All that glitters / Portugal's golden visas / Charlemagne / The Economist.

Portugal's golden visas

All that glitters

Nov 17th 2014, 16:12 BY P.W. | LISBON

http://www.economist.com/blogs/charlemagne/2014/11/portugals-golden-visas

 Charlemagne

European politics

AMONG the growing number of hard-up European governments offering residence permits to wealthy non-Europeans who invest in their countries, Portugal has been the most successful. In return for real-estate purchases and other investments totalling more than €1 billion ($1.25 billion), Portuguese authorities have issued 1,775 so-called “golden visas” over the past two years, 81% of them to Chinese nationals. But success turned to scandal on November 13th, when police made 60 raids across the country, detaining 11 people in a crackdown on suspected corruption by officials administering the scheme. Among those held were the head of Portugal’s border agency and the president of the country's registration and notary institute. Three days later, Miguel Macedo (pictured), the interior minister in the centre-right government, resigned.

The investigation in Portugal, codenamed “Operation Labyrinth”, could have wider ramifications across Europe, where cash-strapped governments from Greece and Spain to Latvia and Hungary run similar schemes. Besides casting suspicion on golden visas as a potential source of corruption, the detention of top immigration and border control officials raises the possibility of a serious breach in security: Portugal is one of the 26 EU countries that make up the Schengen “open borders” area.

Like other countries that have introduced golden visa programmes, Portugal hoped to offset the sharp drop in investment caused by the financial and euro crises. Spending a minimum of €500,000 on a property entitles non-European families to live in the country and travel in the Schengen area for five years, after which they can apply for permanent residence. Paulo Portas, deputy prime minister and the chief advocate of the Portuguese scheme, credits the scheme with reviving a moribund real estate market and creating the potential for knock-on investments by the entrepreneurs they attract.

But the concept of trading residence permits for cash, albeit in the form of investment, has been under attack from the outset. Ana Gomes, a Portuguese Socialist member of the European parliament, condemns golden visas as “selling nationality by instalments”. With poor immigrants risking their lives daily to enter Europe, she wonders whether it is morally justifiable to give the well-off unequal treatment. Even as an investigating magistrate questions the 11 detainees, who include three Chinese citizens, left-wing opponents are calling for the scheme to be scrapped altogether.

Police are understood to believe that some properties registered as having been bought for €500,000 for the purposes of obtaining a golden visa may in reality have been purchased for considerably less, the difference being used for illegal payoffs. Police said those detained were suspected of crimes including corruption, money-laundering, influence-peddling and embezzlement. In a curious twist, Portugal’s security services also revealed that they had previously swept the office of the detained head of the registration institute for listening devices, at his own request.

No government members are suspected of any involvement, the attorney general’s office said in a statement. But the case is nevertheless a deep embarrassment for Prime Minister Pedro Passos Coelho, whose government had trumpeted the golden visas as a resounding success. The scheme has now cost him a key minister less than a year before a general election, while Mr Portas has agreed to be questioned on the issue by a parliamentary committee. The investigation comes only months after the collapse of the Espírito Santo business empire in one of Europe’s biggest financial failures for years. Both cases are likely to prove severe tests of Portugal's slow-moving justice system. Meanwhile, Portugal had just managed in May to exit the four-year, €78 billion bailout programme it accepted from the EU and the International Monetary Fund during the euro crisis. As the golden visa investigation shows, the aftershocks of that crisis are far from over.