What are 'golden passport' schemes and how do they enable tax dodging?

The OECD, a multilateral club of mostly rich countries, has created a blacklist of 21 countries that offer “golden passports” or special investor visas to overseas investors which it says undermine the fight against tax dodging.

But what are these golden passports? Who offers them? How to they interfere with the battle against tax dodging? And what action will be needed to crack down on this practice?

What are golden passports?

They are schemes which essentially allow rich foreign investors to buy citizenship, or long-term residency rights, in a country.

For instance Cyprus offers citizenship within six months to those who invest €2m in local real estate. There is no language requirement or interview required. For permanent residency an investment of just €300,000 is required.

Malta has an “Individual Investor Programme” which offers citizenship in return for a €650,000 contribution to the government, an investment of €150,000 in government-chosen assets and five years of residence.

There are similar schemes offered by countries ranging from Antigua to Bahrain, from Malaysia to Panama.

But it’s not just small countries which offer residency-for-cash. Canada has an “immigrant investor program” available for those with a net worth of at least $1.6m and a $800,000 investment.

Even the UK has a special visa available for those who invest £200,000 in a UK business, although this doesn’t come with a passport.

Who has used such schemes?

A number of Russians close to Vladimir Putin have used the Maltese system.

Two Ukrainians accused of corruption, Gennady Bogolyubov and Igor Kolomoisky, were granted citizenship of Cyprus.

Several members of Angola’s ruling class seem to have used the Portuguese route.

A recent report by Transparency International and Global Witness found that the EU has created more than 6,000 new citizens and nearly 100,000 new residents in this way over the past decade.

The most high-profile recent recipient of Maltese citizenship through this route was the New-Zealand-born billionaire Christopher Chandler, a backer of the hard Brexit-supporting Legatum Institute.

What has the OECD said today?

The OECD has established a “Common Reporting Standard” (CRS), which compels financial institutions in member states to automatically exchange information on who holds bank accounts. It is designed to make it more difficult for people to evade income tax by holding money offshore.

The OECD said on Tuesday that golden visa schemes “can be misused to undermine the CRS due diligence procedures” by helping some people under-declare their assets and mislead about their tax jurisdiction.

It stresses that not all visa scheme are vulnerable in this way, but it has published a list of 21 that pose a “high risk”.

These are countries that charge a very low rate of income tax on offshore assets and which do not require the investor to live for any significant period during each year in the country.

Among schemes in Colombia, the Bahamas, Grenada and St Lucia that are singled out are the ones operated by EU member states Malta and Cyprus.

What does it want to happen?

The OECD essentially says that banks should police the system more assiduously and determine whether the information they have been given by account holders on their assets is “incorrect or unreliable”.

Will that be enough to stop the problem?

Not according to the pressure group Transparency International, which wants much firmer multilateral action, led by the EU, to crackdown on abuse.

“Only a unified and coordinated approach will prevent risky individuals from ‘passport-shopping’ between jurisdictions and avert a race to the bottom in terms of standards,” it says.