By Iole Damaskinos and Nick Theodoulou
Finance Minister Constantinos Petrides in a rare outburst on Friday said the public debate surrounding the citizenship by investment scheme revealed “political hypocrisy exposed in all its glory”.
In response to the accusation of hundred-million-euro losses through slashed VAT collections in the government’s mishandling of the now-defunct scheme said both he personally, as well as the government, “have admitted to weaknesses, gaps and shortcomings” in the programme.
Petrides claimed that the government has addressed these gaps by taking continuous corrective measures, such as strengthening due diligence controls, and that highlighting specific provisions of the programme, which were well-known to all and accepted during its tenure two years after its abolition, was “political opportunism”.
“The attempt to politically exploit the provisions of the programme two years after its abolition, provisions that were fully known and accepted in all the years of its implementation… is nothing short of political hypocrisy,” the minister said.
The passport scandal has resurfaced following the audit office’s report, released on Monday, in which it noted that a very large number of people who were approved under the scheme did not meet the criteria, while at 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.
According to the report, €200m were lost from VAT, as well as €25m from the non-payment of fees. In addition, €1bn worth of contracts were cancelled while contracts worth an additional €3.5bn 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.
Among other things, Petrides mentioned in his statement that everyone at the time was aware and in agreement with the reduced VAT rate to be granted to all naturalised citizens as well as to any Cypriot citizen, based on the criterion that the residence was the claimant’s main and permanent residence, and he asserted that the required cross-checks with the tax department to verify beneficiaries’ entitlement to the reduction, were carried out in a manner that was procedurally correct.
“There was no loss of revenue from the implementation of the legislation. Loss of revenue, much more than what the auditor-general claims, may have resulted from the change in legislation which was a political decision of the House of representatives,” Petrides said.
Petrides also said that the law which allowed a VAT reduction from 19 per cent to 5 per cent on the first 200 sq.m. of a residence, was voted on unanimously in 2016 with the sole exception of the Greens, quoting “an opposition MP” who allegedly explicitly stated: “We are aware that this law will allow for palaces to be freed [from VAT], super-luxurious palaces of 500 square metres. This will happen.”
“The programme was implemented in a particularly critical period when the economy and the banking system were in danger of collapse,” Petrides said, and the VAT reduction benefitted wealthy as well as middle-class Cypriots, EU nationals, naturalised citizens and development companies alike.
Earlier on Friday, the interior ministry and the audit office remained locked in war of words over the programme as the two sides sought to discredit each other and shift the blame.
Interior Minister Nicos Nouris, speaking on CyBC radio, argued that had the audit office carried out proper checks in 2016 then the investment programme could have been saved and may still be in existence today.
Nouris further hit out saying that the audit office is selectively carrying out its work, and in this case it is doing so after the fact.
However, Auditor-general Odysseas Michaelides’ office reiterated that the government consistently sought to block their investigations into the programme. And when they did investigate, the office said, the government sought to downplay or quash those efforts by questioning whether they had the authority to do so.
The office pointed to the case on January 1, 2020 when they had almost completed their report into the naturalisation of a Saudi Arabian investor, five other investors and 36 members of their families, at which point President Nicos Anastasiades sent the office a letter directly doubting their authority to carry out such an investigation.
The interior minister also framed the timing of the audit office’s release on Monday as suspect, pointing to the upcoming presidential elections in February. But the office hit back saying that the report would have been released much earlier had the interior ministry and other government departments cooperated instead of blocking their efforts.
Nouris and Michaelides locked horns at Thursday’s House watchdog committee, which lasted about four hours, which was looking into the audit office’s report. In it, the office reported that the public lost hundreds of millions of euros through the mismanagement of the investment scheme.
Ruling Disy sought to parry cross party attacks on Thursday during the committee meeting, but harsh criticism from main opposition party Akel spilled over into Friday.
Akel MP Christos Christofides warned that his party fears a coverup of the entire scandal.
“Those in power showed yesterday that essentially neither do they accept the Audit office’s report and neither to they accept any responsibility,” he said.
Christofides further stated that some of those involved obtained mythical sums of money on the back of the Cypriot people and that billions owed to the state were lost.
“Through the report it is proven that they broke the law, they violated the criteria which they themselves set and ignored officials who disagreed with them – to serve huge financial interests, which in many cases were their own,” the Akel MP said.
The events on Thursday at parliament drew strong reactions on social media, particularly when Nouris sought to illustrate the difficulty in handing over the burdensome paperwork. He lifted a stack of papers and quipped that they would have had to turn up to work in pickup trucks instead of saloon cars to hand over the documents. Members of the public, however, questioned why the process was not digitised and was instead a symbol of sclerotic government bureaucracy.