Golden visas` are known to attract dirty money around the world. Why does Australia still offer them?

About 26,000 people have applied for a so-called 888 `golden visa` that grants residency to those investing between $5 and $15 million into Australia

For the agency charged with securing our frontiers and safeguarding social harmony, it`s an annus horribilis like no other. Australia`s controversial Department of Home Affairs is in crisis.

Thanks to dogged reporting by the press, the secretary of Home Affairs, Mike Pezzullo, has been suspended and his conduct is being investigated by Dennis Richardson, the former head of ASIO. Richardson is also examining allegations the department agreed contracts with figures in Nauru suspected of involvement in corruption.

Last month, the former commissioner of Victoria Police, Christine Nixon, found the Home Affairs visa system was being exploited by `criminal syndicates … involved in various serious criminal offending and activities for profit`.

There was some political motivation, but also much truth, when Home Affairs Minister Clare O`Neil recently inveighed passionately against the `rorts and loopholes that have plagued this system`.

A visa program for the super-wealthy

One rort, however, has not received public attention in the ongoing imbroglio, and that was the conception a decade ago of a bizarre and counter-productive visa program targeting the super-wealthy.

Thus far, a staggering 26,000 foreign nationals have been granted permanent access to Australia not because they were a great fit for the community and not because they brought with them much-needed skills or a dose of high culture. They were granted this precious gift simply because they were loaded.

Launched in 2012 by Chris Bowen, we were told the Business Innovation and Investment Visa would usher into the country a new font of working capital. The program required the investment of either $5 million or $15 million or the promise of great entrepreneurship and business activity, and it was branded the 888 Visa.

But rather than `triple fortune` (as the number promises in Chinese numerology), the 888 program was quickly exposed by the Productivity Commission as providing Australia a pitiful return.

All the way back in 2016, it found these significant investor visas may have actually crowded out other providers of venture capital; that, `perversely`, they may have brought people to Australia with `less business acumen` than would otherwise have arrived; and, overall, made a `trivial` impact, accounting for one-fifth of 1 per cent of total foreign investment. Hardly the `boost` Bowen had promised.

Perhaps most galling was the Commission`s discovery that tax concessions available under the program `could amount to the Australian community paying a small group of people to become permanent Australian residents … that is, Australian taxpayers would be effectively subsidising SIV applicants`.

`Golden visas` have been scrapped by most countries

At the time, the government said the introduction of golden visas �` as they`re known in the business �` was prudent; other attractive destinations were themselves seeking to lure the world`s high-rollers with similar schemes.

A decade on, Australia is now one of the few Western countries to still offer such a program.

Elsewhere, they have been terminated not just because they`re inefficient but also because they attract dirty money.

Britain`s golden visa arrangements were scrapped last year as part of a `crackdown on illicit finance and fraud`, in part because it was determined they had provided `opportunities for corrupt elites to access the UK`. Ten high-profile Russians who obtained such visas subsequently appeared on international sanctions lists after the Kremlin`s invasion of Ukraine.

In Portugal, meanwhile, half of all golden visa recipients have come from the 30 nations with the worst reputation for money laundering. Concerns that illicit funds made up a significant portion of the 5.8 billion euros ($9.7 billion) it garnered have now prompted its closure.

In Greece, 3 billion euros in offshore funds poured into real estate via its golden visa scheme (much of it from China), distorting Athens`s property market. One Greek cabinet minister had warned that `a lot of it comes from illegal activities … arms trade, smuggling or trafficking`.

Chinese money flooded Ireland through its special investor visa, now also shuttered. Earlier this year, the Irish police launched an investigation into intelligence that multiple Chinese investors had used the same pot of money to game the visa program.

Analysis from the ABC`s experts

Do 888 visas post a risk?

These risks are not unknown to Australian decision-makers. The same Productivity Commission inquiry included warnings that 888 visas carry with them the `potential for money laundering and other nefarious activities`. Surely similar advice has been provided to the government over the years since.

But we are none the wiser. Since their introduction, there has been almost no public accountability by Home Affairs for the effectiveness of the 888 visas. We have never been told how many were issued, nor to whom until now.

Extracted using Freedom of Information, the raw data is stunning, including the headline figure of 26,000 successful applicants. It shows that from its inception in 2012 until May of this year, more than 20,000 Chinese nationals, including those from Hong Kong and Macau, have been granted golden visas to live in Australia.

A path to Australian citizenship

It`s likely thousands of these visa recipients have since obtained Australian citizenship.

By contrast, the British scheme had granted only 2,500 golden visas to Russians over a 14-year period.

Here, China was by far the greatest source of applications, greatly overshadowing the remaining 6,000 or so that have been granted. Considerable numbers applied from Bangladesh (221), Iran (777), Malaysia (1,049) and Vietnam (1,321).

What is stark about the data is that so few applications were rejected  at a rate of less than 2 per cent (522).

Last year, The Australian reported that not a single applicant from China for the $5 million investment visa had been rejected based on a character assessment.

I checked if that remained true of the entire 26,000 cohort, and it does. Home Affairs confirmed there has not been a single refusal of a 888 visa application under the good character provisions of the Migration Act.

And here is why. Section 501 provides for the denial or cancellation of a visa for those convicted of a serious crime. But what about the very many applicants who hail from the very many countries including China  where bribery and corruption are significant features of the criminal justice system?

The act says an applicant can be blocked `if the minister reasonably suspects` they have been involved in certain criminal activity, from people smuggling to war crimes.

But that provision  the ability to deny a visa on the basis of reasonable suspicion  is profoundly silent on white-collar crime. It says nothing about money laundering or the proceeds of graft and corruption.

Just consider for a moment how many people, particularly from poor and developing nations, are sufficiently remunerated to be able to drop $15 million on a foreign visa.

Golden visas were most often granted to people from these five countries in 2018.(Supplied: Moelis)

Australia needs to wake up

My FOI also produced the tiniest sliver of insight into how rigorously Home Affairs has policed the program. Of the 26,000 applications, the department has opened only 11 investigations into the good character provision. The first was not launched until the seventh year of the program.

Clare ONeil has said publicly that the scheme is under review. Why it hasn`t been scrapped already is apparently tawdry internal Labor politics; how to do so without bringing a blush to the cheeks of Chris Bowen, now energy minister?

Over the past decade, the currents of dark money that circulate the globe have been, for the first time, exposed. At home, recent inquiries into the casino and gaming industries have revealed how vulnerable we are to industrial-scale money laundering and the criminal enterprises that fuel it.

Australia needs to ask itself: what money comes for free?

It’s time we deal decisively with the legal practitioners of Stalingrad tactics

Finally, the Constitutional Court has awoken from its slumbers and dealt properly with legal representatives who abuse the court process and are deserving of an adverse costs ruling against them. 

Affairs and others v Lawyers for Human Rights the Constitutional Court, it was held that the Director-General of Home Affairs pay 25% of applicable costs in his personal capacity and that the fees of the minister’s former legal representatives should be disallowed. Leave aside the extraordinary behaviour of the DG who appears to have kept his own minister in the dark.

This column is about lawyers. 

According to the court, the minister’s sometime legal representatives “inexplicably approached the court on an urgent ex parte basis for an order that, pending an application to the Constitutional Court or the enactment of remedial legislation in respect of s34 (1) (b) of the Immigration Act, a High Court order remain valid to the extent that it set aside the provisions that a detainee request that his or her detention be confirmed by a court and be replaced with a provision granting an automatic right that a detention be confirmed, by a detainee appearing in person in court”.

The high court also declared s34 (1)(d) of the Act to be constitutionally invalid to the extent that it provided for an extension of the period of detention without affording the detainee a right to appear in court in person at the time the request was made.

On 29 June 2017, the Constitutional Court confirmed these declarations of invalidity and set a timetable of 24 months for amending legislation to be enacted by Parliament. Significantly, it refused to confirm the high court’s reading of words which would have rendered s34 constitutionally valid pending the attempt by Parliament to so amend the Act. 

True to form, Parliament failed to meet the deadline set by the Constitutional Court. The minister then launched an urgent application to the Constitutional Court to revive that part of the 2017 high court order which had been set aside by the Constitutional Court and which would have left s34 effectively in play. The minister also launched a similar ex parte application before the high court.

The Constitutional Court found that the then legal representatives for the Department of Home Affairs “had inexplicably” approached the high court on an urgent ex parte basis for an order that pending the application of this court or the enactment of fresh legislation envisaged in the 2017 order, s34 should remain operative. They also approached the Constitutional Court on an ex parte basis in an attempt to revive the high court’s 2017 order.

In both cases, they failed to join the applicant, Lawyers for Human Rights. 

They also failed to mention four decisions of the Court that unequivocally held that, while the Court can extend a suspension order before the period of extension expires, it had no power to do so upon the expiry of that date. It also strongly opposed Lawyers for Human Rights’ intervention application by “bizarrely using the inexcusable failure to join LHR by contending that LHR was not party to the proceedings and had no standing to make damning statements”.

The Constitutional Court stated that legal practitioners are “an integral part of our justice system. They must uphold the rule of law diligently and professionally. They owe a high ethical and moral duty to the public in general and in particular to their clients and to the Court.”

Drawing on an article by Constitutional Court Judge Owen Rogers writing extra curially, the Constitutional Court noted that in England, ethical rules governing solicitors and barristers explicitly state that it is improper for a legal representative to make a submission which cannot be regarded as properly arguable. Australian jurisprudence similarly suggests that it is improper for a lawyer to present an argument that he or she knew was bound to fail.

In conclusion, the Court held “that the legitimacy of our judicial system, particularly the courts will fall into disrepute if the shockingly poor conduct of litigation as in the present instances is allowed to go unchecked. The egregious and multiplicity of the shortcomings in the conduct of the legal practitioners in the present case warrant an exceptional order.”

That order was to the effect that these legal representatives were not entitled to charge legal fees for the “services” rendered.

There have been many cases in the past which, at least on a reasonable basis (even on the standard of an average LLB student) legal arguments have been advanced that palpably have no merit other than to postpone an inevitable adverse outcome against a litigant.

All too often, arguments in court have been targeted at the press or the public at large rather than at the courts to gain political mileage for a client without any recourse to a justifiable legal argument. To date, the court has failed to mulct legal practitioners who have conducted themselves in this fashion. 

It is significant that the Court has taken this step in this case. It needs to go further in cases in which similar conduct, as described in the judgment based on the ethical responsibility of lawyers and comparative precedent, takes place.

One waits in anticipation for the first time that our apex court will award costs de bonis propriis against a recalcitrant legal practitioner for effectively wasting the time of the court in order to perpetuate an unjustified Stalingrad legal strategy. Or is this precedent as it applied the facts to its order confined to “non-Stalingrad” cases?

Home Affairs Minister and DG agree to pay legal costs from their pockets

The Minister of Home Affairs, Aaron Motsoaledi, and Director-General, Livhuwani Makhode, have agreed to pay part of the legal costs for Lawyers for Human Rights from their own pockets.

This comes after the Constitutional Court on Monday slapped both Motsoaledi and Makhode with personal cost orders in the case involving the rights of undocumented immigrants.

The decision follows Motsoaledi and his department’s failure to revise the Immigration Act in the past six years.

In a statement issued by the department, Motsoaledi said the fees would only be paid as soon as the taxed bill of costs was presented by Lawyers for Human Rights.

He welcomed the finding by the Constitutional Court that he was in the dark about the litigation and the shoddy manner in which it was conducted by the officials and legal representatives.

“The minister has never come across a situation in which officials and legal representatives decide to go to court in his name without his knowledge and any consultation with him.

“As the court found, these were indeed lapses of extraordinary range and gravity,” the statement read.

According to the statement, the minister accepted that he was responsible for the fulfilment of the objectives of the department as well as the actions or failures of all officials serving under him.

He also accepted that his duty was to ensure that the court orders were complied with and that officials under him did not repeat the “comedy of errors” and gross negligence seen in this case.

“The minister will take steps, as he has done before, to ensure an effective supervisory role. The judgment put paid to an erroneous belief that the executive authority should play no role in the everyday management of the affairs of the department.

“To this end, corrective measures will be taken against all officials involved in this saga,” the statement continued.

However, Motsoaledi said that in fulfilment of his Constitutional responsibilities, he would ensure that the fees in the amount of R222,862.60 paid to Mike Bofilatos SC were recovered without any further delay.

He said the legal representatives led by Bofilatos failed in their professional duties by proceeding with litigation without the minister’s knowledge.

Initially, the court order found that sections 34.1(b) and (d) of the Immigration Act were unlawful and unconstitutional. The sections permitted the administrative detention of undocumented foreigners for deportation.

As ordered by the court, the detention period can be extended from 30 days to 90 days or up to 120 days.

However, in 2016, Lawyers for Human Rights (LHR) argued that immigrants were being detained for more than 120 days or longer without trial.

The court order, which was issued in 2017, gave the department and Parliament 24 months to amend the legislation and suspended the invalidity for that period. To date, nothing has changed.

Medium-term budget in a nutshell: It’s going to hurt

• A large public sector wage hike, disappointing tax revenue and rocketing borrowing costs have hit government finances.

• This will necessitate large budget cuts and shrinking the state, Treasury said in its latest Medium-Term Budget Policy Statement.

• South Africans can also expect a R15 billion tax increase in February next year.

Treasury has been forced to make painful revisions to the latest Medium-Term Budget Policy Statement, which updates government’s spending plans over the next three years, after its expectations in the February Budget turned out to be over-optimistic.

Government now expects to earn almost R57 billion less in taxes than it previously forecast. Much lower commodity prices (due in part to a Chinese demand) hit mining profits, while load shedding, Transnet’s woes and weak local growth also weighed on other tax income. 

Treasury also didn’t fully budget for a 7.5% public sector wage hike, which has added billions to government spending this year. Some 55 000 civil servants now earn more than R1 million a year.

Concerns about South Africa’s economic and fiscal outlook  along with its greylisting, its controversial relationship with Russia and much higher interest rates across the world  have pushed higher the cost of government borrowing. Investors are now demanding much higher interest rates from SA: government’s weighted cost of borrowing has increased from 8.3% in February to 9.5% in October.

This has increased debt service costs by R52 billion above the budgeted amount. Out of every R5 collected in tax, R1 is now being paid to lenders. Government is now spending more on paying debt that on basic education or on health. Debt-services costs are expected to grow by almost 9% per year.

Government debt is now expected to peak at almost 78% of GDP  from a previous forecast of 73% by 2025/26  and grew at a much faster pace than in most emerging markets.

In response, the medium-term budget set out a number of interventions: 

Tax hike ahead

Treasury is budgeting for a R15 billion tax increase in the February Budget. It has not yet been confirmed what shape it will take - whether it will be a VAT or income tax hike (or a combination), for example. 

Spending cuts

Treasury has already cut budgets for housing and other services in this year, and has warned that government budget spending may be reduced by more than R120 billion over the next two years.  

Spending increases on social development (+2.6%), health (+3.1%), and learning and culture (+3.5%) will be below inflation in this period.  

In the civil service, some positions will be frozen and head counts in `non-critical areas` will be reduced, Treasury officials told News24. 

Big plans to shrink the state

In line with President Cyril Ramaphosa’s pledge in the State of the Nation address earlier this year, government departments and agencies will be reduced and merged, Treasury said, while `outdated and unproductive programmes` will be cut. 

More details will be announced at the February Budget.

New rules and a new Treasury agency for private investment

Treasury announced that it will change regulations and municipal legislation to make it easier for private companies and international finance institutions to invest in South African infrastructure projects, also on a local level. Private investment in electricity transmission infrastructure and upgrades to railway lines, among other projects, will be fast-tracked, said Finance Minister Enoch Godongwana.

The details will be announced in February, but officials say the changes will make it simpler for large international funders, like the so-called BRICS Bank, to allocate money for specific, ring-fenced projects. New mechanisms through which private-sector investors and multilateral institutions can co-invest with government for selected infrastructure projects will be created.

A new support agency will also be established in Treasury to manage a pipeline of projects. 

R350 grant lives on

The Covid-19 social relief of distress grant will be extended for another year until March 2025 at a cost of R34 billion, `while government considers social security policy reforms and a funding model`, Treasury said. It also announced that social grants will see inflation-linked increases in 2024/25 and 2025/26.

Stricter Eskom debt relief 

In February, Treasury announced that it will grant Eskom debt relief of R254 billion over the next two years, subject to certain conditions. But it has now decided to take a stricter liner on the arrangement, converting the loan from interest free to interest bearing `to better reflect the cost of this arrangement`.

New legislation, tabled on Wednesday, also stipulates that the minister of finance may reduce the amount of debt relief available to Eskom if it doesn’t meet conditions. 

Godongwana highlighted that one of these conditions, that Eskom still has to meet, is the sale of its finance company, which funded employee home loans.

Hard line on Transnet

In the next week, Transnet must repay R7 billion in loans to creditors. It doesn’t have the money, but Treasury is not going to provide any guarantees. Instead, it wants Transnet to come to an agreement with its creditors on its own.

While Transnet itself has indicated that it wants some R100 billion in debt relief and funding from Treasury, Godongwana told journalists that:

We are not closing the door (on Transnet), but even if we open it, it is not that wide open. 

No allocation for the NHI

There is no mention of new funding allocated for the National Health Insurance Programme but money will be shifted away from the existing NHI grant to cover oncology services. 

`If the national health insurance policy is implemented, then spending on public health could increase from about 4% of GDP in 2022/23 to 6% of GDP by 2040/41. This increase may require additional spending or revenue measures to ensure sustainability,` Treasury said in the Medium-Term Budget Policy Statement.

Fiscal anchors and debt ceiling

More than a decade ago Treasury introduced a ceiling on how much government can spend in a year. But this ceiling was not binding  and deficits and debt continued to grow. Treasury says additional rules will be introduced to provide an anchor for fiscal sustainability. Details will be provided in the 2024 Budget.

Progress with greylisting 

Godongwana said that the Financial Action Task Force (FATF) noted last week that South Africa has addressed 15 of the 20 technical deficiencies in its legal framework. `However, there is also a significant amount of work that must still be done, particularly with regard to the investigation and prosecution of complex money laundering cases and terror financing, the identification of informal mechanisms for remitting money around the world, and the recovery of the proceeds from crime and corruption.`

Government expects to address all the deficiencies identified by FATF by early 2025

A deplorable state of affairs: ConCourt slams Motsoaledi, MPs for stalling Immigration Act amendments

Inflation-stoking collapse in naira reaches new extremes

Inflation in Nigeria last month soared to 26.7 per cent, the highest level in two decades 

Nigeria’s currency has tumbled to record lows against the US dollar, putting further pressure on new president Bola Tinubu as he tries to reform Africa’s largest economy.

Tinubu took the reins in May, pledging to break with the policies of his predecessors and attract foreign investment to Nigeria. Allowing the naira to float more freely against the dollar was part of that agenda.

But the currency has been sliding ever since that break from the dollar in June. This week it slumped as low as N880 to the dollar on the official market, according to data from LSEG. This has bumped up the cost of crucial imports and helped to stoke inflation, while investors have yet to be persuaded by the reforms.

One big factor in the naira’s heavy decline is a scarcity of dollars, observers say. The Central Bank of Nigeria’s 2015 ban on certain companies accessing dollars pushed importers to the unofficial market and contributed to a “surplus demand for foreign exchange”, the CBN admitted this month.

The shift has led to dramatically weaker prices quoted on unofficial markets. On abokiFX, an online trading platform, the rate touched N1,290 to the dollar.

“Nigeria is a country in dire need of foreign exchange,” says Wilson Erumebor, a senior economist at the Nigerian Economic Summit Group think-tank.

“The policymakers need a clear-cut policy direction to attract forex into the economy. What’s happening with the currency lately shows how little confidence there is in the naira.”

Under Tinubu’s predecessor, Muhammadu Buhari, importers were barred from accessing dollars from the official market, in an effort to boost local production. Now, under new governor Olayemi Cardoso, a former Citi banker, the central bank is adopting a “willing-buyer and willing-seller” model where prices are determined by market forces.

But eliminating the peg in June led to the biggest single-day fall in the currency’s history. Partly as a result, inflation last month soared to 26.7 per cent, the highest level in two decades.

Charlie Robertson, head of macro strategy at FIM Partners, an asset management firm, said the currency fall made the government’s balancing act more difficult.

To ensure that foreigners and locals who hold dollars are incentivised to stay in Nigeria, they need attractive interest rates, he said. The CBN’s key lending rate is 18.75 per cent, lagging far behind inflation.

Line chart of Naira per US dollar showing Nigeria`s currency slides in the wake of radical economic reforms

But raising rates would push up interest costs, he warns. “Allowing naira depreciation without interest rates high enough to make the naira attractive, means the naira is likely to overshoot and become far too cheap and that hurts confidence.”

“Nigerians, let alone foreigners, don’t want to lose money owning naira when they make more in dollars buying Nigerian bank bonds,” he added.

Analysts and economists have warned the local foreign exchange market needs more dollars to calm the naira’s slide.

“There is too much demand but not enough supply,” one parallel market trader said. In the past the central bank may have intervened in the market but has not done so this time, the person, said, forcing everyone to scramble for dollars.

Capital importation into Nigeria fell by 33 per cent to $1.03bn in the second quarter of this year, compared with the same period last year, according to data from Financial Derivatives Company, a Lagos-based consultancy. “The inflow of dollars remains limited due to policy uncertainty and lingering security issues,” it said in a research note.

The average daily value traded in the Nigerian Autonomous Foreign Exchange Market  a central bank facility for investors and exporters to trade currency between themselves  dropped 22 per cent to $101.37mn this month in the second quarter of the year, data from FDC found.

Sources of foreign exchange remain elusive. The country’s largest source of dollars is selling oil but Nigeria is producing less than its daily Opec quota of 1.8mn barrels a day. The country has external reserves of $33.28bn, which has fallen month-on-month despite rising oil prices.

An oil-for-dollars scheme for NNPC, the state oil company, to receive $3bn from the African Export-Import Bank (Afrexim), was announced in August but the money has yet to materialise.

Finance minister Wale Edun said earlier this week the government had a “line of sight” on $10bn of inflows into Nigeria in the coming weeks without providing further details.

Many businesses say they have money stuck in Nigeria, with airlines being hardest hit. Nigeria tops the list of countries with trapped airline funds, according to a June report by the International Air Transport Association, with the west African nation accounting for $812.2mn of the $2.27bn trapped globally.

Erumebor said the weakening naira also showed that Nigeria’s low productivity and focus on oil remains a problem. “A falling naira should make exports competitive,” he said. “Nigeria should be leveraging exports to the rest of the world but it doesn’t make enough of anything to export.