The 515-page interim report into the disgraced Cyprus Citizenship by Investment (aka Golden Passport) scheme revealed that more than half the 3,000 citizenships granted between 2007 and August 2020 were unlawful.
Further analysis of the interim Golden Passport report (in Greek) reveals some of the tricks used by the service providers to mislead the authorities and the banks.
According to a statement by the Cyprus Central Bank’s Governor: “in many cases, local financial institutions were misled by various tricks used by service providers and property developers, which made it extremely difficult to identify suspicious transactions.”
Amongst the most popular tricks was (a) splitting investments into a number of smaller transfers to avoid drawing the bank’s attention to the investor and (b) depositing the money directly into the property developer’s bank account thereby avoiding opening a bank account in the depositor’s name.
The top eight ways to cheat the Golden Passport system
- Using deposits as collateral that enabled investors to obtain loans for an appropriate amount. Finance Minister Constantinos Petrides told the Commission that this trick was used “to such an extent that they can safely be classified as fraudulent.” An investor could deposit €5 million in a bank account and apply for a loan secured on the basis of that deposit, and then remit the money back to his country.
In essence, the intermediary’s start-up costs and the interest difference were simply paid and the applicant received a passport, Petrides said.
- Submitting an application for the citizenship of an investor’s spouse rather than the investor themselves. This usually happened in circumstances where the actual investor had a criminal record and their application would have been subjected to detailed scrutiny by the authorities and possibly rejected.
- Selling the same property to several investors.
- Returning money to the investors. The Commission noted that the money for management should have been paid by the buyer rather than the seller, but in many cases, it was the seller who paid the buyer. The Commission noted that a particular property developer “seems to be involved in all possible attempts to defraud the state.”
- Making false or misleading statements. In some cases, service providers knew that the investor did not meet the criteria to apply for a Golden Passport but nevertheless submitted false or misleading applications for scrutiny in the full knowledge that those applications did not reflect the true situation.
- Illegal use of client accounts. In some cases, investors transferred money into client accounts of service providers that was subsequently used to buy a permanent residence. The Commission noted that this could have been done to avoid banking system’s checks and controls. (The investor should have paid the money into their own company’s account.)
- Misleading advertising used by service providers to attract investors. Although the government tried to stop illegal advertising by introducing a code of conduct in 2018, the Commission reported that “no one controlled how the service providers and their various partners around the world presented the Citizenship by Investment program or what they promised potential investors.”
- Service providers’ employees acting as the investor’s “guarantor”. In a significant number of cases the Commission discovered that the person who acted as the investor’s guarantor had the same address as the service provider, ” breaching the conditions of the application with a nod from the Ministry of Internal Affairs.” According to the Commission, the explanation for this seems to lie in the fact that most investors did not have close ties with Cyprus and therefore found it difficult to find people to vouch for their integrity.
It is obvious that the laws and regulations governing the disgraced Cyprus Golden Passport scheme had more holes than a Swiss cheese. Lawmakers who featured in the Al Jazeera undercover video must have known about these shortfalls, which begs the question why didn’t they raise their concerns in Parliament? (That’s a rhetorical question, which I think everyone could answer.)