A blacklist of 21 countries who participate in “golden passport” schemes has been published by a leading economic thinktank. The report was released by the Organisation for Economic Co-operation and Development (OECD).

Golden passport schemes, otherwise known as citizenship-for-investment programmes (CIPs), refer to the practice of receiving citizenship in return for some kind of investment in the country offering it. It is being used to register companies or property in countries with lower tax requirements. This helps businesses and individuals to evade tax in the country of their birth.

Foreign nationals can now become citizens of countries they have never lived in, in exchange for donations to a sovereign trust fund or investments in property or government bonds. Similarly, the UK offers residency in exchange for sizable investments in the country.

Three countries in Europe were identified – Cyprus, Malta and Monaco – as being involved in high-risk schemes that sell residency or citizenship for tax purposes.

The scheme run by Malta is particularly popular because, as a member of the European Union, its new citizens gain the ability to live and work anywhere in the EU. Citizenship has been sold to more than 700 people, mostly from Russia, China and the Middle East.

The first so-called “golden passport” was launched in 1984, when St Kitts and Nevis won independence from the UK and faced slow economic growth. These schemes can give poorer countries an economic boost, which makes their popularity understandable. According to the International Monetary Fund, St Kitts and Nevis earned 14% of its GDP from citizen-by-investment programmes. Other estimates put the figure as high as 30% of state revenue.

Open to criminal abuse

While poorer countries can indeed benefit from CIPs, there is growing concern among politicians, law enforcement and intelligence agencies that the schemes are open to criminal abuse.

Tax evasion is the main concern for countries but the possibilities for other criminal activity are also a concern. Hiding assets and cash is beneficial for those wanted by the authorities. This can make it harder to track individuals and organisations who have simply bought their citizenship elsewhere.

Governments have been under particular pressure in recent years to stamp out tax evasion – particularly with the Paradise and Panama Papers leaks that revealed the global scale of the problem. But with countries benefiting from CIPs, it’s likely going to be difficult to come up with a solution that benefits everyone.

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