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Latvia To Limit Schengen Visa Rights For Foreign Investors

A car with Russian plates in the courtyard of an apartment complex in Riga. Critics fear much of the money from the visa scheme ends up in Russia or other countries.
A car with Russian plates in the courtyard of an apartment complex in Riga. Critics fear much of the money from the visa scheme ends up in Russia or other countries.
For three years wealthy Russians, Chinese, Kazakhs, and others seeking the visa-free travel rights of Europe's Schengen zone have been buying the privilege by investing at least 71,000 euros ($96,000) in Latvia.

Riga launched its residency-permit program in 2010 amid an economic crisis to breathe life into its troubled housing and construction sectors, which weighed heavily on Latvian banks' balance sheets.

But now, with the economy stabilized and Latvia preparing to adopt the euro in January, there are divisions within Prime Minister Valdis Dombrovskis's coalition about whether the program should continue.

Dombrovskis says his coalition agreed on the issue during negotiations on Latvia's 2014 budget.

Coalition members say the quotas will begin next year for foreigners seeking Latvian residency permits in exchange for real estate investments. Latvia's Economy Ministry recommends an annual limit of 900 people, but the amount is yet to be determined.

Other countries, including the United States, Australia, and Canada, also offer residency permits to large-scale investors. But in Latvia, where a residency permit also gives recipients the ability to travel freely throughout much of the European Union, the program has been controversial.

Latvia's legal loophole into the Schengen area is used primarily by wealthy Russian and Chinese citizens and, to a lesser extent, by Ukrainians, Kazakhs, and investors from other former Soviet republics.

'A Lot Of Money'

The stakes are too high -- with powerful political and business interests involved -- for the government to end the program outright, says Dinars Berzins, a manager at Arco, Latvia's largest real estate agency. "I think it will never happen. Not in the next year," he says. "That's a stupid idea, because they are investing a lot of money here. Really a lot. So that's speeding up the economy right now. That's good."

Under current monitoring, participants need only stay in Latvia one day a year to maintain residency. That's why Riga real estate agents casually refer to the program as "buying permission" to stay anywhere in the Schengen area.

Berzins calls it a "bonus" for investors from non-Schengen countries -- attracting many to development projects like the seaside resorts of Jurmala, near Riga.

"In Jurmala right now -- that's the city by the sea -- they are building a lot of buildings just for [investors in the residency program.] Nobody else can afford those buildings," Berzins says.

"It depends, of course, on who buys the permission here. If they are buying a really exclusive apartment or a villa and living by themselves there, they are coming at Christmas, or maybe during the summer just for a month. Only a few times a year," he adds. "But if they are buying just to get that permission, of course they are renting it out."

A government report says more than 7,000 investors -- mostly Russians -- have obtained Latvian residency since the program began. About 98 percent of those who apply are approved.

The report says the program has attracted more than 600 million euros ($813 million) since its inception. The Deloitte consulting and accounting firm estimates it could attract 1.7 billion euros ($2.3 billion) by 2015.

But Where Does The Money Go?

Other Riga real estate agents tell RFE/RL their clients often use Latvian residency permits to live in other Schengen countries. Italy and France are the most popular destinations.

One example is Alma Shalabaeva, the wife of fugitive Kazakh banker Mukhtar Ablyazov, who is sought by Kazakhstan in an alleged multibillion-dollar bank fraud. Italian police raided the couple's Rome house in May, deporting Shalabaeva and her daughter back to Kazakhstan. They'd been living in Italy on Latvian residency permits.

Roberts Zile, a European member of parliament, says Shalabaeva's case is just one example of how Latvia's reputation is being damaged. Zile also leads Latvia's conservative For Fatherland and Freedom wing of the National Alliance, a party within Dombrovskis governing coalition that wants the program to end.

The residency program boosted Latvia's economic growth when it began in 2010. But Zile says that growth is no longer sustainable because investors have set up shadowy ways to send the money back out of the country.

"Talking about investment, there are very significant doubts [about] who is selling those properties, who are the developers, and where this money is going," Zile says.

"Sometimes we feel that the companies selling or developing those properties for third-country nationals -- let's say, in Moscow -- belong also to Russian citizens. That's why this money is just going to be transferred [out of Latvia]," he continues. "Somebody [in Latvia] is just going to take some commission, particularly those local development companies that are working like smugglers."

Other critics warn that Latvia is getting a reputation as a new center for money laundering, something European institutions have repeatedly criticized Riga for failing to combat.

RFE/RL has been declared an "undesirable organization" by the Russian government.

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