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OECD Warns Of Potential Use Of Economic Citizenship Programs By Money-launderers And Tax-Evaders

PARIS, France — The Organization for Economic Co-operation and Development (OECD) has released a consultation document warning that citizenship by investment programs are open to abuse by money-launderers and tax- evaders to circumvent reporting under the Common Reporting Standard (CRS).

The document entitled ‘Preventing Abuse of Residence by Investment Schemes to Circumvent the CRS’ notes that more and more jurisdictions are offering “residence by investment” (RBI) or “citizenship by investment” (CBI) schemes, which allow foreign individuals to obtain citizenship or temporary or permanent residence rights in exchange for local investments or against a flat fee.

Individuals may be interested in these schemes for a number of legitimate reasons, including greater mobility thanks to visa-free travel, better education and job opportunities for children, or the right to live in a country with political stability.

At the same time, they can also offer a backdoor to money-launderers and tax- evaders. In this regard, information released in the market place and obtained through the OECD’s CRS public disclosure facility highlights the abuse of RBI and CBI schemes to circumvent reporting under the Common Reporting Standard (CRS).

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The OECD is now looking into this as part of its CRS loophole strategy and public input is sought both to obtain further evidence on the misuse of CBI/RBI schemes and on effective ways for preventing such abuse.

The consultation document outlines a number of ways in which CBI and RBI schemes can be exploited to circumvent the CRS but acknowledges that not all RBI/CBI schemes present a high risk of being used to circumvent the CRS.

According to the OECD, the risk of abuse of CBI/RBI schemes is particularly high when the scheme has one or more of the following characteristics:

• The scheme imposes no or limited requirements to be physically present in the jurisdiction in question or no checks are done as to the physical presence in the jurisdiction;

• The scheme is offered by either: (i) low/no tax jurisdictions; (ii) jurisdictions exempting foreign source income; (iii) jurisdictions with a special tax regime for foreign individuals that have obtained residence through such schemes; and/or (iv) jurisdictions not receiving CRS information (either because they are not participating in the CRS, not exchanging information with a particular (set of) jurisdictions or not exchanging on a reciprocal basis); and

• The absence of other mitigating factors that could, for instance, include (a) the spontaneous exchange of information about individuals that have obtained residence/citizenship through such a CBI/RBI scheme with their original jurisdiction(s) of tax residence; or (b) an indication on certificates of tax residence issued that the residence was obtained through a CBI/RBI scheme.

The OECD is currently compiling a list of high risk schemes based on these risk factors in order to raise awareness amongst stakeholders of the potential of such schemes to undermine the CRS due diligence and reporting requirements.

The consultation closed on 19 March.

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