What Has the Abolition of Cyprus’ Citizenship by Investment Programme Taught Us?

Over recent years, the Citizenship by Investment (CBI) industry has witnessed an exponential boom driven by the need for wealthy individuals and families to protect themselves. In turn, this has become a financially lucrative initiative for countries to boost foreign direct investment.  

As more countries begin to see the positive impact that Citizenship by Investment (CBI) Programmes have on the national economy, it only makes sense that we’ll likely see new initiatives prop up across the globe. However, to guarantee success in the industry, it is vital to learn from existing programmes as well as those that are no longer in operation. 

Last year, news of the abolition of Cyprus’ CBI Programme, which had been in operation since 2013, rocked the investment migration industry. Considered one of the most popular European programmes, it transformed Cyprus’ struggling economy, attracting significant foreign investment. However, the tides turned when an Al Jazeera investigation dubbed “The Cyprus Papers” revealed that several questionable applicants, including criminals, that had become Cypriot citizens. It also unearthed how politicians, real estate developers and officials aided and essentially turned the other cheek to provide dubious characters with citizenship.  

Shortly after, the European Commission launched infringement proceedings against the country. The Commission alleged that the Programme allowed individuals that did not have ‘genuine links’ to the country to become citizens, thus granting them unhindered access to the rest of the EU. 

The piling evidence left Cyprus with no choice but to suspend the programme, leaving behind a blueprint of what not to do for the rest of the industry and those that hope to introduce similar initiatives.  

The Importance of Due Diligence

If there is one factor that can make or break a CBI Programme, it’s due diligence. Experts have said due diligence is the cornerstone of the industry and lays the foundation for what makes a successful programme that stands the test of time. It is essential to have a multi-layered process that utilises both internal and external agencies to conduct a thorough investigation that ensures the applicant can prove a clean source of funds.  

The Caribbean, a pioneering region for CBI, has mastered the art of due diligence, perfecting the system throughout its decades of experience. This year’s annual CBI Index recognised the region’s authority in providing efficient security checks, which awarded DominicaGrenada and St Kitts and Nevis with perfect scores for their due diligence.  

Ensuring a robust due diligence framework is directly linked to the programme’s reputation. If its international standing is endangered, so is its future. 

Over-Reliance on Real Estate

Effectively, CBI Programme should help support the economy by creating jobs while contributing to national development. Most programmes commonly have two investment channels: a contribution to a government fund or real estate purchase. These investment options should work together to create a diverse economy.  

However, over-reliance on real estate can tip the scales considerably since investments go directly to developers and not wider society. Cyprus made the mistake of making its real estate route the cheapest option under its programme, which meant that investors rarely opted for the fund. This also contributed to property prices skyrocketing, meaning that locals were priced out of buying homes which triggered economic instability and political backlash.  

Evolve, Evolve, Evolve

A successful programme is not afraid to evolve. Circumstances change, whether political, economic or social. Therefore, it is vital to frequently assess a programme, keeping the aspects that work and adapting what doesn’t. This is the best way to identify failures before they negatively impact the programme. 

Cyprus could have benefited from ironing out its issues before it was too late. According to IMI Daily, a 2020 report noted these issues included understaffing and “reliance on industry players who were interested solely in promoting transactions and the needs of their clients”. Those failures birthed systemic corruption that spiralled out of control and went unchecked for far too long.  

Even some of the industry’s oldest programmes continue to alter their processes. This may include smoothing out the application procedure, introducing new dependants that can be added or tightening its due diligence framework. This meticulous approach differentiates programmes that are here for the long term and those that are only interested in a quick pay-out.