Citizenship by investment and residency by investment schemes are the latest targets of regulators and advocacy groups, as three reports by Transparency International, the OECD and the Green Party in the European Parliament all highlighted abuses of the programs in both Europe and the Caribbean.
The reports noted various scandals involving “golden visas” and loopholes that allow program participants to potentially avoid tax reporting under the common reporting standard – an OECD initiative that exchanges taxpayer data between more than 100 countries.
Investment migration schemes offer a fast track to citizenship or residency rights and for some countries they are a significant source of government revenues.
A report released by Transparency International and Global Witness last month showed that EU countries received around €25 billion in foreign direct investment in the past 10 years from these initiatives.
The programs typically involve donations to sovereign trust funds, property investments or the purchase of government bonds to qualify for citizenship in a country without the need to have lived there for any length of time.
Certain European schemes, like that of Malta, are particularly popular because the country’s EU membership gives its citizens the opportunity to live and work anywhere in the EU.
The OECD has taken aim at 21 countries whose “golden visa” or “golden passport” programs can potentially be misused to hide assets offshore and escape tax reporting under the common reporting standard.
“Individuals may be interested in these schemes for a number of legitimate reasons, including the wish to start a new business in the jurisdiction, greater mobility thanks to visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability,” the Paris-based organization said. “At the same time, information released in the market place and obtained through the OECD’s Common Reporting Standard (CRS) public disclosure facility, highlights the abuse of CBI/RBI schemes to circumvent reporting under the CRS.”
The OECD analyzed residency and citizenship programs in 100 countries and identified high-risk schemes based on whether they are offering low personal tax rates on income from foreign assets without the requirement that a program participant spends considerable time in the country.
This is based on the assumption that most individuals seeking to circumvent the common reporting standards through these schemes would want to avoid income tax on their offshore financial assets in the citizenship-by-investment jurisdiction and would not be willing to fundamentally change their lifestyle by moving there, the OECD said on its website.
The 21 countries that, according to the OECD, offer schemes that “potentially pose a high-risk to the integrity of CRS” include Cyprus, Malta and Monaco in Europe, and Antigua and Barbuda, the Bahamas, Dominica, Grenada, St Lucia, and St Kitts and Nevis in the Caribbean.
The remaining countries on the blacklist are Bahrain, Colombia, Malaysia, Mauritius, Montserrat, Panama, Qatar, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.
Transparency International report
The Transparency International and Global Witness report shows that over the past decade the EU has welcomed more than 6,000 new citizens and nearly 100,000 new residents. However, it claims that the process is often poorly managed.
“With huge volumes of money involved, checks for money laundering and corrupt and illegal origins of the investment have to be especially rigorous, but that doesn’t appear to be the case. In fact, as the report highlights, scandals are rarely far from these schemes,” Transparency International said.
“Authorities claim to follow best due diligence practices during the screening of applicants. Our report finds plenty of reasons to question this claim.”
Spain, Hungary, Latvia, Portugal and the U.K. have granted the highest number of golden visas to investors and their families, ahead of Greece, Cyprus and Malta.
The U.K., which launched major anti-money laundering initiatives and adopted new legislation following the Salisbury poisonings of two Russian nationals, allegedly at the hands of the Russian government, suffered from “blind faith” in its Tier 1 Investment Visa program from 2008 to 2015, the report said.
During that period more than $4 billion of questionable provenance entered the U.K. through that route. The U.K. is currently reforming its investment visa scheme.
The Green Party in the European Parliament, meanwhile, shared a report with The Guardian, which notes as a problem that not all countries are participating in the exchange of taxpayer information under the OECD’s common reporting standard.
More than 40 countries, including Montenegro, Serbia and Ukraine, have yet to commit to applying the common reporting standard. The U.S. has committed to exchanging only partial information, a move that still allows individuals to hide their identity behind corporate vehicles.
The report states that it is easy for EU citizens to avoid tax information exchange, if they set up bank accounts in one of these countries or in the U.S. under a company name.
The same report highlighted the loopholes offered by citizenship by investment schemes.
Sven Giegold, a German MEP and member of the European Green party, told The Guardian: “The automatic exchange of information is great progress against tax evasion. Now Europe has to close these loopholes so that the end of tax havens will not become an empty promise.”
The report calls on the EU commission to force all financial centers to share information with EU member states by threatening sanctions if necessary.
The European Commission has indicated it will complete a study of citizenship schemes before the end of the year. The commission is concerned that the schemes could compromise EU security because EU citizens are free to move in all member states.