Can you believe that Cyprus is also selling its soul?

The race is on to attract high heeled applicants as a number of jurisdictions have joined Malta in the quest to attract such illusive investment

It was almost three years ago in October 2013 when the Opposition leader, addressing a political activity, heavily criticised the citizenship scheme. He solemnly declared that his party would not support the “selling of passports” as this was “immoral” and equated to the “selling of Malta’s soul”.

Stoically he pointed out that his party would not support such a scheme as in his opinion this was being done without the proper measures being taken onboard. Only if applicants were thoroughly scrutinised and showed altruistic commitment to the islanders’ well-being would the scheme be supported. The Opposition leader objected to the early version of the scheme, saying that there was no link to residency and therefore the applicant was not manifesting any wish to really support the island.

The MEPs in Brussels supporting the PN made a huge protest, calling on their counterparts of the European People’s Party (EPP) to block the scheme. Equally, opponents of the scheme remarked that it is an international disgrace, saying there is no pride in selling one’s birthright, only shame. Some went so far as calling it a scam – nothing more than legitimised agents trafficking for wealthy undesirables. In a sarcastic mood they reiterated that applicants were not offering their talents, nor coming here for the fantastic weather.

Following pressure from the opposition party, the government produced a revised scheme which at the outset required a presence of one year prior to obtaining citizenship, paying a non-refundable deposit plus the purchase / rent of property, an investment in local bonds and taking health insurance. The scheme was to be administered by a new directorate called Identity Malta.

Following a competitive tender three applicants applied, namely KPMG the Big 4 auditor, Henley and Partners and Arton Capital. Henley and partners were appointed as the preferred bidders and entitled to be paid a 4% cut from the proceeds of the scheme while they enjoy the patronage of the prime minister who pledged to be present and speak at all international road shows to promote the scheme.

After some pressure from services providers, the government conceded that the exclusivity would not be held by Henley and Partners but opened to local accredited firms, albeit the latter had to pay an annual subscription and do not participate in the 4% cut of the scheme proceeds. The buzz word was international marketing to attract high net worth individuals.

Critics were quick to compare Malta to the St Kitts in the Caribbean. There you can just pay a $250,000 cash donation to the St Kitts Sugar Industry Diversification Foundation and this automatically empowers any investor to travel without a visa to over 100 countries, including Canada and Europe – apart from not paying income taxes. By comparison in Malta, the EU had approved the scheme but imposed a one-year pre- residency requirement for all applicants.

The scheme comes with an obligation of paying a non-returnable deposit of €650,000, purchase of a house worth upwards of €350,000 or rental, purchase of government bonds of at least €150,000 and appropriate health insurance – all this and more would entitle an applicant for an EU passport that allows one to move around 28 EU member states. As an added sweetener applicants once approved can repatriate profits to Malta for tax rebates – and visa-free travel across most of the world.

Quoting from Henley and Partners 2015 annual report we read that “The growing importance of investment migration can be seen in steady growth of those countries offering residence and citizenship-by-investment. Those countries with relevant programmes continue to perform strongly and all now feature in the top 40 of the Index. It is encouraging to see Malta enter the top 10 after launching its Malta Individual Investor Programme, which now ranks as the best global citizenship-by-investment programme (refer to Global Residence and Citizenship Programmes 2015 report). Malta’s citizenship-by-investment programme has raised over €1 billion in capital since its launch, which already matches the EU funds allocated for the next seven years.  Notwithstanding its success in the short period since IIP was launched amid much opprobrium from the Opposition benches, over 129 accredited local agents rushed to the four corners of the world to promote it. (Some have booked and paid to be given regular speaking positions in foreign conferences.)

To their delight, they found strong demand from people in China, Russia, and South Africa or Middle Eastern countries for a Maltese passport. So far it appears that the highest numbers of applicants are from Russia and ex-Communist countries but surprisingly one notes a few US millionaires who want to start paying tax outside the US. Readers may ask why did the government risk so much bad publicity to offer this scheme, when the economy was doing well and the level of employment was respectable.

There is no easy answer to this question... certainly the scheme had generated a chasm among the political class as the ones who preferred to keep the status quo preferred not to risk offering passports to unknown rich patrons who may in the end never reside or even participate as citizens. Pragmatists on the other hand point out that over the past 30 years a considerable mountain of debt has accumulated and needs to be repaid, but realistically this cannot be done simply by improving the rate of growth of the economy. Roughly the six billion euro in debt was money spent to bail out the drydocks, shipbuilding, the Red China dock loan linked to the price of gold, Air Malta, Enemalta, potholed roads, weak infrastructure in Mater Dei hospital and running a bloated civil service.

Mismanagement and waste over the years have taken their toll so do we feel contrite that our government is branded as selling its soul to repay past profligacy? Suddenly, we discover that Cyprus is also competing for the rich and powerful, yet it does not oblige applicants to reside for one year like we do. A Cyprus passport equally gives freedom of movement within the European Union, but not the Schengen area, and all this complements the island which is now experiencing its successful exit from its three-year international bailout programme and has now come back to a sustainable growth path.

Cyprus also offers naturalisation terms for foreigners who must hold a permanent privately-owned residence in Cyprus of at least €500,000 in value, plus one from a number of  investment  options such as:- Α.1 purchase of  state bonds of the Republic of Cyprus of at least €5.0 million, or Α.2 Investment in financial assets of Cyprus  of at least €5.0 million, or Α.3 Investment in real estate, land development and infrastructure projects of at least € 5.0 million, or Α.4 Purchase or creation or participation in Cyprus companies or  an investment of at least € 5.0 million to have a tangible presence in Cyprus and employ at least five Cypriot citizens, or Α.5 Deposits in Cyprus banks of personal fixed term deposits for three years valued  at least €5.0 million, or Persons whose deposits with the Popular Bank Public Company Ltd have been impaired up to €3 million due to the measures implemented after the 15th March 2013, or through investment in Major Collective Investments.

Therefore the race is on to attract high heeled applicants as a number of jurisdictions have joined Malta in the quest to attract such illusive investment. It is commendable that the government has decreed that 70% of funds paid to the passport scheme – the Individual Investor Programme – are to be channelled to the National Development and Social Fund rather than used to finance the fiscal deficit and in the process build a reserve to buttress future social and ecological contingencies. The race to sell souls continues unabated.