The Strategist

EU against gold passports. Will Europe change the policies?

02/27/2019 - 04:21

Brussels is calling on EU countries to revise the system of granting residence permits in exchange for investments. How this will be implemented in practice?

At the beginning of the year, the European Commission submitted a report to the European Parliament. The paper proposes to toughen the procedure for issuing “golden visas” that allow obtaining a residence permit or a European passport in exchange for investments in the economy of the EU countries.

Last year, Transparency International (TI) published a report titled “European Getaway: Inside the Murky World of Golden Visas”. Some of the statements in these materials related rather to the journalistic genre. However, it still draws attention to the fact that the programs of three countries - Bulgaria, Cyprus and Malta - were analyzed in detail and the situation in the European Union as a whole was summarized. According to TI, the EU countries have attracted a total of about € 25 billion with the help of investment programs since 2007.

It is obvious that the programs for issuing passports of the EU countries in exchange for investments, as well as approaches to them, will still change. This is also indicated by financial regulators within the framework of the general trend for global transparency.

Having received a residence permit, and a passport in some countries, a person receives the right to stay in all EU countries. Standards and approaches to the issuance and receipt of such documents are somewhat different in EU countries, some countries even use different information bases for audits. Apparently, in the end, approaches to a residence permit in different European countries will be harmonized.

The report of the European Commission notes that not all countries require a permanent stay in their territories during the period of "golden visas" (for example, it is required to be 7 days a year in Portugal). Also, it is not always necessary to have a relationship with the country that issued the “golden visa” (somewhere you can demonstrate this relationship with membership in a sports club), and not all naturalized citizens have to pay taxes in these countries. 

If the applicant plans to obtain tax residency status in any country, then a local bank will no longer be satisfied with just a passport to use the client’s data for the exchange of tax information. Inevitably, questions of vital interests, real residence, and so on will arise. Brussels urges EU countries to pay attention to compliance with requirements for the actual presence in the country that issued the residence permit. Even before the publication of the report, Cyprus introduced a condition on availability of a residence permit and the need to provide a utility bill for the applicant.

The requirements for transparency and the general tendency to combat money laundering are likely to lead to several outcomes. First, the procedures for verifying sources of income for applicants and their families will become stricter. Second, the reputation and prosecution data of the applicants will be checked more carefully. Third, there will be clear limits on the number of documents issued for such programs. In addition, lists of persons who have received such “golden visas” will be published, and there may be several high-profile cases about revocation of previously issued passports or visas.

Many of these measures are already being taken across the European Union. From now on, these talks will definitely sound louder, especially in the context of the fifth directive.

The fifth directive to combat the laundering of funds of the European Union was aimed at introducing financial audits, as well as enhancing the role of financial institutions and intermediaries in their conduct.

And this is right, because the institutes are led by a financial incentive in the form of the threat of fines and revocation of licenses upon the revelation of violations. The report of the European Commission criticizes mediators, and this may lead to an increase in participation of state bodies in all sorts of inspections, which is fraught with an increase in the time of inspections and the cost of procedures.

Recall that financial scandals in the European Union have recently been associated with banks. For this reason, financial institutions quite naturally “tighten the screws” along the lines of compliance and testing of their clients.

The public in the European Union welcomes any measures aimed at reducing the risk of money laundering and the free migration of criminals, especially if this is not about formal procedures, but real ones aimed at fighting crime. At the same time, this will lead to an increase in the value of investor passports and visas.