Customers on bicycles use automated teller machines (ATM) outside a Danske Bank A/S bank branch in Copenhagen, Denmark, on Wednesday, Sept. 19, 2018. Danske Bank A/S Chief Executive Officer Thomas Borgen will step down amid allegations his bank was at the center of a major European money laundering scandal with as much as $234 billion flowing through a tiny unit in Estonia. Photographer: Freya Ingrid Morales/Bloomberg
Danske Bank is suspected of laundering €200bn, mainly from former Soviet states © Bloomberg

Brussels is set to tell EU member states to tighten security checks on wealthy investors applying for “golden visas”, warning that the schemes have opened the bloc to money laundering, corruption and organised crime.

The European Commission will on Wednesday make its first recommendations to countries on how to protect investment-for-status schemes — in which governments offer residence rights or full citizenship in exchange for investment — from abuse.

The move comes in the wake of high-profile scandals over money laundering in the past year, such as the Danske Bank case, in which the Estonian branch of Denmark’s biggest lender is suspected of laundering €200bn, mainly from former Soviet states. 

The advice is contained in a report to be published on Wednesday, in which Brussels examines “citizenship for sale” schemes worth billions of euros run by Malta, Cyprus and Bulgaria.

The schemes allow wealthy individuals to buy EU passports, which carry benefits such as free movement inside the bloc. Anti-graft campaigners have warned that a lack of transparency on awarding passports has opened the door to criminals from countries with a high level of corruption to operate in Europe. 

About 20 EU governments, including the UK, Portugal and Spain, also offer more limited residency rights to wealthy non-EU citizens in return for investment in property, government bonds, or sometimes directly into a government’s budget. 

“Investor citizenship and residence schemes create a range of risks for member states and for the union as a whole: in particular, risks to security, including the possibility of infiltration of non-EU organised crime groups, as well as risks of money-laundering, corruption and tax evasion”, says a draft version of the report seen by the Financial Times. 

The report, the commission’s first looking into the schemes, identifies a number of concerns, including governments having varying standards on security and background checks for applicants and the sources of their wealth. 

Brussels also highlights that private investment companies — which work in conjunction with governments in Cyprus and Malta to run the schemes — are under no legal obligation to carry out security checks in line with EU anti-money laundering rules. 

The EU’s 28 member states have won about €25bn of foreign direct investment over the past 10 years from schemes that offer residence rights or full citizenship in exchange, according to research from Global Witness and Transparency International.

Although Brussels has no direct power to police the schemes, it will urge governments to agree on common security checks for all applicants and push for mandatory lists of the number of applications made and rejected every year, along with their countries of origin. 

The report does not single out countries. EU officials said the findings were designed to avoid sparking conflicts between Brussels and member states over rule of law ahead of European Parliament elections in May. 

Laure Brillaud, an anti-money laundering policy officer for Transparency International EU, the campaign group, said the commission’s proposals “clearly lack the ambition we would have expected in light of recent scandals”. 

These had “highlighted how the absence of harmonised regulations on the golden visa industry at EU level is making EU borders porous to criminals and corrupt individuals”, she said. 

“The EU dimension to the problem is clear, the solution shall also be European, yet the commission has missed the opportunity to propose an ambitious agenda for an EU-wide regulation of the industry,” she added.

The Investment Migration Council, an industry body that represents investors and governments that take part in the schemes, said the commission’s report failed to acknowledge the role of intermediaries in strengthening the diligence around them. 

“Many of the risks of investment migration highlighted in the report, such as tax evasion, are not exclusive to investment migration and apply to other forms of acquired citizenship such as naturalisation,” said Dimitry Kochenov, chairman of the IMC.

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