Citizenship schemes pose major corruption risk

Stelios Orphanides
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Citizenship schemes pose major corruption risk

ANTI-CORRUPTION watchdog Transparency International said that schemes rewarding investors with residence permit and citizenship are vulnerable to abuse, undermine fight against corruption in Europe and increase the risk of money laundering.

“Transparency International is calling on the EU to closely monitor these schemes and act in order to maintain the integrity of European borders against the corrupt and their assets,” the Berlin-based non-governmental organisation said in a statement on its website on Monday.

The statement came in response to reports published on the website the Organised Crime and Corruption Reporting Project (OCCRP), which said such schemes allow persons deemed close to Russia’s President Vladimir Putin and his predecessor Boris Yeltsin as well as members of Angola’s ruling class to benefit.

Reporters at OCCRP investigated these schemes, widely known as “Golden Visas” in seven European Union member states, Austria, Cyprus, Hungary, Latvia, Lithuania, Malta and Portugal, plus two non-EU member states, Armenia and Montenegro. The reports showed how some European countries are selling access to the Schengen visa-free travel area with “little scrutiny, transparency or due diligence”.

“It is clear that due diligence procedures in some EU countries, such as Hungary and Portugal, have not been rigorous enough,” Casey Kelso, advocacy director at Transparency International was quoted as saying. “Citizenship and residency are among the most valuable assets a country can offer an individual, but EU member states have not even been applying the same minimum checks that banks are supposed to apply to their high net-worth customers”.

Cyprus, not part of the Schengen area, has repeatedly attracted criticism for its citizenship-by-investment scheme which allows investors to acquire Cypriot citizenship with an investment of as little as €2m. The current scheme, in place since 2014 and repeatedly revised, provided initially for a €5m investment. It also provides that applicants have a clean criminal record.

In comments made to OCCRP, Ana Gomes, a member of the European parliament (MEP) described Cyprus’ scheme, introduced in response to the unprecedented financial disaster of 2013, as “absolutely perverse, immoral and increasingly alarming”.

In 2014, the European Parliament criticised Golden Visas, singling out that of Malta which it described as an “outright sale,” and asked the European Commission to issue recommendations to member states. “EU citizenship should never become a tradable commodity,” the European Parliament said.

“Programmes in all eight EU countries maintain secrecy around recipients of Golden Visas,” Transparency International said. “The origins of beneficiaries’ wealth (are) not sufficiently scrutinised and the public lacks details of the investments and who ultimately benefits from them. In the absence of public or media scrutiny, Golden Visa programmes create opportunities for current and former officials to escape prosecution and funnel illicit funds across borders”.

Montenegro, which is currently in negotiations to join the EU, has granted citizenship to a former Thai politician and another from Palestine who are both facing charges related to corruption and embezzlement respectively, Transparency International said.

“The Hungarian case is especially peculiar since profits from the Golden Visa programme do not appear to benefit the country but rather find their way into unknown pockets via companies, all but one of which are seated in offshore tax havens that trade in Hungary’s Golden Visa bonds,” Miklós Ligeti, head of legal affairs at Transparency International Hungary was cited as saying.

Susana Coroado, vice-chairwoman of the Portuguese branch of Transparency International, said that Golden Visa schemes facilitate exponentially the risk of “money laundering”.

The European Commission “must take heed of today’s revelations and ensure that proper oversight is in place if these programmes are to continue,” Transparency International said.

Michalis Michael, the chairman of the Cyprus Investment Promotion Agency (CIPA), said that the government-sponsored body is about to introduce stricter criteria and procedures governing the Cypriot Golden Visa programme, with the inclusion of a registry of related service providers, as instructed by the cabinet in January.

Still, the new programme will not be more transparent compared to the current one, which only provides for the publication of notices by applicants in the Cypriot press.

Cyprus issued over the past 10 years 1,685 passports to investors and 1,651 to members of their families with a total benefit of €4.5bn plus.

Cyprus passport sales revealed

Stelios Orphanides
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Cyprus passport sales revealed

Cyprus passport sales revealedTHE CYPRIOT government extended around 3,300 passports to foreign investors in the past ten years, the Cyprus News Agency reported on Monday citing official data submitted to the parliament.

By contrast, the number of naturalised persons who either spent seven years in Cyprus or married a Cypriot citizen was 5,800, the CNA reported on Monday citing Green lawmaker Giorgos Perdikis, who also tabled a draft law that aims at offering more transparency in the government’s citizenship-by-investment scheme which allows investors to get a Cypriot passport within months after they invest as little as €2m on the island.

“We are intending to have the proposed law put on vote directly,” he said after a meeting of the parliamentary committee of interior which looked in to the matter, adding that an investigation showed that “the parliament has been misled during the initial debate”.

“It appears that several European countries are transparent, while it emerges that more than one third of the foreigners who obtained the Cypriot citizenship in the past ten years, were exceptions,” the Green lawmaker said. “We definitely need investors, but citizenships should be granted with much caution and without excess”.

The Republic of Cyprus, Perdikis continued, is facing criticism abroad as a result of the excessive application of the scheme.

Akel lawmaker Giorgos K. Georgiou, the vice chairman of the committee of interior who chaired the session on Monday said that the committee expected to be informed about the law firms, the accounting firms and the construction companies which helped their respective customers obtain the Cypriot citizenship, the CNA reported.

Local authorities delaying title deeds process

George Psyllides
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Local authorities delaying title deeds process

Cyprus Title Deeds problemsTHE LAND registry is still waiting for local authorities to decide about properties belonging to buyers who have not received title deeds because of problems caused by the sellers.

Head of the department Andreas Socratous told the Cyprus News Agency that they have conveyed around 75 per cent of the cases of so-called trapped buyers to the local authorities and were now waiting for them to issue certificates.

It is part of a process introduced in 2015, granting the head of the land registry the authority to exempt, eliminate, transfer and cancel mortgages and or other encumbrances, depending on the case and under certain conditions.

The law sought to resolve the problems created by the failure to issue title deeds to people who had paid for their property, either because the property was mortgaged by the developer, or the state could not go ahead with the transfer because of outstanding taxes.

Since developers’ land and buildings were counted as assets that need to be offset against their debt to banks, this gave lenders a claim on people’s properties that had been mortgaged by developers.

Socratous said they have processed 28,000 such cases to date, including properties, finished 20 years ago.

“The responsible building authorities must decide,” Socratous said.

Local authorities can issue three types of certificates depending on the condition of the property: one of final approval, one with remarks, and one with a prohibition.

Final approval is issued when the property meets all the criteria; the one with remarks is issued if it has some irregularities but they are not substantial, he said.

A ban is issued when there are serious problems relating to health and safety or there is a violation of the rights of third parties.

“But what the authority must do is identify what case it is and issue the required certificate.”

The land registry will then issue a title deed reflecting the certificate from the local authority, he added.

The government is currently seeking ways to improve the legislation following court decisions that favoured banks largely on the grounds that the buyer’s claim on the property infringed on the contract between the bank and the developer.

The attorney-general subsequently instructed the departments involved to continue implementing the law while appeals were filed at the supreme court, which will have the final say on the matter.

In September however, the Larnaca district court upheld the 2015 law, allowing trapped property buyers to obtain their title deeds irrespective of the developers’ own commitments to banks.

Interior Minister Constantinos Petrides said recently the ministry had prepared a bill which was sent to the Legal Service for processing last October.

“As it transpired from the differing district court decisions, it is a complicated legal issue and due to this an in-depth study is required,” the minister said.

Strong growth in Cyprus property prices

Nigel Howarth
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Strong growth in Cyprus property prices

Cyprus property pricesTHE THIRTY SECOND publication of the RICS Cyprus Property Price Index reports that the average price of residential apartments and houses across the island have risen by 17.4% and 4.2% respectively since the third quarter of 2017.

Over the same period of office prices have risen 8.8%, warehouse prices by 4.4% and retail prices by 4.5%.

Significant price rises were recorded in all districts and asset classes, with Paphos and Paralimni reporting slightly lower increases than the other districts.

The highest increase was reported in the southern coastal town of Limassol with 13.2% and 14.3% respectively, for offices the highest increase was in Nicosia with 19.5%, for warehouses and retail the highest increase was in Nicosia with 7% respectively.

Quarterly price changes

Compared with the 2nd quarter of 2017, prices of apartments and houses rose by 0.5% and 1.7% respectively. Limassol reported the largest quarterly increase with apartment and house prices up 4.1% and 5.5% respectively.

Prices of holiday homes over the quarter also rose with the prices of apartments rising by 2.5% and houses rising by 1.80%. Limassol reported the highest rise in holiday apartments with an increase of 4%, while Paralimni reported the highest quarterly rise for holiday homes at 2.9%

Rental values

Across Cyprus, on a quarterly basis rental values increased by 4.6% for apartments, 2.5% for houses, 1.5% for retail premises, 5.7% for offices and 0.9% for warehouses.

Compared to Q3 2016, rents increased by 12.5% for apartments, 9.2% for houses, 6.1% for retail premises, 22.4% for offices and 1.6% for warehouses.

What does the future hold?

Some economists are warning that the recovery in the Cyprus property market is short lived and expect prices to fall in a couple of years.

Speaking to the Cyprus Mail Marios Mavrides who teaches economics at the European University of Cyprus said that the current increase in property prices, which fell after the peak of the property bubble nine years ago, is likely to come to a halt in two years.

“Prices have not fallen enough,” said Mavrides who is also a Disy MP.

Economist Marios Clerides said that that he too feared a possible drop in real estate prices.

“I am concerned about property prices because we have created artificial demand with the passport scheme and the sustainability in this area,” he said. “The real estate market in Cyprus is fragile”.

Citizenship scheme shrouded in secrecy

Staff Reporter
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Citizenship scheme shrouded in secrecy

Citizenship by investment scheme shrouded in secrecyTHE LEADER of the Greens Giorgos Perdikis is absolutely right to demand transparency in the citizenship by investment scheme that the Anastasiades government introduced in order to attract funds from abroad when Cyprus was deep in recession.

It was a good plan for desperate times and together with the tourism industry helped put the economy back on the recovery path, but it also led to bad press abroad, Cyprus being accused of selling EU passports to wealthy foreigners.

This was not good for a country that had taken all the necessary legal measures to clean up its act, consign its reputation for money laundering to the past and market itself as a reputable centre for international business. In order to maintain a good reputation, it needs to show that its citizenship by investment scheme is subject to strict criteria and rules and is not cash-generating trick for auditing firms, law firms, developers and politicians. And the only way to silence those accusing Cyprus of trading in naturalisations, as Perdikis said, is through transparency.

The Greens have prepared a bill that would oblige the state to disclose information about the procedures followed and the criteria. “We must take effective steps to strengthen and protect this instrument of attracting investment, shielding democracy with transparent procedures,” said Perdikis and it is difficult to disagree with him. Procedures should be transparent, as this would force the authorities to be more stringent when examining applications.

Another deputy at the House interior committee, Pavlos Mylonas, demanded the legislature was informed of politicians’ involvement in companies arranging citizenships. Presumably, he was concerned that a politician would use his power to persuade officials to grant applications even when the criteria were not satisfied. He also wanted to know the names of the law and auditing firms providing this service, as they also have strong ties with government and politicians.

This is another reason in support of Perdikis’ demand for transparency. At present there is none. Citizenships are granted by the state in secrecy, allowing scope for corruption, bending of rules and violations of the criteria. This could easily be overcome if there is a provision in Perdikis’ law for the publication of the name of every individual, who has been granted citizenship, in the official gazette of the Republic. An interior ministry official used the ludicrous excuse that this could not be done because it would be a violation of personal data! This is not just a nonsensical reason, it raises suspicions that the state wants to cover up dubious decisions.

This gives the impression that the issuing of citizenship by the state is some clandestine activity that must be shrouded in secrecy. What third-country national, with a good reputation, would object to his or her name being made public once their application is approved? If they object to public disclosure their application should be rejected. When they are informed that transparency was a provision of the law, nobody could claim that publication of names was a violation of personal data.

Pitfalls to avoid when buying property in Cyprus

Charles Savva - Savva & Associates
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Pitfalls to avoid when buying property in Cyprus

PURCHASING property in Cyprus can involve a number of pitfalls. Potential purchasers are advised to exercise extreme caution when buying property, especially if the title deed is not readily available, which is a common scenario when purchasing new property in Cyprus.

Many EU and non-EU high-net-worth individuals seek to acquire property in Cyprus through the citizenship-by-investment programme or a residency-by-investment application.

This update outlines the top 10 pitfalls to avoid when buying property in Cyprus and how to ensure that property purchases move forward smoothly and efficiently.

Not appointing a property lawyer

Appointing a lawyer who specialises in property is of paramount importance. The biggest mistake that can be made is signing a purchase contract presented by a developer (an all-too-common occurrence). Such contracts are unlikely to protect the buyer and are generally heavily biased in the developer’s favour.

Further, buyers must be wary of lawyers acting for vendors or builders and who are therefore not independent. This is the equivalent to not appointing a lawyer.

A reliable lawyer who is proficient in the purchaser’s language and independent of the other parties involved in the transaction is the most important consideration when buying property in Cyprus. A good lawyer makes these potential pitfalls easier to navigate. In short, property is a major investment and should not be undertaken without engaging a specialised property lawyer.

Ensure that property is not subject of ownership dispute

Property to be purchased must not be the subject of an ownership dispute, something that is common in divorce proceedings, for example. Such a scenario can generally be avoided by purchasing property from a reputable developer. However, this is not always the case, especially in recent years where developers have become active in assuming an intermediary role for resale properties (typically for properties which they have developed and sold to clients in the past).

Hidden commissions

Hidden commissions negotiated between an agent or intermediary and the vendor (in most cases a developer) are arguably the most costly pitfall when purchasing property. Such commissions can range from 5% to 50% or more. Such costs can be avoided by engaging a reputable lawyer who is readily able to provide potential clients with the required references.

Failure to consider all relevant costs

It is important to calculate the value-added tax (VAT) (ie, nil, 5% or 19%), transfer fees, stamp duty, legal fees, disbursements and immovable property taxes that will be applicable for real estate purchases as early as possible in order to budget accordingly.

VAT is often misunderstood and misrepresented by developers and advisers in Cyprus. Property purchasers who have made uniformed VAT elections often find themselves either unable to manage their properties as they wish or facing significant VAT liabilities.

Handing over reservation fee without written reservation terms

If a purchaser is asked to pay a reservation fee to a developer, it should ensure that something is put down in writing, ideally by an appointed lawyer, to confirm:

how much was paid;

the circumstances in which a refund will be paid; and

the full purchase price for the property, which may be reduced in some circumstances.

Signing contract of sale without undertaking due diligence

While lawyers are not required to conduct due diligence automatically, such as a mortgage check, a good lawyer should do this as a matter of course.

In 2011 the government introduced a specific performance law to provide a contract of sale precedence over any pre-existing mortgage; however, a check should be undertaken to examine whether any mortgages have been placed on the land before purchase to avoid potential difficulties later on. A contract of sale cannot be properly drawn up without considering the results of these searches.

Further, purchasers are advised not to rely on developers to conduct due diligence even if they provide official extracts from the Land Registry and other government departments.

Failure to put everything in writing

Purchasers are recommended to ensure that all points negotiated are set out in the contract of sale, particularly any agreed extras. This includes an inventory of any necessary repairs or damages.

Failure to deposit contract of sale

A contract of sale must be deposited with the Land Registry within the timeframe specified by law. The purchaser will lose important legal rights if this is not done. Further, a contract of sale must be stamped within the timeframe specified by law, otherwise the purchaser will be liable to pay penalties.

Failure to focus on material contracts connected to property

Many luxury villas and apartments will require a property management agreement to be executed, a service that is commonly offered by developers. This is a material agreement and the required attention should be given to understanding all terms and conditions to ensure that the purchaser’s property is maintained and secure during any absences from Cyprus.

Failure to make a will

The Cyprus Law governs all immovable property situated in Cyprus, which includes an element of forced heirship. However, certain categories of foreign purchasers are entitled to bypass these rules and make a will to pass down the property as they wish. Purchasers should draft a will as soon as property is purchased in Cyprus.

Comment

It is important to learn from the lessons of purchasers who have bought property in countries such as Spain, Italy, France, Portugal, Greece and Cyprus before the financial crisis and who remain embroiled in expensive legal battles. Despite this, the property dream is still alive, with millions of Chinese, Russian, British and high-net-worth individuals considering buying abroad even more so than before the financial crisis according to the latest research by HSBC.

Avoiding these pitfalls in Cyprus becomes all the more important in property investment, when the investor is typically investing as part of a citizenship-by-investment application and such an investment typically ranges between €2 million and €2.5 million.

Most of the potential problems encountered when buying property in Cyprus could be avoided if the above pitfalls are considered. Above all, it is paramount to obtain independent legal advice from a competent lawyer. A good lawyer should ensure that purchasers are protected from all other pitfalls on this list.

About the author

Charles Savva is the Managing Director of C. Savva & Associates Ltd (S&A); a CySEC licensed Fiduciary Company and Private Client Services provider in Cyprus.

For further information on this topic please contact Charles Savva.

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