Farewell to the island of Aphrodite: Is this the end for Cyprus citizenship programs?

Recently, the European business community was “shocked” by the news from the Republic of Cyprus: the government announced that the citizenship by investment program, which was introduced in 2013, would be terminated from 1 November 2020.

Many of our fellow citizens have already obtained Cypriot passports. However, there is still a large number of applications pending approval. According to data from various sources, about 100 Ukrainians applied for the Cypriot citizenship during 2017-2019 alone.

With regard to the latter, the Cypriot authorities have taken a rather soft approach. Citizenship applications submitted before 1 November (according to various sources, there are more than 600 applications) will be considered under the current procedure, while new applications will no longer be accepted.

So, what has happened to the successful passport program of the sunny island?

Background.

The citizenship by investment program was introduced in the Republic of Cyprus in 2013. It was a difficult time for the country that found itself in a severe financial crisis and was forced to take unpopular measures, including “deposit haircuts”, in return for financial assistance from the European Union. To revive the economy, the Cypriot government decided to grant citizenship to investors willing to invest in the country's economy about 2.5 million euros (including the cost of purchasing property in Cyprus).

As a result, around 4,000 Cypriot passports have been issued to foreign individuals in the last seven years, generating more than EUR 7 billion in investment attracted under the citizenship-by-investment scheme. For a long time, Cypriot passports have deservedly enjoyed popularity among those wishing to become EU citizens, along with Maltese and Bulgarian citizens.
The absolute leaders in the number of “new Cypriots” are the Russians and Chinese. The Ukrainians are in the third place, followed by Lebanese, Egyptians, Iranians, Indians and Jordanians.

However, the clouds over the citizenship by investment scheme started to thicken last year. The Cyprus passport program used to come under fire before, but since 2019 the criticism has become systematic.

The European Commission has pulled the trigger with its report on investor citizenship and residence schemes. According to the report’s authors, the passport programs offered by a number of EU countries have, in fact, turned into a “citizenship trade” that allows unwanted foreign nationals linked to corruption and crime to live and do business in member states without any restrictions. Although this document did not have an officially binding status, it was clear that the “passport schemes” are under attack.

Some countries had to promptly change the rules of the game. Malta reviewed its legislation on the naturalization of foreign investors in 2020 by adding more stringent financial requirements and establishing stricter due diligence rules for future Malta citizens. It also introduced the requirement that foreigners should obtain a residence permit first, and only a year later after it they can be eligible for the passport.

Cyprus did not stand aside either, having tried to amend its legislation back in May-July 2019. Thus, the direct restrictions on the possibility of obtaining passports by persons who are on the wanted list, under investigation or subject to international sanctions were introduced (though this rule has, in fact, limited the rights of those who are victims of political persecution or selective justice in their home country). Cyprus has launched investigations against a number of “problem” investors. Later it was announced about the intention to investigate all cases of granting citizenship by investment.

Nevertheless, the next blow came to the “golden passports” in 2020, which was already very difficult for the economy of Cyprus due to the failed tourist season amid the coronavirus outbreak.

First, the Cyprus Papers scandal erupted. The leaked data on more than 1,400 passport applications approved between 2017 and 2019 revealed the names of a number of dubious individuals who, according to investigative journalists, were not eligible for Cypriot citizenship. Among them were the names of wealthy Ukrainians.

The farther in, the deeper. A few days ago, the reporters from Al Jazeera uncovered a scheme that, as they claim, involved senior Cypriot politicians, lawyers and real estate developers (real estate is the most popular investment option under the passport program). These individuals promised the reporter, who pretended to be a representative of a fictional investor, to resolve the issue of obtaining citizenship, despite the fact that the “investor” was allegedly sentenced to prison in his homeland. Moreover, they even discussed the possibility of changing the investor's name.

The response of the Cypriot authorities was immediate. They announced termination of the passport program and said that a number of criminal cases associated with controversial investigations can be expected in the near future. It is hard to say when the Cypriot legislators will consider adoption of an alternative citizenship by investment scheme. However, it is very unlikely that Cyprus will completely shut the door on the opportunity of attracting foreign investment through such schemes.

Based on the foregoing, we can draw several conclusions.

First, the influence of investigative journalists in the civilized world is very significant. Thanks to their investigations, both the violations of law when changing citizenship and the opportunities for such violations existing in a number of countries, including Cyprus, were revealed.

Second, the trend that has emerged several years ago is still going strong. Countries that willingly grant citizenship to foreign investors usually are not economically stable. By doing so, they are trying to strengthen financial position through the inflow of funds from the outside. However, this is not really favored by many geopolitical players: hardly anyone wants Cyprus to become a new Monaco due to the annual increase in the number of millionaires. Hence, the permanent attacks on the “golden passports”.
Lastly, the Cypriot authorities have demonstrated their determination to fight corruption and improve both the legislation and law enforcement practice to prevent dubious individuals from entering the EU countries through the “backyard”.

The only concern is that many countries whose citizens are trying to obtain European passports through investment are not notable for fair courts and respect for human rights either. It is quite possible that in an attempt to protect the EU from the influx of foreign nationals linked to corruption and crime, European officials will “throw the baby out with the bathwater” by blocking access to the EU citizenship for those who will be put on the wanted list by the next corrupt or dictatorial regime.