Nicola Sharp of financial crime solicitors Rahman Ravelli outlines the background to the problem and the EU's approach to such risks.
A European money-laundering watchdog has warned that Cyprus' “golden passports'' scheme poses a major money laundering risk.
The investment-for-passports programme, which began in 2013, led to more than 3,000 people gaining Cypriot citizenship. Under the programme, a minimum of two million euro investment could obtain a Cypriot passport, which offers free movement through the European Union. A total of 6.64 billion euros was invested via the programme between 2013 and 2018.
But the programme has led to concerns being voiced by MONEYVAL, the permanent monitoring body of the Council of Europe entrusted with assessing compliance with international standards to counter money laundering.
In its report, MONEYVAL states that although Cyprus has implemented some measures to reduce money laundering risks, there remains a significant risk of money laundering in the passports programme via investment in real estate. The report says that these risks have not been properly mitigated or assessed and that Cyprus was not very proactive in freezing and confiscating the proceeds of crime.
MONEYVAL decided to apply an enhanced follow-up procedure and has invited Cyprus to report back next year on its revised approach to the risks.
It is now up to Cyprus to convince MONEYVAL of the value of the stance it is taking regarding the risks. Like all EU members, Cyprus is now under a greater obligation to reduce such risks. The introduction of the 5th Anti Money Laundering Directive requires enhanced due diligence checks when it comes to applications for citizenship, especially on nationals for third countries.
Member states must ensure the application of the EU rules on anti-money laundering are imposed in relation to investor citizenship. They must also ensure that any funds paid by investor citizenship applicants are assessed according to the EU money-laundering rules and are subject to enhanced due diligence.