Naturalizing Kleptocrats

By Peter Podkopaev

For kleptocrats, moving ill-gotten gains out of their corrupt home states to safer Western jurisdictions used to be enough. But increasingly, they are moving themselves and their families, too. Investor visas are a popular route, as they provide a path to citizenship—often with few questions asked–but in some cases it is even possible to purchase a passport directly.

In the European Union (EU), receving a visa or citizenship guarantees passport-free travel within most of Europe and no-visa requirement for traveling to the U.S.  Malta has provided 700 citizenships since 2014 under its Individual Investor Program. The recently closed-for-review Hungarian residency bond program required a ‎€300,000 payment. And the East Mediterranean island of Cyprus has been following suit.

Cyprus has long been a junction point for the global Russian laundromat, a first stop out of Russia for opaque funds destined for safekeeping or investments in favorable jurisdictions. Most notably, in the Magnitsky case, stolen funds were transferred out of Russia into a Cyprus-based real estate corporation and then moved elsewhere—including into Manhattan real estate.

In addition to providing financial services, Cypriot authorities are now issuing passports to the wealthy. The investment program began as a measure to help Cyprus recover after the 2013 collapse of its banking system and subsequent recession. Applicants can become citizens in six months by either investing ‎€2 million in Cypriot property—a well-documented scheme for money laundering—or ‎€2.5 in government bonds or companies. Cyprus has issued nearly 2,000 passports since 2013, half of them belonging to Russians.

Cypriot citizenship offers the most convenient and quickest path for Russians and others looking to park their cash abroad and have a way out of the system. The Independent summarizes a former Moscow telecom executive’s path to becoming a Cypriot:

The first step was getting his assets out of Russia and into a shell company in the Netherlands, something he’d accomplished a few years ago. Then he shopped around for a second citizenship. He looked into Malta and some other countries but settled on Cyprus because, he said, it was the easiest and quickest.

 It worked like a charm. In August, he bought two villas in Limassol for a combined €5m. In December, he received his passport.

Abuse of investor visa and citizenship programs has opened a backdoor into Europe for corrupt individuals. EU citizenship affords them legitimacy and legal protections for their stolen assets, while they have demonstrated nothing but contempt for the core European values of transparency and democracy. This is not only wrong in principle: It is an economic threat. While Russian funds are currently buoying the Cypriot economy—the largest investor in the Bank of Cyprus is Viktor Vekselberg—once the EU wakes up to the threat of naturalizing kleptocrats and imposes stricter background checks and restrictions, there is every chance that Cyprus will suffer capital flight and a repeat of the 2013 crisis.

Peter Podkopaev is a Researcher, Russia & Eurasia at Hudson Institute’s Kleptocracy Initiative.