Stricter Rules by EU Related to Money Laundering: A Brief Analysis

A golden visa is a residency by investment scheme by various EU nations. This scheme was first initiated by the Portugal government in October, 2012 to collect funds for the real estate market. This initiative was a huge success and many other European countries also launched this scheme for fund-raising. This visa scheme comes with various benefits for non-European nationals, prime being that it eventually gets transformed into citizenship after a few years.

Under the Golden Visa scheme, the EU nations want investors to give a proof that they can invest a certain amount in their country. Only if they succeed in satisfying the officials will they be granted a visa/citizenship. The investment figures of some countries are Cyprus – €2 million,   Hungary – € 300, 00, Austria – €10 million, Latvia – €275,000 and   Portugal – €1 million.

The European Commission (EU) has been urging all member-states to be alert and aware to avoid any security threats with respect to granting citizenship of their countries under the Golden Visa Scheme. Vera Jourova, EU Justice Commissioner, mentioned during an interview with the German Publication ‘Die Welt,’ that a large number of third-country wealthy nationals are acquiring citizenship and residency via Golden Visa scheme in various EU member-states by way of making big investments in these countries. Currently, there are 12 members of EU offering the Golden Visa to non-European investors.

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In the wake of various warnings by the anti-corruption agencies about the money laundering risks associated with the Golden Visa Scheme, EU has decided to act immediately. A short publication report revealed that guidance shall be issued to various EU states on managing the various schemes associated with issuing passports. Apart from this, residency permits to wealthy foreign citizens have also been under the preview. A large number of rich citizens from countries like Turkey, China, Russia and Africa have invested in these countries to get citizenship of EU nations.

It is a source of major concern that these EU states must not turn out to be a safe abode for criminals and corrupt nationals looking to evade the law for money laundering in their current country of residence. Due emphasis is laid that such criminals shall not be awarded citizenship to these member-states under the Golden Visa scheme. It has been pointed out that many countries including Greece, Portugal, Hungary, Cyprus, Bulgaria, Lithuania and Malta are not complying diligently with the prescribed guidelines.

Two anti-corruption agencies named Global Witness and Transparency International have highlighted the risks of money-laundering in the report: ‘European Getaway: Inside the Murky World of Golden Visas’. The report clearly mentions the inherent risks posed by no or careless evaluation of the nationals, various hidden interests and objectives of officials, and misuse of power in granting citizenship to non-European nationals under the Golden Rule visa or residency-by-investment schemes. Since considerable EU citizen rights are granted to individuals who are awarded citizenship under the scheme, it could pose a serious security threat to nations as these criminals can move freely throughout the Union.

One of the Global witness’s Senior Campaigner, Naomi Hirst claimed that the Golden Visa Scheme is providing a gateway for the corrupt and criminal to the EU. He laid emphasis on introducing highest standards of diligence while issuing the Golden Visa since anyone who stole lots of money through dubious acts can conveniently get away from the authorities of his residence country making this scheme extremely convenient for them. Inadvertently, this scheme shields offenders from authorities who look to seize such stolen assets.

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Key Aspects of the “European Getaway” Report

  1. Over the last decade, around 6,000 new citizenships were granted and 10,000 residents were welcomed under the Golden Visa scheme.
  2. Hungry, Portugal, Spain, UK and Latvia are among the top five countries issuing the Golden Visa.
  3. Only two countries – Malta and Austria are issuing the list of the people who are gaining residency or citizenship through the Golden Visa Scheme.
  4. In the last decade, estimated € 25 billion of revenue is generated by the various member states through this scheme.
  5. Malta alone raised € 718 million while Cyprus generated € 4.8 billion with this scheme.

Steps required to be initiated by EU to prevent money laundering through the Golden Visa Scheme:

  1. Strict and diligent rules to be devised to prevent any kind of misuse of the Golden Visa scheme by scammers and criminals.
  2. The anti-money laundering rules need to be expanded further.
  3. Any state violating the prescribed measures, objectives and values of Golden Visa scheme should be dealt with strictly.
  4. Mechanisms should be devised on the exchange of various rejected applications among the various EU states.
  5. Regular reassessments should be done regarding the risks associated with the Golden Visa scheme.

Golden Visa Scheme – Citizenship by Investment

It is a permanent residency visa which is issued to people who invest through the purchase of property or invest a certain sum of money in the issuing country. It is often referred to as citizenship by investment. There are three aspects which are broadly covered under this scheme:

  1. Incredibly popular, Citizenship by Investment grants immediate citizenship to the applicants along with their families.
  2. Residency by Investment is a program where investment is made into real estate with no underlying condition to reside. Popular among investors who are not looking to emigrate in the country of investment, it offers a flexibility to move in at their discretion.
  3. Immigration by Investment involves permanent migration to the country where the individual is going to invest. It is a crucial investment; however, the investor can opt for a softer approach of moving from temporary residency to the permanent residency.

The security concerns and negligible economic benefits are two major reasons for criticism.

In 2017, the demand for Greece Golden Visa surged by 40%.

Compared to 2016, the number of nationals applying for the Greece Golden Visa increased by 40%. The basic reason behind this surge is accounted for by the economical Greece visa. It is counted as the cheapest visa in Europe which requires barely €275,000, making it extremely popular after the economic crisis.

Once the 7 years of continuous residence is maintained by the holder of the Golden Visa in Greece, they are allotted the citizenship of the country. Amongst all the applicant nationals, the Chinese ranked the top in 2017 for the Greek Golden Visa. Russian and Turkish investors ranked as second and third in the list.

Stringent Policies Adopted By The UK Immigration Department Post Scandalous Posting:

Recently, Russian diplomats have been expelled from Britain and all the 700 wealthy Russian citizen applications, which have been granted visa under the Golden Visa have been sent for review purposes. This followed after Britain accused Russia for posting its secret agent Sergei Skripal along with her daughter YuliaSkripalat Salisbury.

Russian billionaire investors, politicians and businessmen are considered to be primarily affected by this move. Just to state an example, Roman Abramovich, the owner of Chelsea football team in England who is considered to have close ties with President Putin is also expected to be largely affected by the decision. He is considered as the 13th richest man in England and has been summoned by the English government to provide the necessary explanation on how he acquired his fortune. Instead of obtaining the Israeli citizenship, Abramovich who has Jewish roots gave up this visa. Every Jewish citizen who lives abroad is granted with the Israel citizenship under the Israeli Law of Return Policy.

Currently, people holding Israeli visa are allowed to enter the UK with no visa mandate. However, Abramovich holding a Jewish passport has been denied the right to do any business in the UK. This has been implemented due to the fact that the nationals entering the UK under the free Visa regime can do business only for tourism.


Rules Adopted By EU As Anti-Laundering Directives

  1. Minimum rules are established in defining the sanctions and criminal offences concerning money laundering. Any money laundering act shall be punishable with imprisonment of up to 4 years. Additional sanctions can be issued depending upon the extent of an act. In the case of criminal acts, aggravating circumstances can also be applied.
  2. If legal entities are caught in money laundering activities, a range of sanctions like judicial winding-up, exclusion from public etc. can be undertaken.
  3. Some common provisions should be devised to speed up the process of investigation in case of cross-border judicial. All obstacles for the police cooperation and cross border judicial issues must be sorted out conveniently.

A detailed risk assessment is carried out by the European Commission to identify and reasonably respond to the various threats at international levels. A forceful legislature is laid to fight against the terrorist financing and money laundering.

In order to combat money laundering issues, even countries like the UK are following European money laundering and visa issuance laws. The escalated terrorist violence in Europe coupled with the response to Panama Papers revealed that the widespread use of the Golden visa scheme leads to laundering money generated from corruption, tax evasion and bribery.

The fifth anti-money laundering directives contain the following changes:

  • European Commission overseeing the database of the owners of cross-border trusts and companies.
  • In every member state, the service registration of the various company owners is made accessible.
  • Law enforcement agencies and also those who have “legitimate interest”, such as NGOs and journalists would be able to access the database of trust beneficiaries.
  • National financial intelligence units would get automatic access to bank account holders.
  • Member States need to carry out high-end due diligence procedures to keep a tab on suspicious transactions related to countries falling under the high-risk category.
  • The scope of the regime would be extended to additional service providers like e-wallet providers, virtual currency exchange service providers, and those who deal in art.

On these arrangements, the UK will not face a post-Brexit race towards the bottom of financial secrecy. Flexibility is provided to the affiliated financial Centers in the UK for adopting certain measures.

It is unclear if the UK government would implement the EU laws in the case of no deal Brexit. Overseas territories including Bermuda and the British Virgin Islands, the Isle of Man and Guernsey allow trusts and companies to get registered on their shores to maintain a comparative secrecy.

The emphasis laid on the transparency is done with the adoption of various directives in the UK.

Following are the key items entailed in the directives:

  1. In order to improve the transparency in the ownership of trusts and companies, broader access to information is ensured on beneficial ownership.
  2. Among financial intelligence units, cooperation is ensured
  3. All the risks associated with virtual currencies like bitcoin and prepaid credit cards are addressed.
  4. High-risk third-country transactions to be dealt with stringent checks.

It is an obligation for all the EU states to comply with recent and previous directives on anti-money laundering. Donald Tusk, the President of the European Council said that these directives are aimed at augmenting the security in Europe by eradicating the various means available to the terrorists. It will help in disrupting the criminal network without adversely affecting the economic freedom and fundamental rights.


Post Latvia scandal, the anti-money laundering rules are tightened by EU

This is done to ensure better coordination among national financial intelligence units for the policing of suspicious transactions and actively respond to the requests of various counterparts in various EU countries.

In February, the gaps in US enforcements came to light when the US treasury financial crimes unit revealed institutionalized money laundering by ABVL, which is the third largest bank in Latvia. One more Bank from Denmark – Danske Bank is put under supervision due to money laundering suspicion. Meanwhile, Malta’s Pilatus Bank has been revokes license by the European Central Bank due to widespread news of facilitating the illicit financial flow.

EU Justice Commissioner, Vera Jourova, mentioned prosecuting the serious crimes after strengthening the investigations by introducing the efficient exchange of information between law enforcement authorities and financial intelligence units.

Even the European Parliament adopted a legislation to provide European Central Bank (ECB) clearer rights on sharing the details of the suspicious transactions. The major European banks are directly supervised by the ECB but remain unauthorized in combating money laundering. A more harmonized approach is devised to fight against financial crimes. In order to enforce anti-money laundering rules efficiently, the drafting of a new ‘European Institution’ has also been suggested.

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