‘Letterbox millionaires’ – Not all Malta’s golden passport buyers are buying €350,000 property

In a dingy part of Qawra’s urban core, an enclave of holiday flats on J. Quintinus street overlooks the last part of undeveloped fields in the centre of the northern locality. The road ends here, in a carpark outside six blocks of cut-price holiday flats and low-rent residential apartments – there is nothing here that could attract the prospects of the world’s global rich.

And yet, on the second floor of Tema Flats, there should be the apartment that Victoria Shopina would have acquired as a prerequisite to become a Maltese citizen for €650,000. That property requirement should have cost her €350,000, and it surely cannot be rented for the minimum €16,000 laid down in the rules of Malta’s individual investor programme (IIP).

But there’s nobody in apartment number five of Tema Flats. The doorbell is not even marked with Shopina’s name. Nobody answers the door.

The second floor office building on St Paul's Street in Naxxar should be housing the Khalaf family of three and Majdolin Al-Dawood. Is this a €350,000 property?

Nobody answered apartment 5 of this cheap-looking Qawra holiday flat. But 'high net worth individual' Victoria Shopina is registered on this address

This St Julian's block should be housing an IIP millionaire who runs Russia's distributor for British American Tobacco: is it really worth €350,000 or €16,000 in annual rent?

This two-storey Naxxar maisonette on Triq il-Forga is listed as the address of Chinese billionaire Liu Zhongtian, chairman of China Zhongwang Holdings, one of the country's biggest aluminium makers. He is worth $2.8 billion, but is this property worth €350K?

Like hundreds of the world’s global rich who are flocking to Maltese financial intermediaries to secure themselves a passport to the EU, most of Malta’s ‘IIP citizens’ may not even be living here.

The controversial programme was said to have been green-lit to the European Commission, which first rebuked Malta for selling EU citizenship so blithely for €650,000, after introducing a 12-month residential requirement, backed by a €350,000 property acquisition and a further €150,000 in stocks.

But it is clear that not every millionaire who has been granted a Maltese passport is even abiding by these requirements.

Even to the untrained eye, the Naxxar maisonette on Triq il-Forga that should be hosting Liu Zhongtian, is easily recognisable as a letterbox address that is used by Zhongtian’s people in Malta to collect official mail.

Because Zhongtian is a Chinese billionaire estimated by Forbes to be worth at least $2.8 billion, a fortune made in aluminium production for the automotive industry.

Even more worryingly, as the Nationalist Party’s electoral observers recently discovered, is that Zhongtian became the recipient of a voting document without even fulfilling the constitutional requirements of having lived for six months in Malta within the last 18 months: because the Electoral Commission has not been verifying contradictory claims made by IIP applicants’ intermediaries, which in some declarations say their clients have been in Malta since the age of 16.

Again in Naxxar, on St Paul’s Street, the De Lellis building, a two-floor apartment building that houses a commercial outlet and the offices of Prestige Capital Management, is supposed to be the residence of four new citizens: Majdolin Al-Dawood, Omar Yusuf M. Fathi Khalaf, Fathi Khalaf, and Yusuf Khalaf. But if you exclude the villa area on one side of St Paul’s Street, this is hardly a property zone for €350,000 apartments.

In Qawra, Russian entrepreneur Vjacheslav Solvyev picked one of the holiday apartments on Triq l-Istamnar behind the Seacrest Hotel in Qawra. On Bonavita Street just below the Sacred Heart convent in St Julian’s, a second-floor apartment should be the house of Russia’s British American Tobacco distributor Oleg Smirnov and his wife; while an apartment in Zejtun should be the residence of another high net worth individual, Aleksandr Zaikin. The Gamzalov family lives in a first-floor apartment on Birzebbuga’s Triq tal-Gebel: the patriarch is a director of the Russian metallurgy giant Zavod Metallokonstruktsy and the owner of OW Capital Management, an Austrian investment firm.

But these properties are far from high-end luxury addresses that can hit the €350,000 mark.

In some cases, the profile of the IIP citizen in Malta could not be more stereotypical: a high net worth individual who needs both tax secrecy and visa-free travel. Take one Grigor Khachaturov. He lives with his wife and two children in a Santa Marija estate villa by the Mellieha coast. According to the Panama Papers, he set up a British Virgin Islands offshore company back on 20 September, 2012 through Chetcuti Cauchi. The timing suggests Khachaturov has long been a resident in Malta, well before the introduction of the IIP.

A good deal of IIP citizens are ‘housed’ in top-tier property areas: the US multi-millionaire William Erbey, who built mortgage loan giant Ocwen Financial, lives in a Forth Mansions apartment in Ta’ Xbiex. Erbey could be about to face a US securities lawsuit after he was forced to resign the chairmanships of his mortgage companies over irregular conflicts of interest.

Typical addresses include Fort Cambridge and Tigné Point, as well as seafront addresses on the Tigné seafront, Spinola Road in St Julian’s, Pendergardens in St Julian’s, Tas-Sellum in Mellieha, and the Chambray complex in Gozo.

Search for Chambray’s latest resident, Rui Ming John Long, for example, and the first reference one finds on a Google search is the name inside the Offshore Leaks database released by the ICIJ. Another neighbour would be Marwan Al Bawardi, a banker, also one of the beneficiaries of the Maltese golden passport.

Andrey Epifanov, vice president of Moscow giant International Potash, which produces fertiliser for much of the former Soviet states and China, has a Pendergardens address.

Many of the IIP millionaires have chosen Tigne Point and Fort Cambridge as their registered address but as photos of IIP applicants' 'hovels' show, requirements to buy a €350,000 property appear to be wilfully ignored

Fort Chambray in Gozo: a more fitting property acquisition for the IIP citizens who buy passports for €650,000

Fort Mansions in Ta' Xbiex: this is the address of American multi-millionaire William Erbey, of mortgage giant Ocwen Financial

Some IIP families have been registered as living here on Depiro Street in Sliema at Belmonte Heights and Depiro Point

And Russian businessman Dmitry Yurievcih Doykhen – owner of the Sportmaster retail chain and recently mooted in an €11 million development of a Hampton by Hilton hotel in Voronezh – would be living in a Mensija, San Gwann terraced house.

But some others seem to have chosen less high-end addresses, like the Vashkevich family, which has a Depiro Point apartment on Depiro Street, Sliema; and just round the corner, in the Belmonte Heights complex, live Lilianna Demirchyan and Svetland Hovakimya.

Electoral Commission rebuked by courts

Earlier this week, the executive chairman of Identity Malta, the government agency that handles identity management and citizenship applications, was called to attention to his duties by the Electoral Commissioner, whose office is finding it difficult to reconcile voters’ lists with the names of naturalised citizens.

Electoral Commissioner Joseph Church wrote to Joseph Vella Bonnici saying that Identity Malta, which is responsible for the Individual Investor Programme, was not providing his office with monthly lists of registered citizens and naturalised citizens.

“It is of utmost importance that such lists are submitted on a regular basis in conformity with provisions of the law,” Church wrote earlier this week. “The last monthly lists supplied to this office were for August 2014 (registration) and for December 2014 (naturalisation).

Justice minister Owen Bonnici said the matter has since been resolved.

Identity Malta is responsible to forward the Electoral Commission with a list containing the name, surname and ID number of any person granted citizenship within the first five days of each month.

The Electoral Commission is already in hot water for having accepted applications for the issuing of voting documents to naturalised citizens who acquired their passport through the IIP: most of these applicants have never spent six months resident in Malta, as required by the electoral law. That automatically excludes them from having a voting document.

The Maltese courts rebuked the Commission for rendering constitutional requisites “useless” when it disregarded any verification of the applications by IIP citizens to vote.

In the first decision a court has taken on one of 91 disputed IIP beneficiaries who were placed on the electoral register, the court revoked the right of Aleksandr Olegovich Zaikin to vote.

The PN has filed 91 cases against the Electoral Commission, in order to delete new citizens who acquired their passports under the IIP. The PN discovered that the individuals were added to the electoral register without having spent a minimum of six months in Malta over the past 18 months before the publication of the register.

The Electoral Commission failed to verify whether they even satisfy residence requirements to be able to vote.

Physical presence not required

The Regulator of the Individual Investor Programme had confirmed in 2015 in his report that apart from the €650,000 contribution, a property lease or purchase agreement were enough to prove an applicant’s residency in Malta.

This also means that physical presence is not even required to prove residency, which at the very least should be the 182 days applicable for taxation purposes.

After Identity Malta sought the advice of Professor Dimitry Kochenov – who holds a Chair of EU Constitutional Law at the Department of European and Economic Law at the University of Groningen in the Netherlands – the Office of the Regulator concluded that IIP applicants could prove their residency by other means, and the physical presence or otherwise of the applicant should no longer be an issue.

According to Kochenov, residence in a EU Member State is a legal status and it therefore does not carry the same meaning as presence. 

“Being a legal status, residence comes with rights and obligations and the conditions of its commencement and termination depend on the rules in force and not on the presence of a particular individual within that territory,” the Professor had told Identity Malta.

European practice, the report said, does not connect the possession of the address with a strict requirement of presence on that address, let alone checks of such presence.

As it is possible to hold a residence permit in more than one country, it is therefore a physical impossibility for an individual to be omnipresent in all countries in which a residence permit is held. 

The expert advice also contended that European law on residence has moved legal residence further away from the concept of physical presence.   “It may also be argued that a ‘constant physical presence’ could impose an unjustifiable restriction to freedom of movement,” the report added.

Grima concluded that if, the underlying principle that residence does not equate to physical presence is correct, this should dispel the concerns being raised on the issue.

In 2014, eight properties were purchased at a total cost of €6,292,244 implying an average property value of €786,530 – over double the minimum value of property that has to be acquired by successful IIP applicants (€350,000). 

Annual leases were registered with a total lease value of €4,292,583 implying an average annual lease of €119,238, well above the minimum annual lease requirement stipulated in the regulations and which amounts to €16,000.

Total investments amounted to €6,613,332 which works out to the statutory €150,000 stipulated in the Regulations.