Al Jazeera’s Investigative Unit’s has published the ‘Cyprus Papers’. These leaks come about days after new legislation was published bolstering the credibility of the Cyprus Investment Programme and its due diligence compliance.
Al Jazeera’s Investigative Unit (AJIU) latest publication regarding the ‘Cyprus Papers’ has drawn the attention of numerous stakeholders in the investment migration industry, EU and local government bodies, service providers, regulators and the wider public.
Cyprus surrounded in controversy over Cyprus Papers
Aptly titled ‘The Cyprus Papers’, bringing to mind the controversial ‘Panama Papers’ fiasco which involved the leak of over 200,000 offshore companies’ financial data, AJIU purportedly have been leaked 1,400 approved Cyprus Investment Programme (CIP) files including some issued to controversial characters, to say the least.
Over the course of the coming week AJIU will undertake a ‘drip-marketing’ campaign of sorts releasing additional news on the ‘Cyprus Papers’ – we’ll all be keeping a close eye on this information flow.
What would also be interesting to hear from AJIU is what they have uncovered about the CIP applicant’s bank accounts – where are these located?
Where did the funds flow into Cyprus from? Under the fortified due diligence reforms to the programme checks happen across the board involving both Cypriot and regional agencies – how have these personas non-grata slipped through?
One of the names mentioned in their initial articles is Zlochevsky, owner of Burisma – Ukraine’s energy company. Zlochevsky has been under the world’s watch especially as the Bidens’ involvement with him was at the centre stage of Trump’s impeachment trial. Zlochevsky has been accused of tax evasion, corruption and other financial crimes all linked back through his London, Cyprus and Latvian enterprises.
Gornovskiy, of Gazprom Russia was also referred to in the ‘Cyprus Papers’ as a CIP approved candidate who was wanted by authorities when granted his Cypriot citizenship. As was Ali Beglov, Pham Nhat Vu and Zhang Keqiang amongst others, who all have criminal records. There are several money laundering and embezzlement felons who AJIU also listed, including some on Interpol’s most-wanted list.
When questioned by Al Jazeera on these leaks, the Minister of the Interior stated “No citizenship was granted in violation of the regulations in force at the given time.”
The Fragility of Trust
Cyprus, as well as numerous other EU Member States who offer citizenship programmes to foreign investors, has been under the watchful eye of Global Witness and Transparency International, the Council of Europe’s anti-money laundering body Moneyval and various other EU agencies and NGOs. They have added significant pressure, issued reports, remarks and calls for the Cyprus citizenship programme to be phased out.
Even within the Cypriot government there have been heated debates by proponents and opponents of the programme who disapprove of the programme or want the CIP funds to be adequately funneled through the government for the benefit of the Cypriot public.
To appease qualms, in 2019, the criteria was amended – foreign investors would now have to donate EUR 75,000 to the Research and Innovation Foundation or invest in a certified social / innovative company and invest an additional EUR 75,000 to the Cyprus Land Development Corporation.
These changes came about as a direct response to a European Commission report that targeted the citizenship investment programmes of Cyprus, Malta and Bulgaria. They also sought to show the Cypriot public that socially-conscientious foundations were benefiting directly from the CIP.
Cyprus has been quick to respond to the EU’s criticism and the government has taken substantial steps to bolster the Cyprus Investment Programme’s reputation as trust has the fragility of a bowl of China, once shattered it becomes very difficult to piece together.
Over recent years some of the changes the government has made to the Cyprus Investment Programme have been to regulate the industry, increase the period that the investment must be held from three years to five years, raise the investment amount to EUR 2,000,000+, cap the number of annual investors to 700 and permit the retroactive due diligence review of applicants as well as allow for passport revocations. Multiple-layer due diligence and AML procedures have also been fortified and the criteria which investors must meet to be eligible to apply for the CIP has been enhanced (e.g. ineligible if a PEP or if previously rejected citizenship from another EU Member State).
In April of this year Minister of Interior Nouris told Phileleftheros “Although Cyprus has now amended its program in accordance with European recommendations, the Commission persists in its calls for ending it.”
Nouris highlighted the stringent procedures investors must comply with up until they are approved and even subsequently, as reported to Cyprus Mail “their [CIP Approved Investors] conduct as residents in Cyprus is reviewed each year for 10 years, and if they break our laws or engage in other undesirable activities, the passport can be revoked.”
The Honorary Naturalization for Reasons of Public Interest and Naturalization of Foreign business-owners and Investor’s regulations (Articles 111A and 117 Civil Registry Laws of 2002-2020) were published in the Official Gazette of the Republic of Cyprus on the 18th of August 2020. The latest changes to the Cyprus Investment Programme aim to garner greater trust in the investment migration programme. Key changes include:
- The government donations to foundations have increased by EUR 50,000;
- CIP applicants who opt to invest in a Cyprus Company must now ensure that they employ nine (instead of five) Cyprus/EU citizens to further stimulate employment;
- Dependents may now submit their application along with the main investor as opposed to subsequently, reducing the total time the family must wait to obtain their Cyprus passports;
- Investors’ parents/in-laws must also invest EUR 500,000 in a Cyprus residence in order to qualify under the CIP;
- A special government unit will be issuing statistics on rejected and approved applications, oversee service providers and monitor the compliance of all files to raise the governance and due diligence benchmark of the Cyprus Investment Programme.
Of note, the police certificate that is issued as part of the due diligence file can now be six months old (not three) and PEPs cannot apply if they have held a political position in the past 12 months (previously 5 years). These changes have drawn in both tongue-in-cheek and some more blatant criticism that these are laxing rather than tightening the programme’s rules.
Read more: The Cyprus Papers – Is Al Jazeera’s reporting balanced?
The Public Coffers in Cyprus
It is a time of economic upheaval the world over, although Cyprus has been congratulated for its incredible management of Covid19 on the island, the economy has suffered a notable blow, unemployment is rising and real estate demand is flailing.
In 2013, Cyprus underwent a major financial crisis – the EU Haircut was part of the Cypriot bailout agreement with the EU and IMF and meant that literally overnight, thousands of depositors who had over EUR 100,000 in several local banks lost their funds. This amounted to almost EUR 8 Billion in losses and was a dark chapter in the island’s history as a financial hub, gravely impacting investor confidence.
Fast forward to 2020, Cyprus is now facing another financial crisis caused by this global pandemic.
Yet, as Fiona Mullen of Sapienta Economics told the Cyprus Mail, “the government has EUR 4.2 billion in funds parked – meaning that they are not being used for short-term expenses,” whereas in 2013 they had only about EUR 500,000 in reserves. The government is in a much more comfortable position to weather a storm today than it was a few years back. It is more cable of offering the public assurances of a swifter recovery from this crisis.
Are all these emergency funds in the public coffers merely thanks to the Cyprus Investment Programme? No. But considering that between EUR 6 to 7 billion has been raised by the CIP, one could conclude that in fact the citizenship programme has offered a much-needed economic cushion in these critical times.
How has the Cyprus Investment Programme fared during Covid?
Demand has dwindled, yet this has been predominantly attributed to the fact that most foreign investors still opt for the real estate investment option versus alternative investment funds or shares in Cyprus companies. Due to coronavirus, many prospective investors have not been able to fly into Cyprus to undertake real estate viewing trips, hence their cases have been put on hold until the travel bans and epidemiological situation improve.
The Cyprus government is in a delicate moment – trying to hold up the credibility of the Cyprus Investment Programme – a much needed source of public funds and foreign direct investment, whilst ensuring it is now (finally) fully compliant with EU requirements and AML benchmarks.
Protecting the CIP’s credibility restores and upholds trust in its benefits from the public, governments, the EU and foreign investors.
Will the ‘Cyprus Papers’ shatter this trust beyond repair?
An Era of Reform
The timing of this leak raises a few eyebrows.
Questions come to mind such as why have these CIP cases been leaked precisely now. Not even a week after the Cypriot government issued new regulations to bolster the reputation of the Cyprus Investment Programme?
Many contentious cases had already come to the attention of the Cypriot government late last year and as a result steps were taken to allow for the revocation of almost 30 Cyprus Citizenships.
The ‘Cyprus Papers’ open up a can of worms that in many ways – already existed.
Since late 2019 it was agreed that numerous approved CIP investors (and their dependents) would be revoked their passports, including; Stolyarenco, Bondarenko, Deribaska, Pornmoniroth and Paulika, Sopheap and Meng Khin, Kimleng and Savoeum, Shumin, Ndegwa, Nasike and the notorious Jho Taek Low. The media had a ball regurgitating the loopholes and issues in the Cyprus Investment Programme’s approval process which had allowed these notorious characters to obtain passports from an EU Members state in the first place.
Which is precisely why over the past 6 months, legislation was drafted and passed to ensure that Cyprus passports could now be revoked for applicants who are retrospectively flagged as ineligible due to their criminal activity etc.
What will the Cyprus government do in response to the Cyprus Papers ‘leaks’?
Cyprus, a small island nation is currently embroiled in a much wider geopolitical situation involving regional players vying for more influence (and resources) in the Eastern Mediterranean including Greece and Turkey, all whilst tackling the sensitive balancing act of public health vs economy. Whilst it spins these critical plates the government should be aware that it is quintessential to restore faith in its citizenship investment programme and more specifically the governance of it.
This is the only way it can prevail – enhancing its due diligence processes and transparency and responding proactively to these leaks effectively.
As the CEO of PwC Cyprus Mr. Evgeniou told Cyprus Mail
“In order to achieve better results, we have to improve the brand and the reputation of Cyprus. But we also have to bring out the reform agenda that should be implemented, because if the economy is more competitive, it is more productive”.
One can only assume that Cyprus will respond with demonstrable action, proactively and collaboratively. Now that the legislation has passed allowing for the revocation of Cypriot citizenships, it is hoped that after due process of each purportedly unmerited citizenship file and in compliance with its legislation it will do precisely that, revoke unworthy applicants’ passports.
We’ll wait and see if this is yet another opportunity for Cyprus to reform itself and bolster its investment migration programme, or not…
