country other than their investment were granted passports.
Nicolatos’ inquiry into the scheme found that 53 per cent of the 6,779 citizenships granted overall were unlawful, and said politicians and institutions had political responsibilities while certain applicants and service providers may be held criminally culpable. The probe covered the period from the scheme’s inception in 2007, through to August 2020.
In July 2022, the attorney-general’s office announced they will be prosecuting four individuals in connection with the passports scheme. The four persons face five counts on two charges – conspiracy to defraud the Republic, and influencing a public official in violation of the law that ratifies the Council of Europe Convention on the Criminalisation of Corruption.