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9th Aug 2020

Malta and Cyprus EU passport sales under fire

  • Mass-scale leaks, such as Panama Papers, helped expose the extent of corruption schemes (Photo: Daphne Caruana Galizia)

Malta and Cyprus should end their golden passport schemes, MEPs have said, while sounding an EU-wide alert on Russian money laundering.

The two member states, the only ones which sell their nationality, as well as the 18 others who sell residency permits, were urged to end the practice by MEPs in a plenary vote in Strasbourg on Tuesday (26 March).

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The economic benefits of the schemes "do not offset the serious security, money laundering, and tax evasion risks they present" the European Parliament (EP) report said.

Inflows of criminal money served to "weaken" EU "democracies" and "institutions", it warned.

The EU should also create a joint financial police to go after cross-border money laundering and clamp down on tax avoidance, the wide-ranging proposals added.

The golden passport and visa schemes all too-often acted as "a gateway for money laundering and organised crime" into the EU financial system, Markus Ferber, a German centre-right deputy, who helped draft the recommendations, said.

EU states are not bound to take the ideas forward - and recently diluted related ones from the European Commission.

But the EP report bore the weight of one year of research by a special committee set up in times of mass-scale leaks on financial fraud, bank scandals of vast proportions, and murders of journalists who tried to expose them.

Malta and Cyprus have already sold about 6,000 national and EU passports in "schemes ... that potentially pose a high risk to the integrity" of European financial due diligence, the MEPs said.

Both of these, as well as several of the golden residency schemes, "have been used profusely by Russian citizens and by citizens from countries under Russian influence," they added.

The risk of money-laundering aside, "these schemes may serve Russian citizens included in the sanctions list adopted after the illegal annexation of Crimea [from Ukraine] by Russia ... as a means to avoid EU sanctions," they also said.

Malta looked especially worrying, the MEPs found, because it failed to stop money-laundering by Azerbaijan and Russia in the now-defunct Pilatus Bank and because senior Maltese officials were connected to a shady energy project.

The EP also "noted" that Daphne Caruana Galizia, a Maltese journalist who wrote about the issues, was murdered in 2017 in a crime which remains unsolved.

For their part, Denmark, Estonia, Latvia, and the Netherlands played host to "deplorable cases of money laundering" which showed "complete lack of responsibility", the MEPs' findings added.

Denmark's largest lender, Danske Bank, admitted last year that it handled some €200bn of "suspicious" transactions emanating mostly from Russia in the biggest case of its type in EU history.

It remains to be seen if it will lead to criminal convictions.

But with no joint EU financial watchdog, the European Banking Authority (EBA), an EU agency now moving out of London due to Brexit, is the only European body with a mandate to put pressure on national regulators.

The MEPs highlighted that the "various recent cases of money laundering within the [European] Union are linked to capital, ruling elites, and/or citizens who come from Russia and from the Commonwealth of Independent States (CIS) in particular".

The CIS also includes Armenia, Azerbaijan, Belarus, Moldova, and four central Asian states.

But inflow of criminal money aside, the MEPs also cited estimates that income generated by corruption, arms and human trafficking, drug dealing, tax evasion, and other crimes in the EU amounted to €110bn a year.

They said VAT fraud cost EU taxpayers up to €147bn a year and aggressive tax planning cost them a further €50bn to €190bn a year.

They also shamed six EU jurisdictions - Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta, and The Netherlands - for behaving like "tax havens", which drained income from their EU neighbours.

Transparency International, a Brussels-based NGO, welcomed Tuesday's vote, saying it was "happy to see that [the EP] ... has adopted" its "report on fairer and more effective taxation and tackling financial crimes, including money laundering and risky golden visa schemes".

The EU commission has voiced similar misgivings to the MEPs.

But the non-binding EP report comes amid resistance from member states to gran EU bodies extra powers over sensitive areas of their jurisdictions.

EU ministers, last Thursday, diluted commission proposals to give the EBA, which currently has just a few staff who specialise in money laundering, a greater oversight role.

"It is irresponsible that EU governments blocked a true European restart for common financial supervision," Sven Giegold, a German green MEP, said at the time.

All 28 EU states, earlier in March, also blocked commission proposals for enhanced due diligence in bank transactions from Saudi Arabia, Panama, and Libya, among others, in a sign of the mood in EU capitals.

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