By Erasmus Williams
Basseterre, St. Kitts, February 24, 2018 – The Citizenship by Investment Programme in St. Kitts and Nevis faces a new threat.
The Organization for Economic Cooperation and Development (OECD) has issued a consultation document that warned of the potential abuse of “residence by investment” or “citizenship by investment” schemes.
These schemes allow foreign individuals to obtain citizenship or temporary or permanent residence rights in exchange for local investments or against a flat fee.
While investors may be interested in these for legitimate reasons, including greater mobility because of visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability, there is the potential for misuse, the Paris-based organization said.
An OECD disclosure facility that enables the public to share arrangements designed to avoid tax reporting under the common reporting standards produced information indicating that RBI and CBI schemes are used to circumvent CRS reporting.
The now-issued consultation document assesses how the schemes are used to avoid reporting. It identifies the types of schemes that present a high risk of abuse and it reminds stakeholders of correctly applying CRS due diligence procedures to prevent the abuse.
While the schemes generally do not offer a solution to escape the legal scope of CRS reporting, because they do not provide tax residence or affect tax residence in another country, they can potentially be exploited to undermine the CRS due diligence procedures, the document noted.
This scenario could arise, for example, if an individual does not live in the relevant jurisdictions but claims to be a resident there for tax purposes and supports the claim by providing his financial institution with documents such as a certificate of residence, passport or utility bills.
The schemes that are most susceptible, according to the paper, are those in low or no tax jurisdictions and those that do not impose or only have limited requirements to be physically present in the jurisdiction.
The OECD is seeking public input to obtain further evidence on the misuse of CBI/RBI schemes and on effective ways for preventing such abuse.
The consultation closes on March 19. The responses will be taken into account in determining the next steps that will be taken, the OECD said.
Countries with well-established citizenship-by-investment programs include Antigua and Barbuda, Dominica, St. Kitts and Nevis in the Caribbean, as well as Cyprus, Malta, the U.K., and the U.S. among others.
In 2016, a Nevada judge modified the asset freeze order imposed on two illicit actors granted St. Kitts and Nevis Economic Citizenship in 2015 by Prime Minister, Dr. the Hon. Timothy Harris.
The US Securities and Exchange Commission (SEC) complaint unsealed on May 19th 2016 stated that fraud charges against attorney and Nevada resident David Kaplan were filed based on an allegedly fraudulent scheme that raised US$15.8 million.
Dr. Harris, who became prime minister in mid-February granted the Kaplans citizenship.
Between June 2015 to March 2016, approximately US$385,000 was sent to St. Kitts and Nevis of which at least US$79,394 was wired to a St. Kitts law firm to obtain passports and/or St. Kitts and Nevis citizenship for Kaplan and his wife Lisa.
On May 20, 2016, the court issued a temporary restraining order freezing the assets of Kaplan and the other defendant entities, and prohibiting them from soliciting, accepting or depositing any monies from actual or prospective investors while the order is in effect. The order further requires Kaplan and the defendants to repatriate foreign assets within seven days.
According to the SEC complaint, Kaplan repeatedly lied to prospective investors by stating that their funds would be invested in a low-risk, private offshore trading program that would be provide estimated monthly profits of 10 percent.
The complaint alleges that Kaplan did not use investor funds as promised but instead: Used at least US$2.3 million for his personal benefit, including approximately US$385,000 sent to St. Kitts and Nevis between June 2015 to March 2016, of which at least US$79,394 was wired to a St. Kitts law firm to obtain passports and/or St. Kitts and Nevis citizenship for Kaplan and his wife.
Kaplan also sent US$1.1 million to his wife, Lisa Kaplan, a purported charitable foundation, and a corporation that Kaplan controlled; invested at least US$360,000 in an allegedly fraudulent scheme at the centre of a federal criminal indictment in Ohio; and made approximately US$1.8 million in Ponzi-like payments to other investors.
On May 31st 2016, the Office of Prime Minister Harris in a press release announced that the two St. Kitts and Nevis passports which he issued to the two illicit American actors were revoked.
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