A European money laundering watchdog has cautioned that a secretive investment-for-passports programme run by Cyprus was vulnerable to money laundering and fraught with risk.
Responding to the report’s conclusions, Finance Minister Constantinos Petrides said the island is committed to following through with the report’s recommendations.
The Mediterranean island launched the scheme offering passports for an investment in 2013, with more than 3,000 people gaining citizenship through the programme.
A committee of experts from the Council of Europe, known as MONEYVAL, said in a report released on Wednesday that, although Cyprus had broadly taken measures to mitigate key money laundering risks, the risk of vulnerabilities in the investment programme had increased “exponentially” via real estate, the investment vehicle of choice.
“These risks have not been properly mitigated,” it said. “The risks related to the Cyprus Investment Programme have not been assessed comprehensively.”
Although it did not elaborate, real estate is broadly known to be used by money launderers as a stable investment which can appreciate over time, and is normally subject to more limited scrutiny, according to a European Parliament research note issued in 2019.
Supervision of the real estate sector should be significantly enhanced, the MONEYVAL report said
Under the programme, a minimum 2 million euro investment can get a passport and instant visa-free travel throughout the European Union, of which Cyprus is a member.
Supervision of the real estate sector should be significantly enhanced, the MONEYVAL report said, saying there should be more preventive measures by real estate agents.
While Cyprus was instrumental in assisting other countries, it was “not very proactive” at freezing and confiscating foreign criminal proceeds at its own initiative.
Responding to the report, Cyprus Finance Minister said “the MONEYVAL evaluation is a very demanding undertaking, with few countries achieving good results.”
Petrides added that “the report presents a very satisfactory impression of the measures that have been implemented, with Cyprus being one of just 25 countries, out of the total 98 countries which were evaluated, which did not receive a ‘Low’ score on any of the 11 components of evaluation of implemented measures.”
Further, Petrides said, the report showed that Cyprus had complied with almost all 40 parameters of evaluation, adding that the report also did not find Cyprus to be non-compliant on any of the parameters.
He stressed that “the Ministry of Finance and the Government are committed to implementing the recommendations [of the report], which are largely in line with the findings of the Risk Assessment Report on money laundering as well as the Action Plan and Strategic Plan that have been prepared by the Authorities and approved by the Council of Ministers.”
The review was conducted in May 2019. Based on the results of its evaluation, MONEYVAL decided to apply an enhanced follow up procedure and invited Cyprus to report back in 2021.
The total amount invested under the investment scheme was 6.64 billion euros between 2013 and 2018, the MONEYVAL report said, calling it “material” to the economy of Cyprus.
In November 2019, Cyprus said it would review the processes used to grant citizenships in the wake of a report by Reuters that Cambodian nationals in the inner circle of long-time leader Hun Sen had acquired passports.
It said it had introduced additional safeguards to the programme since its inception to prevent abuses.
It also said it would start a process to revoke citizenship from 26 individuals. However Cypriot lawmakers told Reuters on Monday that the process had stalled on a legal technicality, that the relevant law for granting investors citizenship lacks a supplementary clause on the process for revoking it.
[Includes reporting by Reuters' Michele Kambas]