PARIS, France — On Tuesday, the Organisation for Economic Cooperation and Development (OECD) released a report flagging 21 nations on a list whose citizenship by investment (CBI) programmes threaten international efforts to combat tax evasion.
Three European countries – Malta, Monaco and Cyprus – are among those nations flagged as operating high-risk schemes that sell either residency or citizenship. The Caribbean nations listed are Antigua and Barbuda, Bahamas, Dominica, Grenada, Saint Lucia and St Kitts and Nevis.
Two British Overseas Territories, Montserrat and the Turks and Caicos Islands, are also on the list.
The Paris-based OECD warned about the fast-expanding $3 billion CBI industry, which has turned nationality into a marketable commodity.
In exchange for donations to a sovereign trust fund, or investments in property or government bonds, foreign nationals can become citizens of countries in which they have never lived. Other schemes, such as that operated by the UK, offer residency in exchange for sizable investments.
The programme operated by Malta is particularly popular because as a European member state its nationals, including those who buy citizenship, can live and work anywhere in the EU. The country has, since 2014, sold citizenship to more than 700 people, most of them from Russia, the former Soviet bloc, China and the Middle East.
But concern is growing among political leaders, law enforcement and intelligence agencies that the schemes are open to abuse by criminals and sanctions-busting business people.
Transparency International and Global Witness, in a joint report published last week, described how the EU had gained nearly 100,000 new residents and 6,000 new citizens in the past decade through poorly managed arrangements that were “shrouded in secrecy”.
After analysing residence and citizenship schemes operated by 100 countries, the OECD says it is naming those jurisdictions that attract investors by offering low personal tax rates on income from foreign financial assets, while also not requiring an individual to spend a significant amount of time in the country.
Second passports can be misused by those wishing to “hide assets held abroad”, according to the OECD. Its flagship initiative is a framework for countries to cooperate in the fight against tax evasion by sharing information. Known as the Common Reporting Standard, the framework allows for details of bank accounts an individual might hold abroad to be sent to their home tax office.
The OECD believes the ease with which the wealthiest individuals can obtain another nationality is undermining information sharing. If a UK national declares themselves as Cypriot, for example, information about their offshore bank accounts could be shared with Cyprus instead of Britain’s HM Revenue and Customs.
“Schemes can potentially be abused to misrepresent an individual’s jurisdiction of tax residence,” the OECD warned.
Together with the results of the analysis, the OECD is also publishing practical guidance that will enable financial institutions to identify and prevent cases of avoidance through the use of such schemes, by making sure that foreign income is reported to the actual jurisdiction of residence.
Much of the media reporting of the OECD listing, both regionally and internationally, has described it as a “blacklist”, something that the Bahamas government said was “false and misleading”.
“This report is not a blacklist,” the ministry of finance said in a statement.
Representatives of the ministry of finance, who are currently attending meetings in Paris, met with the head of the OECD International Cooperation and Tax Administration Division, which published the report. The ministry said it was assured that the characterization of the list as a blacklist is completely inaccurate and The Bahamas is under no obligation to take any measures to change its investment schemes.
In The Bahamas, economic permanent residency gives an individual the right to reside permanently in The Bahamas and travel freely to and from The Bahamas unless such status is revoked. The programme does not confer citizenship or the right to be gainfully employed in The Bahamas. The programme also does not confer tax residency and the individual must still comply with the tax laws of their country of origin.
Reports from Montserrat also referred to the British territory being “blacklisted” by the OECD report; however, Montserrat does not have a CBI programme but has in its laws an economic residency programme (ERP).
Under the various property development initiatives for the island, Montserrat’s government ERP can be harnessed to market and sell any potential property development on the island.
The capital investment requirement of EC$400,000 (US$148,000) is not as high as in some other islands with a CBI programme but potentially provides a pathway to eventual naturalisation as a British Overseas Territories citizen after a period of permanent residency.