OECD advises banks to monitor citizenship programmes

The Organisation for Economic Cooperation and Development (OECD) has warned financial institutions that citizenship by investment (CBI) programmes and residence schemes (RBI) that offer passports in exchange for large sums of money, can create the potential for misuse.

The intergovernmental organisation said that banks and other financial service providers would be required to take the outcome of the OECD’s analysis of high-risk CBI/RBI schemes into account in future when performing their due diligence obligations.

In a report published on 15 October the OECD said in that while it recognised that CBI schemes in the Caribbean and elsewhere can be perfectly legitimate, they have the potential to be abused to misrepresent an individual’s jurisdiction of tax residence thereby enabling a low personal income tax rate on offshore financial assets. It suggested that CBI and similar schemes could also be used as tools to hide assets held abroad from reporting under the Common Reporting Standard (CRS) that OECD nations and the G20 group of industrialised countries operate.

Specifically named as high risk were Antigua’s Citizenship by Investment (CBI) programme and Permanent Residence Certificate (PRC);  The Bahamas Economic Permanent Residency programme; Barbados’ Special Entry and Residence Permit; Dominica’s CBI programme; Grenada’s CBI scheme; Montserrat’s Economic Residency Programme;  St Kitts CBI and Residence by Investment programmes; St Lucia’s CBI programme; the Turks and Caicos Islands Permanent Residence Certificate via Undertaking and Investment in a Home, as well as its Permanent Residence Certificate via Undertaking and Investment in a Business, Permanent Residence Certificate via Investment in a Designated Public Sector Project, and Permanent Residence Certificate via Investment in a Home or Business. The reports named in total 28 nations including some in Europe including Cyprus and Malta.

The OECD noted that CBI and similar schemes offering identity cards, residence permits and other documentation ‘can potentially be abused to misrepresent an individual’s jurisdiction(s) of tax residence and to endanger the proper operation of the CRS due diligence procedure.’

The Paris based organisation also published practical guidance to financial institutions to identify and prevent cases of CRS avoidance using such schemes, suggesting the questions that a financial institution might raise with an account holder. It also said it would work with and provide guidance to jurisdictions ‘committed to spontaneously exchanging information regarding users of CBI/RBI schemes with all original jurisdiction(s) of tax residence’. This would, it suggested, reduce the attractiveness of such schemes as a vehicle for CRS avoidance.

The new report, which makes clear that OECD nations and the G20 are committed to ensuring that foreign income is reported to the actual jurisdiction of residence, suggest that international financial institutions such as banks may become increasingly cautious about jurisdictions offering citizenship programmes. It is also likely to increase international pressure on them to develop voluntary exchange of information programmes with a passport holder’s original country of residence.

The OECD report and related documents can be found at http://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/residence-citizenship-by-investment/

Subsequent international media reporting quoting Věra Jourová, the EU Justice Commissioner and unnamed western intelligence sources, indicated that there is concern that such schemes present a growing danger to national security because they enable visa free travel and free movement within third countries of criminals and terrorists.

Separately, concern continues within some parts of the region about the way in which local schemes are being operated. In St Lucia the country’s former Prime Minister, Dr Kenny Anthony, now an opposition Parliamentarian, is bringing a legal case against the government for entering into agreements with a Desert Star Holdings Ltd, over the planned construction of a horse-racing facility and residential complex to be financed through the country’s CBI programme.

Dr Anthony’s suit alleges that the Cayman and Hong Kong linked project to create the ‘Pearl of the Caribbean’ which is related to the island’s CBI programme is unconstitutional, and that the financial arrangements underpinning the agreements breach the country’s Finance Administration Act, its Citizenship by Investment Act and the Regulations made under the Act. St Lucia’s former prime minister says that the agreement is not in the best interest of his constituents, the neighbouring constituencies or the people of Saint Lucia in general.

The ‘Pearl of the Caribbean’ project is valued at over US$2.6bn and occupies a 700-acre site in the south of St Lucia with funding coming through the country’s citizenship programme.

Publication of the OECD report coincided with international media reports suggesting possible links between companies involved in selling citizenship and those gathering data for third parties to influence political campaigns and outcomes in some Caribbean general elections.

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