Expert Back-Up Planning for Security & Peace of Mind

The Cyprus Second Passport Program has proven tremendously popular in recent years. However, proposed changes that threaten the privacy of its applicants may seriously damage its value. I examine why the changes have been proposed and why they are irrational and ill-thought out. 

Why is The Cyprus Second Passport Program so attractive?

One of the attractive features of the Cyprus Second Passport program is that, unlike Malta, Cyprus does not publish the names of successful applicants. Preserving this right to privacy is very important to many applicants for a variety of reasons. These range from avoiding dual citizenship issues, to not broadcasting wealth to unscrupulous third parties. In fact, privacy rights are the reason why only a few EU or developed countries publish the names of newly naturalized citizens.

Irini Loizidou supports Cyprus Second Passport Program right to privacy

Cyprus’s Data Protection Commissioner Irini Loizidou

Despite this assumption of privacy a Green Party Member of the Cyprus Parliament proposed that successful Citizenship by Investment applicants should have their names publicly disclosed. As the Editor of the leading immigration website Christian Nesheim correctly noted, such a proposal is directly contrary to an EU policy on data protection. Cyprus’s Data Protection Commissioner Irini Loizidou supports this position.

 

European Get Away objections to the Cyprus Second Passport Program

Green MP George Perdikis, stated that his motive for bringing forth such a proposal was to appease the EU’s general antagonism toward Citizenship by Investment and Residence by Investment programs operated by several of its member states. A 2019 report set out these objections: “European Getaway: Inside the Murky World of Golden Visas” (published by Transparency International ).

The report had a racy cover splashed with words such as “murky”, “criminal” and “corrupt”. It attempted to link Citizenship by Investment programs with tax evasion, tax avoidance, corruption and money laundering.  These are serious allegations! It’s worth examining such alleged connections more closely to determine if they are in fact valid. (Spoiler Alert: They are largely hyperbolic and illogical.)

Tax evasion and Money Laundering

Such underhand practices rely on maintaining secrecy. Tax evasion is on the decline and decreasing rapidly as a result of a number of secrecy killing initiatives. These include FATCA; Qualified Intermediary Regime; Tax Information Exchange Treaties ; John Doe Summons, but most importantly Whistleblowers.

With or without a new citizenship, every individual needs to supply Know Your Client/ Due Diligence information to a financial institution when opening a bank account. The same is true if it’s a bank account which they hope to use to evade tax or engage in money laundering! This step is the first hurdle for any possible tax evasion. If an account manager at a financial institution is prone to criminal behaviour while conducting this due diligence (i.e. turning a blind eye), they would be just as prone to doing it with the individual’s original citizenship as with a new Cypriot citizenship.

The report argues that having a second citizenship will stop compliance officers from looking any deeper than the new citizenship. This is nonsense. KYC reviews are never this superficial. If there is criminally-enabling behaviour by the account manager, it is equally susceptible to being outed by Whistleblowers whatever the scenario. It is irrelevant as to whether the individual has one or ten citizenships.

Tax avoidance

Some zealous critics have been bemoaning the fact that a citizenship or residence by investment program allows HNW individuals to leave their current tax regime and move to one with a lower net global tax obligation. This might be true, but criticizing this rational behaviour exposes an outdated belief that an individual is the property of their home country. This assumes that they should never have the choice of deciding to sever tax liability with their home country…ever!  The fact is, expatriation or becoming a non-resident never eliminates a prior or current tax liability. They are strategies to sever future tax liability.

Corruption within the Cyprus Second Passport Program

Whenever a politician has the power to grant something such as citizenship, tax reduction benefits or government contracts, there is an opportunity for that politician to corruptly exercise that power in exchange for some type of benefit. The illegality is in the corrupt action of the politician who awards contracts in exchange for benefits. It is not in deciding that a road needed to be built and an RFP being issued in the first place.

Likewise, if a country decides that an economic residence or citizenship program is an appropriate economic tool for that country to exercise, it does not automatically follow that this would be any more corrupt than awarding an infrastructure project. Therefore, to avoid corruption in government programs – whether they involve new roads or economic citizenship – the emphasis should be on ensuring transparency, oversight and accountability in carrying out the chosen project, not in killing the project itself.

Use of Second Citizenship by Criminals or Security Risks

Effective security screening is essential when granting any type of status that might allow an individual to behave improperly abroad. Equally in stopping any individual from hiding from the repercussions of prior acts in their home country. In fact, Cyprus carries out in-depth due diligence on all Citizenship by Investment applicants. Indeed, significantly more screening is done on the Citizenship by Investment applicants than other EU countries do on the millions of people who naturalize in their countries.

One can reasonably argue that every country should security screen potential visitors just as they do residents or citizens. How many bank robbers stop to ask themselves if their immigration status allows them to carry out their criminal act?

In order to stop a newly acquired citizenship being used to escape justice for misdeeds, it’s essential that:

  1. proper and detailed background due diligence checks are undertaken by security specialists prior to granting the residence or citizenship
  2. should an existing criminal/security issue go undetected and/or a criminal/ security issue occur AFTER the granting of the residence or citizenship, there should be a mechanism in the law of the country granting the status to revoke same.

Cyprus has such safeguards in its laws and procedures surrounding its second passport program.

Conclusions

This report clearly demonstrates the ‘noise’ surrounding Citizenship by Investment and Residence by Investment programs. However, I would contend that the critics are fuelled by an emotional response. They view the programs as a way of selling what they believe to be a ‘national treasure’. They do not look at the subject rationally addressing the facts and logic. This emotional resistance is also the reason why politicians in many countries haven’t advocated programs in their own countries. It is why opposition politicians in countries which do have such programs suggest they be closed. it’s an easy vote-getter. These critics are using reasoning that simply does not stand up to reality, or common-sense reason.

Arguably the EU and OECD should instead focus on the reality of rampant identity theft. The criminal world is using this to fraudulently obtain real passports in every country in the world. Logically, if you were a criminal with even half a brain, what would you do? Would you pay several million Euros for a Cypriot Citizenship by Investment? (Remember there’s a distinct probability that the due diligence review would out you.) Or would you pay a few thousand dollars for a fraudulently obtained set of authentic originating documents. This would effectively secure you a real passport from the US, Canada, or any EU country. Of course you would choose the latter.

Hopefully the Cyprus Parliament will see the wisdom in preserving the privacy rights of all Cypriot citizens. This should, of course, include those who obtained that status through investment. The Cypriot Citizenship by Investment program was created is an economic development tool. By all accounts, it has fulfilled this function splendidly. If this is to continue, Cyprus must be careful not to throw away one of its program’s most competitive advantages.

How we can help

At Lesperance & Associates we offer advice in the area of residence and citizenship that considers our clients’ tax, family law,  business and personal lifestyle requirements.If you would like to find out more about Second Passport Programs and other services we offer then get in touch for a chat.

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