Intelligence

A safe haven

Citizenship and residency by investment – known by the acronym CRBI – has become a fully-fledged industry, with a number of organisations increasingly worried that it is becoming far too easy for nefarious individuals to procure for themselves EU passports.

“Just like a luxury good, European Union (EU) citizenship and residency rights can be bought. There are many buyers, and there is no shortage of suppliers, which explains why investment migration is a growing, multibillion-euro industry. The rules of the game in this diverse market are shaped, on the one hand, by government officials who have effectively demonstrated their preference for quick gains over longer-term impacts, and, on the other hand, by profit-driven private sector players.”

So opens the European Getaway report published by Transparency International (TI) and Global Witness (GW) in September 2018. Cash for visas or citizenship is not a new concept: it has been going on for years, with countries offering citizenship in exchange for some form of investment in the country. Yet while in the past such practices were limited to warm Caribbean islands, it is now an increasingly common practice in the EU.

A high-risk strategy

While the theory behind the practice is sound, the reality has often brought quite different results.

“These schemes pose a series of risks in for individual EU member states and for the bloc as a whole,” says Laura Brillaud, policy officer – anti-money laundering at Transparency International (TI). “On the one hand, there is the risk of people with high-risk profiles and corrupt individual criminals entering the EU, and on the other there is the risk of corruption of the states themselves.”

The truth of the matter is that having a second or even third passport can be advantageous for some people for many legitimate reasons, especially if the passports are European and grant holders visa-free access to more than 100 countries. Many of the countries in emerging Europe offer attractive passports. According to the Passport Index, which ranks countries by the number of places that can be visited visa-free, the weakest passport in the region (and indeed the whole of Europe is Kosovo (ranked 81st globally), with the strongest passports being those of Hungary and the Czech Republic (both ranked fourth).

As a whole the emerging Europe region has of late made quite a number of negative headlines with regards to the practice of selling citizenship and residency by investment (CRBI), with Moldova and Montenegro joining the ranks in 2018 and signing contracts with Singapore-based Henley and Partners, a company that specialises in the so called ‘golden visa’ to design, implement, and internationally promote the programme.

According to the European Gateway report, Hungary and Latvia are the two biggest contributors from the emerging Europe region: “Spain, Hungary, Latvia, Portugal and the United Kingdom (UK) have granted the highest numbers of golden visas – more than 10,000 each – to investors and their families.”

Both Hungary and Latvia have grant residency to over 90 per cent of applicants, the report finds. Which poses a significant threat to the social, political and diplomatic risks of the golden visa scheme.

A safe haven

Yet the issue still stands as to whether those purchasing citizenship by making investments are in fact law abiding citizens who are wealthy and just want to boast about the various citizenships they hold, or if they are individuals with sketchy backgrounds looking for somewhere far from the reach of their home jurisdictions to call home.

“If you have a lot of money that you acquired through dubious means, securing a new place to call home far away from the place you stole from isn’t just appealing, it’s sensible,” said Naomi Hirst, senior campaigner at Global Witness.

As TI’s Ms Brillaud points out, there is the risk of corruption of the states themselves, something which became apparent at the end of October, when Bulgarian prosecutors announced that they had broken up a scam run by state officials which enabled thousands of foreigners to obtain Bulgarian passports for cash — and with them visa-free travel across the EU and beyond.

According to reports by Euractiv, Bulgarian media cited prosecution sources as saying that the head of the country’s passport agency, Petar Haralampiev, had been arrested along with more than 20 other people — his subordinates and suspected intermediaries between the agency and those seeking Bulgarian passports. The scheme is alleged to have catered to fraudulent applicants from Ukraine, Moldova and Macedonia, all of which have significant minorities of ethnic Bulgarians.

Under the scam, prosecutors say applicants paid up to 5,000 euros to obtain a fake certificate of Bulgarian origin. Thousands of people reportedly took advantage of the scheme, with reports suggesting the agency was issuing around 30 fake certificates per week.

Bulgaria is not alone in this, as Hungary has also been under fire following a report published by Transparency International and the Fiscal Responsibility Institute Budapest (FRIB).

“Golden visas have been a failure for Hungary,” said Miklos Ligeti, TI’s head of legal. “They have resulted in horrible losses for the state budget, but have substantially enriched those unidentified final beneficial owners who lurk behind the mostly off-shore intermediary companies that trade the golden visa bonds.”

When CRBI goes wrong

While foreign investment is often good for a country’s economy, it can just as easily go awry.

Generally speaking, CRBI and golden visas are issued in return for investments into the county, through the purchase of investment bonds or investments in property. Such schemes should always be transparent. However, the reality paints a much darker picture for the validity of such programmes. Whilst they may bring foreign domestic investment into the country, it is not always done so through the appropriate channels, as in the case of Hungary.

In addition, locals are not always keen on the investment plans of those granted citizenship through investment. A great example is that is former Thai Prime Minister Thaksin Shinawatra, who was given Montenegrin citizenship after purchasing the island of St. Nikola. Mr Shinawatra was deposed in a coup in 2006 and was subsequently stripped of his Thai passport.

A Montenegrin NGO, Porat Budva Pizana, mobilised citizens from the small town of Budva in Montenegro to protest against Mr Shinawatra’s plans to build a hotel with an accompanying 500- berth marina on St Nikola.

According to the NGO, “St Nikola is the largest island in Montenegro and represents a natural pearl, not only for the town of Budva, but for the whole country. It is important that the island be preserved and saved from construction and development.” The NGO argues that rather than developing a commercial property, the area should be preserved and developed into a forest park with recreational facilities, and that centuries of traditions and the protection of a countries natural resources and natural habitats should not be compromised in the name of investments.

Based on the findings of the European Getaway report, while they do not suggest the removal of programmes in the EU or globally, they do advocate for better regulation on the issuance of visas and/or citizenship as well as share with EU authorities the details of those visas granted, in particular where applications were denied.

“Because member states have a collective obligation to ensure the safety of citizens and the integrity of European security and justice objectives, it is important to cast a wary eye upon such schemes. Should member states decide that they want to continue profiting from the controversial trade in passports and permits, it is critical, at the very least, to harmonise and enforce high standards of transparency and due diligence in the sale of residency and citizenship across the EU,” concludes the report.