Curbing citizenship-for-cash scams

More countries are offering citizenship for cash to wealthy investors. The practice is not new, but the number of citizenships that states grant is rising. Many watchdog groups are calling for more security and due diligence checks on potential investors.

Journalist Daphne Caruana Galizia exposed corruption in Malta. She died in a car bomb blast in 2017.

CITIZENS of Caribbean states like St Kitts and Nevis or St Lucia get visa-free travel for short stays in Europe. This has raised millions for states granting easy access to the EU, plus low or zero tax on personal incomes. But Iranians evading sanctions, as well as corrupt businessmen, have acquired St Kitts and Nevis passports.

Iranian national Ali Sadr Hashemi Nejad even used his St Kitts-Nevis passport to set up a bank in Malta. Maltese officials conducted extra due-diligence on Sadr, leading to his arrest in the US.

Malta seized control of his Pilatus bank which was at the centre of a corruption scandal. The journalist who exposed the bank, Daphne Caruana Galizia, was killed by a car bomb. In another case, after India revoked the passport of diamond billionaire Mehul Choksi, he gained citizenship in Antigua & Barbuda. Indian authorities are still fighting to have his Antiguan passport cancelled.

With difficulty, some such passports tied to investment schemes have been revoked. Rami Makhlouf, a relative of Syria’s President Bashar Assad became naturalized as a Cypriot in 2010. Cyprus withdrew his passport after the US and EU sanctioned Makhlouf on corruption allegations.

The European Commission has faced criticism for failing to crack down on the abuse of citizenship schemes. Wealthy families from China, Russia and other non-European states have been able to buy the right to live in or to travel and do business with ease in the EU.

It has now issued a comprehensive report on investor citizenship schemes that several EU states operate.

These schemes sometimes pose serious security risks. They undermine control of money laundering, tax evasion and other corrupt practices. The EU is slowly ramping up measures to cut risks from citizens of countries with high levels of corruption. The EU action plan proposes an expert group to monitor how passport schemes operate. It also aims to develop common security checks before the end of 2019.

People seeking an EU passport in future must have a genuine connection to the member state. Malta, for example, does not yet stipulate that applicants for a passport must have lived in the country. But it does intend to tighten its policies and to become a leader in this area. In 2018, Valetta hosted the first Citizenship by Investment Due Diligence conference.

Governments are also calling on private firms to advise them on how to design and put citizenship schemes in place. The firms would also help tighten due-diligence checks and internationally promote the schemes.