WELCOME! (BUT LEAVE YOUR MONEY BY THE DOOR)

According to an old British nursery rhyme:

“There was a crooked man and he walked a crooked mile,

He found a crooked sixpence against a crooked style.

He bought a crooked cat which caught a crooked mouse

And they all lived together in a crooked little house.”

These days many crooked men and women (and some who may be merely more astute, I suppose, rather than entirely crooked) have found it necessary to go quite a lot further than a mile to find a crooked little (luxury) house in a far-flung country (possibly also crooked) that is willing to give them citizenship and a passport in return for money. But it will cost them much more than sixpence.   Much, much more.   However, there is a growing demand for citizenship in a foreign land and a passport that permits visa-free travel.    In fact, the world’s super-rich spent some $2-billion (€1.8-billion) a year on acquiring an alternative nationality.   Look on any Internet search engine and you will find options by the score.   One I found on Google suggests temptingly: “a second passport can be your key to reduced taxes and increased asset protection as well as it is the best to protect your life.”  This assumes that for many of those seeking such an outcome, their lives are or will be threatened in some way, either through arrest by the local financial authority or termination by a rival with a somewhat direct approach to competition.   Welcome to the wonderful world of citizenship for sale.

Prices vary hugely, but nowhere are they cheap.  To become a citizen of Greece or Hungary, for instance, you’ll have to fork out just €250,000.   How about Latvia?   That’ll set you back a measly €35,000.   But if you want to be welcomed into the United Kingdom as a non-European, be prepared to invest £2-million (€2.19-million) in British companies under the UK’s “Tier 1” scheme.   It sounds a bit steep but as long as you can prove it’s been your money for two years – a UK requirement aimed, albeit somewhat limply, at discouraging money laundering – then you can sit back for the five years needed to acquire “leave to remain” status, and then cream off any profits your investments have made in order to transfer them to a jurisdiction with lower tax rates, or maybe none at all.   The scheme was introduced in 2008, since when, according to Money Week, more than 11,000 people have decided to become expensively British.   The irony is that it comes at a time when the government of Boris Johnson and his Home Secretary, Priti Patel, have announced that freedom of movement for Britain’s three million resident EU citizens – promised the right to remain by Johnson’s predecessor, Theresa May – will cease on 31st October, 2019.   Those still living and working in the United Kingdom are being urged to apply for “settled status” before Britain leaves the EU, assuming the paperwork can be processed in time.   Businesses are worried about losing vital workers and nobody is talking about what happens to the million or more British citizens resident and settled in other EU countries, as Johnson was himself during his time as a lobby journalist in Brussels.   However, doubts have been expressed by experts over the viability of the plan because there is currently no way for an employer in Britain to know if an EU citizen working for them has the required status or not.

WE LIKE YOU, WE LOVE YOUR MONEY

The difference, of course, in terms of “golden visas” and “residency rights” is that ordinary EU citizens living and working in Britain are unlikely to have the necessary €2.19-million required to obtain that “leave to remain” that is reserved for the super-rich.   It’s not the sort of sum you would find you’d forgotten in the pocket of an old suit or down the back of the sofa.   “Unbidden guests are often welcomest when they are gone,” wrote William Shakespeare in Henry VI Part 1, and such seems to be the sentiment of the British government, promising a much tougher new immigration regime for those arriving in the UK.   The British Home Office’s recent record in dealing with people who have travelled from overseas to settle and to work is far from impressive.    West Indians who arrived in the post-war years aboard the HMT Empire Windrush to rebuild Britain and to replace the men lost in the fighting, were faced decades later with arrests, loss of social security benefits and deportations.   They were not made welcome by many at the time and their treatment by the British government is nothing short of shameful.  The so-called Windrush affair suggests the paper-processing capabilities needed to deal with three million EU nationals is unlikely to be adequate and that further scandals await.

Not that these are matters of concern to those seeking an alternative citizenship and the right to live in another country as one of its natives, or at least among its natives.   One of the many, many companies offering their services in this regard offers a choice: “citizenship by investment, residency by investment, immigration by investment”.   In today’s world money not only talks; it shouts, it wheedles and it demands, whilst ordering the construction of impregnable walls around those who own it, regardless of how it was acquired.  

And it’s not just the United Kingdom, of course; far from it.   According to Transparency International, the EU has “welcomed more than 6,000 new citizens and nearly 100,000 new residents” over the last ten years.   It has been good for the economies of the countries involved, generating around €25-billion in direct foreign investment.  It’s a very lucrative business for countries that see the prospect of welcoming in more people from foreign shores as a way to make money and, of course, for the companies helping these global travellers to acquire a right to live, work and even to become a citizen of a country other than their own, whilst nevertheless retaining the citizenship of their country of origin.  

So, who are these international nomads?   They certainly need – and certainly have – more than a string of camels and a tent or two.   “Golden visas”, as they are called, live up to their name.   You may be surprised to discover that the nationality most commonly represented among those granted Tier 1 status in the UK is the Chinese.  The British Home Office says that nearly 4,000 Chinese nationals have entered the UK on Tier 1 visas since 2008.  

Money Week reports that Paul Williams, of La Vida Golden Visas, told Worklife programme’s reporter, Katie Beck, in a BBC interview that people living in countries where the rule of law is weak see overseas investments as “an insurance policy”.   Or, as Ben Cowdock of Transparency International puts it, well-connected people in countries with unstable regimes often regard second passports as a way to “escape and enjoy the proceeds of their corruption should they find themselves out of favour”.

RIVER DEEP, MOUNTAIN HIGH, COST OF STAYING HIGHER

The Transparency International report states that within the European Union, Spain, Hungary, Latvia, Portugal and the UK have granted the highest number of golden visas to investors and their families, followed by Greece, Cyprus and Malta.   The UK is not even the most expensive once you start to look at the figures (and the small print).   To get an Austrian passport might require you to invest up to €10-million before you’ve finished.   There must be a few people, I suppose, who are incredibly keen to run up a mountain wearing a dirndl and singing about goatherds.  The hills may not be alive but they’re certainly expensive.

The Organisation for Economic Co-operation and Development (OECD) has produced a number of reports expressing concern about the ease with which dubious individuals have been able to buy residency and/or citizenship in supposedly “respectable” countries as long as they have the money.   The organisation, set up in 1961 to encourage economic growth and global trade, is especially concerned that identity cards, residency permits and other such documentation obtained under various global visa schemes can be abused in order to misrepresent someone’s tax jurisdiction, so as to sidestep the OECD’s Common Reporting Standard (CRS) procedures of “due diligence”.   Tax dodging, in other words, and possibly worse.   There is no requirement for the authorities in a country of which someone is legally a citizen, or at least a resident, automatically to exchange information with another country where that person enjoys a similar status.   In these cases, due diligence doesn’t happen.

The organisation points out that Citizenship by Investment (CBI) and Residency by Investment (RBI) represent a high level of risk if they give access to a low personal tax rate on income from foreign investment assets, and which do not require beneficiaries to spend a significant amount of time within the jurisdiction offering the scheme.   According to the OECD such advantages are readily available to the extremly wealthy in far too many places.   They can be obtained, for instance, in Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Cyprus, Dominica, Grenada, Malaysia, Malta, Mauritius, Monaco, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, the Seychelles, the Turks and Caicos Islands, the United Arab Emirates and Vanuatu.   The spread is worldwide and a clear temptation to those wishing to avoid not only tax, but easy identification.   Or arrest.   Which is why the OECD advises financial institutions around the world to check very carefully the tax residence status of CBI or RBI users.   Not all of them do.   In fact, the OECD itself has been accused by the Tax Justice Network of “sitting on its hands” over the sale of passports.   In Cyprus, two Ukrainian business people were able to obtain citizenship shortly before allegations surfaced that they had embezzled €4.8-billion from the bank they had founded in their home country.  

With so much money entering the countries that grant golden visas, one might imagine that the checks to prevent money laundering would need to be especially rigorous, but according to Transparency International and Global Witness they are not.   In the case of the United Kingdom, for instance, between 2008 and 2015 there was a period of “blind faith” during which some 3,000 very wealthy individuals brought £3.15-billion (€3.6-billion) in investment money of rather questionable legitimacy into Britain.   Since then the scheme has been revised and some of the CBI and RBI acceptances are being re-examined.  

SECURITY CONCERNS

Security camera photo of Finish Police raiding one of Pavel Melnikov’s property

The report by Transparency International and Global Witness also highlights Malta’s record, in which passports have been granted to three Russian investors whose names appear on the “Kremlin List”, drawn up by the United States, of businesspeople close to Vladimir Putin and who may have become rich by corrupt means.   Transparency International in Russia has published the names of other Russians who are now also Maltese citizens, despite very questionable backgrounds, and a real estate company chaired by a Russian citizen, who also holds a Maltese passport, was raided last year in Finland after suspicions of financial irregularity were raised.   The company concerned, Airiston Helmi, is chaired by Pavel Melnikov, a Russian who has held a Maltese passport since 2015.   Finland’s National Bureau of Investigation told Swedish language broadcaster YLE that it had raided several properties suspected of involvement with financial crime and YLE talked to a number of witnesses who reported that Airiston Helmi had been involved in various multi-million-euro property deals.   However, when YLE sent a drone to take aerial pictures of one of the company’s premises, it was brought down and the built-in camera removed, although YLE got back the drone.   Three people were arrested following the raid by Finnish investigators and four others were questioned.   Airiston Helmi reportedly acquired a number of properties on the Turku archipelago, an important shipping corridor with maritime connections to Årland, a Norwegian island by the north-eastern shore of Samnangerfjorden and important in the management of the Baltic Sea.  A Finnish daily paper, Helsingin Sanomat, quoted a military source as saying that Airiston Helmi’s operations had long been of interest to Finland’s defence forces.   The paper also reported that the company had applied for a helicopter landing site for Russian nationals whilst also buying properties on major marine traffic routes.  

Maltese citizenship has long been attractive to Russians, to the point that Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality, said to the Financial Times in an interview that she cannot understand how so many low-and middle-ranking Russian managers could afford the €650,000 contribution required, plus the necessary property purchase and further investments in stocks and bonds.   As the famous Russian Fedor Dostoevsky wrote in The Brothers Karamazov: “Too high a price is asked for harmony; it’s beyond our means to pay so much to enter.”   Or so one would think.  Apart from trying to work out where the money comes from, one has to wonder why so many non-wealthy Russian workers need easy and unobtrusive access to vessels plying the Baltic Sea, too.

Věra Jourová | European Commission © europa.eu

Affairs in Cyprus have also raised eyebrows.  When Cypriot banks found themselves in trouble in 2012-2013, it took a €10-billion bail-out by the Eurogroup, the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF).   The bailout came in return for Cyprus agreeing to close its second-largest bank, the Laiki Bank and imposing a one-off bank deposit levy on all uninsured deposits there, as well as almost half of the uninsured deposits in the island’s largest commercial bank, the Bank of Cyprus.  Cypriot banks were popular with overseas investors because of their high interest rates, relatively low corporate tax, and easy access to the rest of the European banking network.  A minority of the money held there belonged to citizens of other countries, many of them Russian.  The EU’s bank deposit guarantee was applied, however, and funds below €100,000 were left untouched, much to the relief of locals, although that didn’t help the overseas investors who had been stashing large sums there.

NOMADIC DREAMS – AT A PRICE

People seek citizenship or residency in other countries for a number of reasons, not all of them dishonest.   For example, they may want to migrate to the other country or merely work or study there for a time, setting down a marker, so to speak, in case they opt for permanent migration, perhaps for the sake of their children’s futures.   It may be that their chosen country allows better visa-free travel to other countries.   But it can also be a way of evading prosecution or to avoid international sanctions or – and this is perhaps the commonest – to avoid the OECD’s common reporting standards (CRS), the automatic exchange of information between the country of choice and the country of origin.   The problem is that to obtain citizenship or residency involves paying more money than most people can afford, making the innocent purposes I’ve listed relatively unlikely, or at least restricted to the champagne-and-yacht brigade.   And before you ask, the United States does not take part in the CRS scheme and it offers green cards – the right to reside and work there – in return for $500,000.   In fact, anyone holding a green card would be subject to reporting under the Foreign Account Tax Compliance Act, FATCA, which is a US version of CRS, but for new green card holders it can be circumvented by the simple expedient of putting their money in US banks, thus avoiding CRS altogether, especially if it is in the name of an entity and not in their own name.   The United States will not exchange information with other countries under the CRS scheme.

Interestingly, the Tax Justice Network lists 56 tax jurisdictions offering passports and residency in exchange for money.   The OECD’s list contains just 21 jurisdictions it considers too shady, and that was shortened to 17 just a few days later following successful appeals.   The European Union is now tackling the golden visa issue, some would say somewhat belatedly.   The Commission made clear that it is deeply suspicious of member states that offer third-country nationals the right to live in an EU state with passport-free access to any country in the Schengen area.   A new report promises tougher action.   The countries doing so are Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia and, for the moment, at least, the United Kingdom.   “We speak about opening (a) golden gate to Europe for some privileged people who have the money to pay for

citizenship or residence,” EU justice commissioner Věra Jourová said, launching the report at a news conference in Brussels,  “We are looking at it with concern.”   The Commission warned that issuing golden visas and passports – often to Chinese, Russian and American investors – can bring corruption and money laundering in its wake.   “When it comes to the golden passport schemes we have identified risks related to security, money-laundering, corruption and tax evasion,” Jourová said, “and we have concerns regarding the governance and lack of transparency in these schemes.”   Bulgaria immediately promised to abandon the scheme but is itself gripped by a scandal involving state officials issuing passports to tens of thousands of foreigners in return for simple bribes.   The issue is not new and neither is it going away.   In October last year, Berlin-based Transparency International and London-based Global Witness described EU citizenship and residency as “just like a luxury good” which “can be bought”, adding that “By their very nature, golden visa schemes are an attractive prospect for the criminal and the corrupt.”   The countries that have benefited most financially from the practice are Spain, Cyprus, Portugal and Britain, which gives them little incentive to clean up their acts.  

NEVER MIND THE QUALITY, FEEL THE WIDTH

Indeed, an investigation by Finance Uncovered and The Independent revealed that Britain’s Home Office has contracted out its visa service to a company originally incorporated in Mauritius, a known tax haven, but now registered in the United Arab Emirates.  VF Global began as a subsidiary of the Swiss travel group, Kuomi, but is now worth some $2.5-billion (€2.26-billion) and is owned by a Swedish private equity fund.  Despite this insecure-sounding existence, it handles some of the most sensitive personal information held by a lot of governments around the world about their citizens.   And from the UK Home Office’s point of view, this was not just a labour-saving move: it has pocketed $1.6-billion (€1.45-billion) in profits from the deal.   VFS, as its known, stands accused of pressurising applicants into paying extra, unnecessary money they can scarcely afford for so-called “luxury services”.   Even so, applications from known investigative journalists for visas are often refused.  Don’t look too closely.  The company is doing very well but as its headquarters are in Dubai, it is impossible to obtain copies of its accounts or to look into its financial affairs.

Finance Uncovered investigator Margot Gibbs says the company has offices in 147 countries and that last year alone it processed more than 25 million visa applications, often containing passport details and financial histories, on behalf of the British Home Office and 61 other governments.   But although clearly profitable for Britain and for VFS, and although many of the applicants may have ended up paying for premium-price extras they didn’t want, these are the small fry.   The real money is to be made from those with enough cash to persuade those in power to open their arms and turn a blind eye.

According to the Tax Justice Network, bought citizenship and residency schemes can be employed as a way of tricking banks into believing that someone lives in a tax haven far away, although they may not have ever left their native country.   The bank would then – if it bothered to report banking information about that person at all – report it to whichever country sold them their residency or citizenship.   And, of course, some such tax havens choose not to receive information under the OECD’s Common Reporting Standard for the automatic exchange of information, so the money, however obtained, simply slips under the radar undetected.  

Police boat Cyprus © Wikicommons

Those in government and authority seem willing to ignore the dangers posed by the notion of citizenship or residency for sale.   The EU’s record in this respect is hardly spotless: it has blacklisted just 1% of the tax havens available to dishonest EU citizens.   The Tax Justice Network believes the OECD is sitting on its hands over golden visas but that the EU’s approach is far worse and much too lax.   To quote from a recent report: “The largest supplier of financial secrecy to EU member states is the US (4.7 per cent). This is five times the financial secrecy supplied altogether by the seven tax havens blacklisted by the EU – American Samoa, Guam, Namibia, Palau, Samoa, Trinidad and Tobago, and the US Virgin Islands. Four of the top 10 suppliers of financial secrecy services to the EU are EU member states: the Netherlands, Luxembourg, Germany and France. The Netherlands is the second largest supplier (4 per cent); Luxembourg is third (3.8 per cent); Germany, the sixth largest supplier, is responsible for 3.3 per cent; France, the eighth largest supplier, is responsible for 2.3 per cent.”   Some of the findings may come as a surprise, but unscrupulous firms of high-fee accountants and lawyers are always looking for ways to help the super-rich (and the super-crooked) to avoid paying their taxes. 

As the report shows, mutual back-scratching and blind-eye-turning is extremely profitable: “Germany supplies more than twice as much financial secrecy services to the Netherlands as the infamous Panama does. Meanwhile, the Netherlands supplies more than three times as much financial secrecy services to Germany as does Panama. Just over 4 percent of financial secrecy facing Sweden is supplied by the Cayman Islands, where Swedish residents have stored $11- billion (€9.95-billion) in assets. In comparison, nearly 6 per cent of financial secrecy facing Sweden is supplied by the US, where Swedish residents have stored a whopping $144-billion (over €130-billion) in assets.”

EU member states have managed to block some of the illegal financial activity through the use of the OECD’s Common Reporting Standards, requiring an automatic exchange of banking information.   But neither the EU itself nor any of its member states has succeeded in getting a CRS-type of deal with the United States.   The Tax Justice Network again: “The US alone is responsible for 22 per cent of the financial secrecy targeting the EU that is not covered by an automatic exchange of information treaty, making the US the EU’s greatest enabler of financial secrecy, which in turn enables tax abuse, corruption, money-laundering and the financing of terrorism.”   It’s not the sort of behaviour one might imagine Washington would wish to encourage, but the report shows that the United States seems unconcerned about the dangers, even to itself.   “The US, which is the largest individual supplier of financial secrecy to 29 countries and among the top 10 suppliers of financial secrecy to 83 countries, does not have any sufficiently reciprocal automatic information exchange treaties in place with most countries.”

Central Bank of Malta © Frank Vincentz

The rapid growth in the sale and purchase of golden visas has been flagged up by the International Monetary Fund.   In most cases, even the massive investment required doesn’t entitle the investor to instant citizenship; they have to wait for periods ranging from one year, in the case of Malta, to twelve years for Switzerland.   But instant citizenship is there for the asking (and the paying) in Antigua and Barbuda, Cyprus, Dominica, Granada and St. Kitts and Nevis.   In only one of those – Antigua and Barbuda – is there any requirement to live in the country for a minimum length of time.   Antigua and Barbuda demands that its new citizens or resident spend just 5 days there within a 5-year period.   Cyprus is reviewing its rules on instant citizenship.

According to Business Insider, the super-rich want more than the traditional private jets, yachts, and luxury hotels; they’re also splashing out on second passports.  A survey carried out by GS Global Partners in 2017 found that 89% of people would like to own a second passport, and over 34% said they had looked into investing in a second citizenship. 

80% of them also said they would be willing to invest or donate 5% of their annual salary for a second citizenship, more than they spend on monthly rent, in many cases.  Of course, quite a lot of countries are prepared to offer Citizenship by Investment or Residency by Investment programmes under which money – a lot of money – invested in real estate and probably also in stocks and bonds gets the rich person a second passport and possibly exemption from paying their taxes or possibly from prosecution, whilst facilitating further criminal activities far from home.   But anyone engaging in this sort of activity, becoming in legal terms two separate people, should perhaps recall the words of Oscar Wilde in The Ballad of Reading Jail:

“For he who lives more lives than one

More deaths than one must die.”

Robin Crow

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