The money laundering risk of Golden Passports

By Christina Poursanidou, Lawyer

Following the financial crisis of 2009, most of the European countries in order to boost their weakened economies, have introduced policies, which allow foreign investors to make large and passive investments, in exchange of an easy (almost immediate) route to citizenship or residence of the investors. Such schemes are definitely not a new trend, since even from the 1980s UK and USA offered residence in exchange for sizable investments. Usually these policies are defined as Citizenship by Investment (CBI) or  Residency by Investment (RBI), “Golden Visas” or “Golden passports”. Undoubtedly,  such policies have a positive impact on the introducing country, but simultaneously could carry significant risk of economic crime.

At that point, let’s discuss the intentions of the parties. On the one hand, the country introducing a golden passport policy aims at its economic growth. Basically, the country offers a passport in order to receive a huge investment from wealthy foreigners. On the other hand, the intentions of the foreign investors vary. According to the recent survey,  EU Member States are ranked in the top 30 most desirable citizenships around the world.  The reasons behind the decision to invest in any of the EU countries include political stability and the legal system of these countries as well as tax incentives. Although, the most important element, making the nationality of an EU member state desirable by third country nationals are the rights provided by the EU, such as the freedom of movement, live, work and study with no restrictions in other 26 countries. Although increased foreign investments are always welcome, there has been overwhelming evidence that golden passport schemes have been more likely serving corrupt interests, rather than the common good.

Schemes offering golden passports, if not handled with caution by the authorities, have been proved vulnerable to a number of risks. Apart from the “marketisation” of EU residency and the significant macroeconomic implications, the CBI/RBI policies can help hide or facilitate financial crimes, including bribery and corruption, tax crimes and money-laundering. Some elements leading to that conclusion is the lack of transparency of the procedures,  insufficient measures to verify applicants’ background and the origins of the invested funds, opaque governance structures and the involvement of intermediaries. The successful applications for golden passports of individuals, being accused for financial crimes, is the irrefutable proof of the risk for EU security from CBI/RBI policies.

Based on the above concerns, the European Commission has urged member states to ensure that applicants for “golden passports” and “golden visas” comply with EU anti-money laundering rules  and to apply enhanced customer due diligence check.  We can admit that the steps taken to fight the risk for AML from golden passports are important. Although, the conflicting interests of the introducing countries still remain the biggest obstacle to eliminate the risk of such policies: Economic growth of a country vs the attempt to combat money laundering within the EU.

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