Cyprus, Malta and Monaco are the three EU countries that were flagged as operating high-risk schemes that sell either residency or citizenship in the OECD report.
The blacklist also includes Antigua and Barbuda, The Bahamas, Bahrain, Barbados, Colombia, Dominica, Grenada, Malaysia, Mauritius, Montserrat, Panama, Qatar, Saint Kitts and Nevis, Saint Lucia, Seychelles, Turks and Caicos Islands, United Arab Emirates and Vanuatu.
After analysing residence and citizenship schemes operated by 100 countries, the OECD, “is naming those countries that attract investors by offering low personal tax rates on income from foreign financial assets, while also not requiring an individual to spend a significant amount of time in the country.”
Second passports can be misused by those wishing to “hide assets held abroad”, OECD says.
The think-tank is promoting a framework for countries to cooperate against tax evasion by sharing information. Known as the Common Reporting Standard, the framework allows for details of bank accounts an individual might hold abroad to be sent to their home tax office.
The OECD believes the ease with which the wealthiest individuals can obtain another nationality is undermining information sharing.
“Residence and citizenship by investment schemes, often referred to as golden passports or visas, can create the potential for misuse as tools to hide assets held abroad from reporting under the OECD/G20 Common Reporting Standard (CRS). In particular, Identity Cards, residence permits and other documentation obtained through these schemes can potentially be abused to misrepresent an individual’s jurisdictions of tax residence and to endanger the proper operation of the CRS due diligence procedures,” the report says.
According to a Transparency International and Global Witness joint report, between 2008 and 2018, Cyprus granted honorary citizenships to 45 individuals.
During the same period, 3,336 foreign nationals – including the investors’ family — were granted citizenships as part of a government scheme to attract investment following the 2012-2013 financial crisis. The majority (1,013) of those were granted in 2017.
The scheme made Cyprus $5.51 billion in revenue.
All EU states generated around 25 billion euros in foreign direct investment in a decade from selling at least 6,000 passports and nearly 100,000 residency permits, according to Transparency International and Global Witness.
Authorities have expressed their concern that the schemes could be posing a security risk as they are open to abuse by criminals, terrorists and sanctions-busting business people.
The citizenship by investment industry is now worth $3 billion, according to the OECD.