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Cyprus clings to ‘golden passports’ bonanza despite scandal

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Via Financial Times

When Jho Low splashed out on a €5m property in the resort town of Ayia Napa in 2015, there was an additional benefit for the Malaysian financier: a Cypriot passport.

Now Mr Low’s alleged role in a multibillion-dollar international corruption scandal has triggered a national outcry in the Mediterranean island nation, raising searching questions for the government in Nicosia, the Cypriot church leader who lobbied on his behalf and the firms that handle such transactions.

The case has led to renewed scrutiny of what the European Commission brands the “inherent risks” of the schemes in EU member states that offer citizenship or visas to the international super-rich. Brussels has set up a group to propose extra safeguards by the end of the year.

But critics say the response is inadequate to the task of stopping suspect money and characters flowing into the EU.

“This approach will probably have little respect from member states, and much tougher legal action is required to force states to end these dodgy schemes,” said Tina Mlinaric of Global Witness, a non-governmental group.

Most EU member states, including France and the UK, offer “golden visas” that grant a right of residence to the wealthy. Cyprus was one of three — along with Bulgaria and Malta — that offered citizenship in exchange for investment, according to a commission report this year.

Nicosia has for decades specialised in providing residence permits and legal services to wealthy businesspeople from outside the EU. When the island suffered financial collapse in 2013, president Nicos Anastasiades went further and offered nationality to foreigners prepared to pay at least €2m for a property. 

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“Selling golden passports made sense for a government struggling to rebuild the economy,” said Antonis Ellinas, a political scientist at the University of Cyprus. “But the scheme has always lacked the necessary political oversight.” 

Cyprus has acquired almost 4,000 citizens under the arrangement and raised about €6bn from real estate sales. Mr Anastasiades’ former law firm offers services to investors applying for golden passports, although officials say the president severed all ties to avoid the perception of a potential conflict of interest. He has previously rejected calls for Cyprus to cancel the golden passport scheme, which he says has been unfairly criticised. 

In May, the Cypriot government tightened rules for granting nationality, increasing the level of due diligence and requiring applicants to have a valid visa for travelling in the EU’s free-travel zone. Advertising the passport scheme was also banned, since when applications have fallen sharply. 

Yet past cases have come back to haunt Nicosia. A Reuters investigation in October found that Cyprus had given nationality to eight relatives and associates of Hun Sen, the authoritarian prime minister of Cambodia for 35 years. The Cyprus news organisation Politis revealed soon after that Mr Low made a two-day trip to Nicosia in September 2015 to pick up his passport. 

Mr Low was given nationality even though allegations had surfaced online months earlier of his involvement in the misappropriation of hundreds of millions of dollars from Malaysia’s 1MDB state investment fund. The US last year indicted Mr Low over an alleged plot to misappropriate more than $2.7bn from 1MDB. He has denied any wrongdoing. 

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The affair was still more embarrassing for Nicosia because Mr Low was given access to a fast-track process for granting citizenship that required cabinet approval. His case was even backed by Archbishop Chrysostomos, head of the Eastern Orthodox church of Cyprus. Chrysostomos told local media that Mr Low had also given €300,000 towards a theological school and that he had previously intervened on behalf of other passport applicants.

The Cyprus government responded to the storm over Mr Low’s case by announcing it would strip citizenship from 26 people because of “mistakes” in the award process. Officials say this includes Mr Low and the Cambodian octet, as well as nationals from Russia, China, Kenya and Iran. Mr Low’s spokesperson urged that the government “should not yield to external political pressures, which seek to breach the fundamental human rights of Cypriot citizens”. 

The Low affair has also focused attention on the intermediaries in golden passport and visa schemes.

A fee of €650,000 relating to the sale of the Low property was paid to a company named Henley Estates, according to an invoice seen by the Financial Times. Henley Estates was acquired some months before by UK-based Henley & Partners, which describes itself as the “global leader in residence and citizenship planning”.

Henley & Partners told the FT that the payment was a fee from a Cypriot developer under a pre-existing agreement for Henley Estates to provide “marketing support services”, and the money did not originate from any entity linked to Mr Low or his associates.

Juerg Steffen, H&P chief executive, said the payment should nonetheless not have been taken, since his company had previously rejected Mr Low as a client following due diligence checks.

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Mr Steffen said the case had helped trigger an overhaul of governance standards in the Henley companies. “Hindsight is a wonderful thing,” he said.

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