Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.
Golden Passports
Cyprus promised to abolish its Golden Passport scheme, following the excruciating admissions of wrong-doing that Al-Jazeera’s undercover reporter obtained (seriously, watch it, and help the video reach half a million views), but I can’t help doubting that the island actually will. The program, under which Cyprus sells European Union citizenship and keeps all the profits, has made more than €7 billion. And that’s a free money fountain any government might struggle to stop drinking from.
- “The government [has previously] made changes to the scheme only when the pressure was full-on, they didn’t do it on their own volition,” said Eleni Mavrou, a member of Parliament for the opposition AKEL party, who thought the scheme will likely continue largely unchanged. “You must understand that a powerful lobby is pushing for this scheme.”
It now seems that a powerful lobby is pushing back, however, with the European Union launching so-called infringement proceedings against both Malta and Cyprus, home to the two most controversial citizenship-by-investment programs in the EU (Bulgaria and Austria also have laws allowing them to sell passports, but no one talks about them much, probably because Bulgaria’s program is too unsuccessful, and Austria’s is too discrete).
- “This is exactly the kind of decisive action we have been calling for,” said Laure Brillaud, senior anti-money laundering policy officer at Transparency International EU. “There is overwhelming evidence that the golden visa schemes of Cyprus and Malta have been serving corrupt interests, not the common good. For years, the governments of both countries have ignored public outrage. The European Commission’s decision means they could find themselves in the European Court of Justice.”
An infringement proceeding is the legal action taken by the European Union’s central authorities against a member state that violates the union’s treaties. They are, being both an EU instrument and a legal process, extraordinarily complex (see the flow chart on page 12, if you don’t believe me), and this is just the beginning.
In the EU’s argument, it says that – because citizenship of one state gives an individual rights in all the other EU members – Golden Passport programs undermine “the integrity of the status of EU citizenship.” However, there are two reasons to wonder if the proceedings will succeed.
The first problem is that European Union authorities have complained extensively about Golden Passport schemes in the past, arguing that they undermine solidarity, and run counter to the Union’s core values. However, Malta and Cyprus have consistently and successfully replied that awarding citizenship is the business of member states, not the EU, so it’s nothing to do with Brussels. Malta has already insisted it will push back against these EU proceedings.
The second problem is that the Cypriot and Maltese programmes are just the glittering tip on a pyramid of European migration-related sleaze, as Global Witness set out earlier this year, so this problem goes far beyond Cyprus and Malta. In the EU, Golden Visas – schemes where countries sell residency, rather than immediate citizenship — eclipse Golden Passports in terms of both the amount of money raised, and the number of people involved. Portugal has sold tens of thousands of visas, and earned more than €5 billion from them, and kept selling them despite scandals reaching to the very center of government. Spain, Latvia and Greece have booming golden visa programs, and Italy, Belgium, France, the Netherlands have all tipped their toes in these sparkling waters. Fortunately, thanks to Brexit, the EU has managed to slough off the notorious UK program but, right next door, the Irish are selling visas despite having had to cancel a previous Golden Passport scheme over corruption concerns.
- “If the EU is serious about this, it must adopt EU-wide legislation to regulate golden passport and visa schemes with a view to phasing them out completely,” said Global Witness.
It’s hard, however, to see how a union that rules by unanimity could overcome the vested interests of a coalition that now numbers almost half of its membership.
LONDON CALLING
For the global oligarch, few must-haves are as crucial as a London base, and lockdown proved very annoying because it interrupted the smooth operating of the housing market. Fortunately, however, everything bounced back into shape over the summer, according to the latest report on the “super-prime market” from Knight Frank.
- “A total spend of £1.13 billion in the first eight months of 2020 was 16 percent higher than the figure of £977.5 million recorded last year. The ratio between asking prices and achieved prices has also narrowed in recent months,” the estate agent noted.
A Mayfair residence would now set you back an eye-watering £5,097 per square foot (by my calculation, therefore, a flat the size of a tennis court would cost £14 million). Of course, a house in London is not just a house in London, but also a stake in a major asset class, affected by price movements elsewhere in the world. As such, the British capital – despite Brexit, and the UK government’s disastrous response to the pandemic – has benefited from even greater levels of discomfiture elsewhere, which is a slightly scary thought for this UK-resident.
- “Demand for London property has risen as the two comparable global financial centres of Hong Kong and New York have experienced relatively higher levels of political volatility recently. The UK’s education and legal system looks very attractive on a global basis,” said the impeccably well-connected Tom van Straubenzee, head of Knight Frank’s private office and godfather to Princess Charlotte of Cambridge, who’s fourth-in-line to the British throne.
WHAT’S RUSSIA UP TO?
I’m sure many of you will have read the reports about the US Justice Department indicting six officers from Russian military intelligence with hacking computer systems in Ukraine, South Korea, Georgia, France and elsewhere, at a cost of hundreds of billions of dollars. And you should also read this remarkable tale in GQ about suspicions that Russia could be behind a mysterious ailment afflicting US foreign service staff, which may be caused by a microwave weapon.
- “No country has weaponized its cyber capabilities as maliciously or irresponsibly as Russia, wantonly causing unprecedented damage to pursue small tactical advantages and to satisfy fits of spite,” said Assistant Attorney General for National Security John C. Demers.
The question remains: why does Russia do this? It is hard to see how any of its most high-profile foreign interventions in recent times, from the hacking of the US election, to the poisoning of Sergei Skripal in London, to cheating in the Olympics, count as anything other than huge strategic defeats.
The puzzle made me think of a recent report from The Dossier Center into the inner workings of the FSB, the most powerful of Russia’s intelligence agencies. The Center is funded by ex-oligarch Mikhail Khodorkovsky but it does good work, and the report’s findings are interesting. It details the many ways that Vladimir Putin has centralized power and used the agencies as a tool of his own enrichment, but it also argues that the corruption he has weaponized could be his downfall.
- “The abuses and corruption at the top of the FSB are mirrored further down, as more junior officials set up their own extortion and protection rackets to bleed the country’s businesses. And as different parts of the FSB seek their own economic advantage, they start to compete with each other, adding another complication to doing business in Russia—something that could, over time, chip away at the stability of the Putin regime,” the report said.
Perhaps the increasingly erratic behavior of the Kremlin’s intelligence agencies is not a sign of assertiveness by Putin, but a sign that the Russian president is losing control. It’s an interesting hypothesis, and I’d welcome any thoughts.
WHAT I’M LISTENING TO
I’ve just discovered the BBC podcast series from earlier this year, How They Made Us Doubt Everything. It’s ably told by Peter Pomerantsev, a Coda contributing editor and author of the amazing Nothing is True, and Everything is Possible, and recounts how the tobacco and fossil fuel lobbies successfully deployed ambiguity and confusion to undermine attempts to regulate their industries.
I found myself wondering if some of the same techniques aren’t being used by the financial services industry to stop us cracking down on tax dodging and kleptocracy. If you see any examples, please send them over.
See you next Wednesday,
Oliver