Cyprus' investment-for-citizenship program raises questions

People pass by a branch of the bank of Cyprus in central capital Nicosia, Cyprus, on Saturday, March 30, 2013. (AP / Petros Karadjias)

Becoming a Canadian citizen can be a lengthy process, requiring years of residency, language skills and a good knowledge of the country. But in Cyprus, it can be as easy as shelling out some cash.

Since 2013, Cyprus has had a program that allows people to invest large amounts of money in the country in exchange for citizenship that gives them a passport that can be used to travel throughout the European Union.

Now, there are concerns that foreigners are taking advantage of the program to park their money offshore, gain access to a passport that allows them travel easily across Europe, and avoid the prying eyes of their own governments.

Many countries in the world provide residency in exchange for investment, and many others are used as tax havens, such as the Cayman Islands and Panama.

But Yalman Onaran, a senior writer at Bloomberg News who recently investigated the Cyprus program, says what makes that country unique is how quickly it will issue a EU passport in exchange for money.

“In three months, even without stepping a foot onto the island, you can actually become a citizen,” Onaran told CTV’s Your Morning from New York Tuesday.

According to Onaran’s research, rich foreigners looking to park their money offshore can become Cyprus citizens simply by investing at least 2 million euros (CDN$3 million) in property in the country , or 2.5 million euros ($3.75 million) in government bonds or companies.

One Russian man Onaran spoke with bought two villas on the Mediterranean island for 5 million euros in August. By December, he had an EU passport.

The program has proven hugely popular. In just over four years, the program has attracted $4.4 billion in investment, and issued about 2,000 passports -- about half to Russians.

According to Onaran’s research, rich foreigners looking to park their money offshore can become Cyprus citizens simply by investing at least 2 million euros (CDN$3 million) in property in the country , or 2.5 million euros ($3.75 million) in government bonds or companies.

One Russian man Onaran spoke with bought two villas on the Mediterranean island for 5 million euros in August. By December, he had an EU passport.

The program has proven hugely popular. In just over four years, the program has attracted $4.4 billion in investment, and issued about 2,000 passports -- about half to Russians.

“It’s helping the economy of the island, but it’s of course raising questions about who’s really getting these passports,” said Onaran.

Cyprus has been a magnet for Russian money for more than a decade, Onaran said. And for many years, it was easy to transfer foreign money into Cypriot banks; in fact, the country has long been one of the most popular offshore centres for money from the Middle East, he said.

But after several Cypriot banks collapsed in 2012, sending the country into a financial crisis and prompting a bailout from the EU, the European Union cracked down on Cypriot banks’ acceptance of foreign money.

More recently, the EU has complained about the Cyprus investment program, particularly when the country was giving passports away without a residency requirement. So the rules were changed to require that foreign investors also spend at least part of their time in the country.

A Cypriot government spokesperson responded to Yalman’s article by saying: “The citizenship by investment program is an investment program and in no way constitutes a ‘sale οf ΕU passports,’ ‘sale οf ΕU citizenship’ or ‘money-for-passports program’ as is repeatedly and erroneously mentioned in the article.”

It also said that the number of third-country nationals obtaining citizenship in Cyprus is “extremely small, relative to most ΕU countries.”

The Cyprus economy has rebounded since hitting its recent low in 2013. Its economy expanded 1.7 per cent in 2015, and 2.8 per cent in 2016, Onran said, making it among the fastest-growing nations in Europe.

But Onaran says the EU is not pleased with the Cyprus investment program and may choose to crack down if the tiny island nation continues to issue so many passports to foreigners.

“Its success may be its doom in the end if they end up giving away thousands of passports a year and the EU authorities get really upset, then they might put pressure on Cyprus. It might not last forever.”