In Malta, there has been strong opposition from the Nationalist Party - and recently the Chamber of Commerce - against the IIP scheme, the so-called citizenship by investment. The latter tweaked its position saying that a final position will be submitted by the Chamber in the coming weeks.
The Chamber now expects the Government to send the right signals to stakeholders that the country has taken note of criticism and will ensure the highest standards of governance in the IIP scheme. So far, over €1.3 billion has been invested since the launch of the scheme in 2014 which has been exclusively marketed by the sole concessionaire, Henley and Partners.
Initially, this company was paid a fixed commission by the government as the exclusive agent. After many protests, the government conceded to allow a number of licensed local firms to join as resellers but receiving no compensation.
Malta, like Cyprus and Bulgaria, has sought to attract foreign capital with such schemes, ignoring warnings from the EU which highlighted the risks of this potentially attracting the proceeds of criminal activities. So far, Malta has not been accused of harbouring any fraudulent application. Under the scheme, bona fide applicants can obtain an EU passport by investing in the country. In this context we note that, last year, a confidential decision by the European Central Bank required Malta's largest bank to take remedial action after an inspection exposed 'severe shortcomings' that could have allowed money-laundering or other criminal activities.
The Commission has also asked Malta to clarify how it intends to address Bank of Valletta's shortcomings over its monitoring of foreign customers who applied to buy Maltese citizenship under a so-called 'golden passport' scheme. Cyprus, as started earlier, has granted 3,500 people citizenship under the scheme since 2013. It expects a minimum €2 million ($2.2 million) investment which, on approval, can buy you a passport and visa-free travel throughout the European Union. In their defence, the Cypriot authorities say that the programme has gone through several transformations and was overhauled in 2019 with five different due-diligence layers, compared with one in 2013.
Malta, by comparison also boasts a rigid four-tier defence system to screen applicants. Cyprus (like Malta and Bulgaria) has faced pressure from Brussels to reform its citizenship-for-investment scheme, which the European Commission has said may help organised crime gangs infiltrate the bloc. In a recent report, MONEYVAL said that risks in the Cyprus golden passport scheme have not been properly mitigated. Cyprus needed outside help, following the island's 2013 economic crisis where, due to a 2013 bail-in procedure, citizens were made to contribute 40 per cent of personal bank balances (apart from the first €100K) to the state. Under the latest rules, Cyprus grants a passport within three months in exchange for an investment of €2.5 million in property.
It goes without saying that this scheme - with over 3,500 passports - has substantially helped the country by some €6.64 billion at a particularly difficult time, when unemployment reached 13 per cent. The scheme proved very successful, in that the investment was particularly focused on developing a luxury villa resort situated in the exclusive beach area of Ayia Napa. During its formative stages, the government admits that mistakes were made. Quoting Cypriot Finance Minister Harris Georgiades, he said: "We have to acknowledge that, in the early years, mistakes were made. Isolated albeit, but not insignificant."
Last year he admitted that: "Substantive corrective measures related to the programme have come into effect." One glaring mistake was the granting of a golden passport to Malaysian businessman Low Taek Jho, who is accused of a multi-billion dollar theft from a state fund. Low has denied any wrongdoing and his location is unknown. It is no secret that Cyprus has cleaned its barrel of any rotten apples and intends to revoke 26 'golden passports'. This resulted following an investigation into possible violations. The Authorities admitted that the criteria under which citizenship was granted to some people was flawed.
It is worth mentioning that the Cyprus scheme is predominantly based on a €2.5m property investment that must be held for at least three years whereas, in the case of Malta, the property option can be either rented or capped at a lower scale of €350,000. In fact, over the years, the majority of Malta passport applicants preferred to rent rather than buy property.
This approach has labelled the Malta scheme with a lower AML risk, since real estate is broadly known to be preferred by money-launderers as a stable investment that can appreciate over time, and is normally subject to more limited scrutiny.
Back to Cyprus, among those who have acquired - or applied for - passports through a citizenship-for-sale scheme are Hun Sen's niece and her husband, who is Cambodia's National Police Chief; the country's most powerful business couple and the Finance Minister, a long-time Hun Sen adviser.
Hun Sen is 67 and has ruled Cambodia with an iron fist for more than three decades. He has jailed or exiled political rivals, shut down media outlets and crushed street protests. As can be expected, there was a considerable public outcry over the Cypriot media reporting on Hun Sen family members. Those named include Police Chief Neth Savoeun, whose police force was accused by Reuters of "arresting Hun Sen's political opponents and violently suppressing anti-government protests". It also reported that the top cop, his wife Hun Kimleng - the Prime Minister's niece - and their three children were on a US 'visa blacklist' for undermining democracy. The 26 applicants of the 'golden passports' are nine Russians, eight Cambodians, five Chinese nationals, two Kenyans, one Malaysian and one Iranian. Unlike Malta, the Cypriot government does not publish the names of those granted passports, while all those whose passports were revoked can appeal. Malta does not entertain any appeals from applicants refused a passport.
The fly in the ointment was the problem that faced the Cypriot government when it proceeded to revoke the ill-gotten passports. Reuters reports that law-makers from the Interior Committee of Parliament were recently cautioned that the decision to strip people of their passports could not proceed at present due to legal reasons. It looks like a hole in the bucket saga, since the relevant law for granting citizenship lacked a supplementary clause on the process for revoking it.
Justice seems to favour the miscreants as otherwise it steps blindly only to discover that its legitimate power to revoke had been stalled on a legal technicality. More excitement to follow from the island of fair Aphrodite.
The writer is a partner in PKF, an audit and business advisory firm
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