Cyprus’s CBI program has recently come under the spotlight following the release of an “exclusive” investigative series by Qatar-based global media network Al Jazeera, which it claimed proved Cyprus had been selling passports to known criminals.
Titled “The Cyprus Papers”, the series was released to much hype and fanfare, complete with its own dedicated section on the network’s website, interactive infographics, and a satirical video featuring some of the “high risk” individuals it claimed had benefited from the program.
It has since gone on to cause a mild political crisis in the small southeast European country, sparking recriminations between political parties and fueling embarrassment for many – politicians and ordinary citizens alike. It has also threatened the future of the island’s CBI program.
But what did the series actually uncover?
According to the first article in the series, Al Jazeera obtained a “leak” of documents that included the names of everyone who had received Cypriot citizenship since 2013 through its CIP, netting the Cypriot government an estimated US$8 billion in revenue.
In the report, Al Jazeera’s ‘Investigative Team’ claimed that these documents “show that convicted criminals and fugitives are using the Cypriot citizenship-by-investment scheme – or the ‘golden passports’ – to buy their way into the EU. And the list is long, there are 2,500 people who paid to become new citizens of Cyprus with the added perk of being able to live and work anywhere in the bloc.”
Subsequent articles began to delve into the backgrounds of some of the individuals Al Jazeera claimed had acquired citizenship, and who were known to have been convicted of a range of different activities, including corruption and other financial crimes.
To be sure, the list that Al Jazeera acquired was definitely real and included individuals who had indeed been convicted of crimes in countries ranging from Vietnam to Ukraine, Russia, and more.
However, although the report presented these revelations as verifiable proof that the Cyprus CBI had been hijacked by criminals and politically exposed persons (PEPs) seeking the perks of an EU passport – and by extension that the Cypriot government colluded with them in making it happen – the reality is more complex, and probably less sensational.
A hint of the possible scale of the exaggeration came from the numbers provided by Al Jazeera itself.
Although it made a big deal about the fact that around 2,500 had “bought” citizenship through the Cyprus CBI, the fine print of its articles revealed that it had identified just 97 individuals who it deemed to be high risk. Put in perspective, that’s about 4% of the total.
But, in terms of exaggeration, that was not all.
According to a report on the investigative series by Civitas Post, the allegations made by Al Jazeera were even more overblown. It found that only 43 of the individuals flagged by Al Jazeera had actually been convicted of a crime, most of them after having received Cypriot citizenship
The remaining 54 were simply PEPs. While a PEP designation might indicate that someone is a politician, holds ties to politics, or has some kind of relationship with a politically-risky entity or jurisdiction, a report by the Cyprus Mail found that the individuals identified by Al Jazeera included some who would really stretch the definition, including:
- A French philanthropist that has familial connections to royalty;
- A German entrepreneur that owns an island in the Seychelles;
- UK businesspeople who own a tourism company in Dubai;
- A South African food mogul;
- A Serbian cosmetics manufacturer.
Beyond the fact that many of the individuals identified in the Al Jazeera report were not nearly as controversial as they had been presented to be, one of the articles also noted in passing that Cyprus had in July 2020 already amended its CBI protocols and laws in a way that would have prevented a number of these individuals from being approved.
In other words, the policy changes the Al Jazeera report might have purported to provoke through its investigation had already been made.
The fact that the Cypriot government was not breaking any of its own laws when it did award citizenship to these “high risk” individuals – and that many of them would not have been classified high risk at the time – seemed to also be willfully overlooked by Al Jazeera.
Tension in the Eastern Mediterranean
The Al Jazeera series was released within the overarching geopolitical context of a tense dispute in the eastern Mediterranean featuring Greece, Cyprus, and France on the one side, and Turkey on the other.
A bit of background might be needed here:
In 1974, a Greek-inspired coup d’état led to a Turkish invasion and subsequent occupation of a third of Cyprus by its powerful NATO member to the north. While never great, tensions between the two countries have been deteriorating significantly during the last year over natural gas deposits in Cyprus’ Exclusive Economic Zone (EEZ), the sovereignty of which Turkey disputes.
Turkey has been sending its own drill ships, accompanied by warships, into Cyprus’ EEZ to explore for gas and to prove its point that it does not recognize the EU country’s sovereignty.
This has provoked Cyprus to call on the EU to impose sanctions on Turkey, and has caused France and Greece to send their own navies into the area to counter the Turkish “threat”.
The release of the Al Jazeera series needs to be considered within this wider context. Turkey is a key and powerful ally of Qatar, which owns Al Jazeera, and has been accused on a number of other occasions of having used the news channel as a tool for its own political goals, including by the U.S. State Department in a document published by Wikileaks.
The Al Jazeera series also came at a time when CBI programs – particularly those being offered by European member states – are facing increasing criticism and pressure from the EU establishment in Brussels.
Indeed, since 2014, the European Commission has released a number of reports criticizing the programs offered by Malta, Cyprus, and Bulgaria, arguing that the “sale” of EU passports “undermined the very concept of Union citizenship”.
The line of thinking is that CBI or “golden passport” programs undermine the EU (and its brand) by offering for sale what should in theory be earned by only through adherence to the EU’s overarching values.
However, politics is rarely, if ever, purely about ethics and values.
The CBI programs of Malta, Cyprus, and Bulgaria have irked central EU authorities for other, more tangible reasons too. Not least that they allow these countries to take advantage of their EU membership in order to secure significant revenue streams from outside the bloc.
This added liquidity has proven substantial enough to make a big impact on Cyprus’ recovery from its financial crisis in 2013. This has dampened the blow from austerity measures and the highly controversial “haircut” on funds held by individuals in accounts of the island’s two largest banks, which was imposed by the “troika” of the European Central Bank, EU Commission and IMF during the crisis in 2013.
In essence, Cyprus’ CBI has given the country more liquidity to use at it pleases, independent of the financial purview of the powers in Brussels and beyond. It has also injected money into the country’s private sector both directly and indirectly through the activities of the wealthy individuals who have moved there.
Citizenship investors’ role in Cyprus’ recovery
Cyprus’ status as an ideal offshore location for businesses and individuals predates its joining of the EU in 2004. Long a shipping and offshore hub due to its relatively low corporate taxation regime, advanced infrastructure and an educated, English-speaking population, it offers many benefits for companies looking to trade in the EU, as well as in the Middle East and Africa.
Cyprus passport holders can also enjoy visa-free travel to 176 countries around the world, and can easily establish a company, bank account, or residency in the EU.
When the country was plunged into a financial crisis in 2013, Cyprus was also the subject of the abovementioned “haircut” imposed by the EU, ECB, and IMF, which was unprecedented at the time. It essentially involved individual depositors with over €100,000 in their bank accounts to have up to 47.5% ‘cut’ off by the banks, in order to bail them out. Some of the biggest losers of this move were Russian investors who had considered Cyprus to be a safe haven for their cash.
Following the crisis, the government decided to ramp up its CBI program, in order to bring in much-needed revenue and investment from abroad.
Its current program was launched in 2016, replacing a previous version. It is estimated that taken together, the programs have generated about €8 billion for the country since 2013 – which is substantial considering that Cyprus’ total GDP was around €24 billion last year.
There’s a reason for that: the Cyprus CIP isn’t cheap.
Total costs for acquiring citizenship in the program amount to around €2.5 million. This figure includes one-off donations to the Cyprus government amounting to €200,000, as well as a minimum spend of €500,000 on a permanent residence. The rest – around €2 million – needs to be invested in a qualifying sector, with most people choosing real estate.
The perk of this program is that the real estate can then be re-sold.
It’s clear from a quick glance at the skyline of its second city Limassol, that the concept hasn’t been lost on investors in the country. Skyscrapers have been sprouting up at an impressive rate over the last five years, animating what was until recently a relatively flat and spread-out cityscape on the island’s south coast, which hosts its main seaport.
Foreign investment flows into Cyprus from outside the EU are closely correlated with the nationalities that have shown most interest into its CBI; principally Russians, but also Chinese, followed by other third countries.
Russians, and to a lesser extent Ukrainians, particularly like Cyprus due to their shared Orthodox Christian culture and lifestyle, its good weather, and easy travel connections.
Over the last ten years, the influx of Russian money has transformed many parts of the island. Russian signage is all over Limassol – which has been dubbed “Limassolgrad” or “Moscow on the Med” by locals and the thousands of British expats who also call Cyprus home. There are large Russian churches, and even a small ‘Russian-Cypriot’ political party.
However, while Russian – and indeed any other foreign money – has been a boon to many players in the Cypriot economy, particularly some well-placed property developers, it hasn’t been welcomed by all.
Some locals blame the inflow of capital for climbing real estate prices, and worry about how entangled and reliant Cyprus is becoming on Russian money, and by extension, the Russian state (which is – unsurprisingly – a cause of concern for Europe too).
Nevertheless, despite the reservations, it can’t be denied that Cyprus has managed to recover from its deepest financial crisis with impressive speed, largely because of the scale of inward investment facilitated by its CBI program.
Beyond the CBI hysteria
CIPs have long been portrayed by EU politicians as a path to citizenship that is at best peculiar, and at worst scandalous and bordering on criminal. The logic such categorizations follow are very similar to that which depicts all offshore banks or companies as suspicious, shady, and probably used for something bad.
And it’s these types of generalizations – which can often tell us more about the threat powerful governments or authorities feel from systems that dilute some of their ability to exert maximum control over their dominions – that Al Jazeera used to fuel the speculation in its series.
However, as has already been eloquently described on this site, CBIs don’t just bring benefits to the individuals who acquire citizenship, or even just the countries that provide them. In cases of EU CBIs – they can also go on to benefit the very countries that are actually opposed to them, such as Germany, which are often the ultimate target of wealthy foreign investors who acquire EU citizenship through countries like Cyprus and Malta.
Ultimately, the Cyprus government has been taking significant steps to improve the transparency of its CBI, and to implement fail-safes to ensure it is not abused by individuals for nefarious purposes.
So far – and despite the attempts to derail it – the country has managed to keep its program alive and ahead of the EU regulatory hammer. In the process, it is showing Brussels that such programs can be maintained without being a threat to the bloc. If it plays its cards right, it might even get the EU to see it as a benefit.
After all, the numbers are on its side.