Spain’s golden visa program has helped to attract thousands of affluent Latin American politicians and business owners to Madrid, but its days may be numbered, at least in its current form.
Former Mexican President Felipe Calderón Hinojosa has a major problem on his hands. On Tuesday (Feb 21), the man he handpicked to serve as public security minister for the entire duration of his presidency (2006-12), Genaro García Luna, was found guilty by a New York court of taking millions of dollars from Mexico’s biggest crime group, the Sinaloa drug cartel. García Luna is one of the highest-ranking Mexican officials ever to be convicted of having ties to drug trafficking.
Other figures close to Calderon, including Facunda Rosas and Luis Cárdenas Palomino, both senior civil servants during his presidency, have also been arrested in recent months.
Protecting Chapo Guzman
Now, the spotlight is on Calderón himself, who insists he had no idea his “super cop,” as he was wont to call García Luna, was involved with the same drug traffickers against whom Calderón declared war in 2007, with devastating consequences for the country. But in the trial against García Luna, one of the key witnesses for the prosecution, Edgar Veytia, a former attorney general and now-convicted drug trafficker, accused both García Luna and his boss, Calderon, of providing protection for Mexico’s apex drug trafficker Joaquín “El Chapo” Guzmán, then leader of the Sinaloa Cartel.
Since that revelation, more than 80% of Mexicans believe Calderón should also be investigated, according to a recent poll by Enkoll.
But Calderón is not in Mexico. He’s in Madrid, where, with a little help from his friend and former Spanish PM José María Aznar (the oft-forgotten third man of the Azores Summit), he qualified for a “golden visa” in October. To be eligible for the visa, Calderón was offered a job at Aznar’s think tank, the Atlantic Institute of Governance, whose “academic” board is filled with CEOs of some of Spain’s biggest corporations (Repsol, Telefonica, Endesa, Iberdrola, Mapfre, the now-defunct Abengoa…) and an assortment of neo-liberal politicians, current and former, from both sides of the Atlantic (Aznar himself, Ernesto Zedillo, Guillermo Lasso, Bill Richardson…).
Calderon is not the only former Mexican President to have sought, and been granted, Spanish residency in recent years. Enrique Peña Nieto (2012-2018), who is under investigation for money laundering and illicit enrichment and is embroiled in corruption scandals involving Spanish construction giant OHLA, is also in Madrid. So, too, is Carlos Salinas de Gortari (1988-94), who signed NAFTA and privatised and liberalized much of Mexico’s economy.
A Blessing for Madrid, a Curse for Latin America
Madrid is attracting affluent exiles from across Latin America more than ever before, many of them fleeing from left-leaning governments at home. And many of them are taking their money with them. This is one of the big curses of Latin America: wealthy families and businesses, who possess a huge chunk of the nations’ wealth, are always quick to move their money overseas whenever a government of even mild left-wing persuasion comes into power.
That can, in and of itself, be enough to trigger a financial crisis. It also deprives governments in the region of the ability to strengthen their fiscal position — something that is much needed right now.
Traditionally, Miami has provided an idyllic haven for Latin America’s rich and well-to-do and their money, as well as a perfect bolthole for the region’s plotters of failed coups (c/f Bolsonaro). But as the New York Times reported last April, Madrid has begun to give the “Magic City” a run for its money:
[W]ealthy Latin Americans have… begun shifting their money out of countries where voters have recently elected left-wing presidents, including Mexico in 2018, Peru last year and most recently Chile, where Gabriel Boric took office in March as the country’s youngest president. Mr. Boric has pledged to make Chilean society more egalitarian.
The response in Spain seems to have been to roll out the red carpet. When [Antonio Ledezma, a former mayor of Caracas,] arrived in Madrid in November 2017, he was welcomed by the prime minister of Spain at the time, Mariano Rajoy, who immediately offered him Spanish citizenship. Mr. Ledezma turned down the offer, but many other Latin Americans, particularly the rich, are applying for or have received Spanish citizenship. Some received a so-called golden visa that Spain has been granting in return for spending at least 500,000 euros, or about $550,000, on a property.
Some are even selling their property in Miami in order to buy one in Madrid. One of the Spanish capital’s biggest draws is its rich cultural offering. As one Argentine told the NYT: “In Madrid, I live near eight theaters, so I can see a different performance every week without taking a single taxi — and this kind of opportunity just doesn’t exist in Miami.”
Rajoy’s government launched the golden visa project, back in 2013. At that time, the economy was still on its knees following the sovereign debt crisis and bailout of the banking system. The initiative was ostensibly meant to lure entrepreneurs and international investors to the country, by offering a two-year residence to non-EU citizens who make a significant investment in Spain, by buying real estate worth at least €500,000, investing in a company or companies (€1 million), or creating employment opportunities.
Other European countries have offered similar arrangements, but none quite as vigorously as Spain. Between 2013 and 2018 alone, it granted more than 25,000 golden visas to investors and their families, according to a survey by Transparency International and Global Witness, bringing in almost €1 billion in investments per year. Spain accounted for roughly one in four of all golden visas dispensed by EU countries during that time. Since then, the number has continued to mushroom. In 2019 alone, Spain issued more than 8,000 of the documents.
In the early years, most applications for golden visas came from Russia and China. In recent times, however, it is Latino millionaires — mainly Mexicans, Venezuelans and Peruvians– who have taken advantage of the program, with most choosing to live in Madrid. As the NYT piece notes, the number of arrivals from other Latin American countries is also rising, with many apparently “worried about [the] ‘leftist politics’ sweeping the region”:
Colombia could become the latest to swing in that direction, with a presidential election in May in which the front-runner is Gustavo Petro, a leftist former mayor of the capital, Bogotá. Mr. Petro has a clear message for the rich: Pay more tax.
As readers well know, Colombia did indeed “swing in that direction.” As I wrote in A Political Earthquake Just Took Place in Latin America, Petro made history by becoming the country’s first left-wing president since Colombia won independence in 1819.
Early Signs of Exodus
Petro’s government did honor its pledge to raise income taxes on the more affluent as well as levy a wealth tax on the wealthiest, though the reforms were watered down on their way through the opposition-controlled Congress. Taxes on inheritance and dividends were also raised. As even BBC World noted (in Spanish) in November, Colombia is one of the most unequal countries in the world and its economic elite have for decades paid less in tax than their counterparts in most other Latin American countries.
Nonetheless, an exodus has begun. According to a report by the Center for Resources for Conlfict Analysis (Cerac), more than half a million Colombians emigrated last year — 2.7 times more than the annual average since 2012. An article in La Republica mentions two possible reasons for the dramatic increase: the sharp fall in the value of the Colombian peso last year, which has spurred many people, particularly at the lower end of the income scale, to look for work abroad in order to send remittances in a stronger currency home; and the “high levels of market risk,” which have had a detrimental effect on economic confidence in the country.
How many of those Colombians ended up moving to Spain is unclear, since the data for the full year is yet to be released. But in the first half of last year alone, during most of which time Petro’s election victory was far from certain, 60,000 Colombians settled in the country.
Thousands of upper and middle-class Argentines have also moved to Madrid in recent years. As a recent report in the Art Newspaper notes, “Most are met with open arms, both culturally—Latin Americans can naturalise easily into Spain due to a shared language and common ancestry—and financially: Madrid levies the lowest taxes of Spain’s 17 regional governments.”
In fact, an increasingly common complaint in the Spanish provinces is that Madrid’s regional government — the Comunidad de Madrid — is functioning as a tax haven within Spain itself, sucking up wealth and business activity from other regions. In 2021, even the OECD accused the government of operating as an “internal tax haven” that attracts rich taxpayers from across Spain by applying a 0% inheritance tax.
Side Effects
But while the golden visa program may bring significant investment into Madrid, particularly its property sector, it has serious side effects. For a start, it is driving up property prices in the capital. The golden visas can also become a magnet for corrupt politicians and businessmen. A 2018 report by Transparency International and Global Witness warned that golden visa programs allow corrupt non-EU citizens to avoid suspicion from global banks — thanks to the added security offered by European passports — as well as escape from justice in their countries of origin more easily.
In 2020, the European Commission called on EU Member States to closely monitor these visas due to “the risks” that “lack of control” over the influx of capital could imply for the bloc. Those risks, it said, include “security risks, money laundering, corruption, circumvention of EU rules and tax evasion.”
After almost a decade in force, Spain’s “Golden Visa” may have its days numbered anyway, at least in its current form. Más País, a left-leaning party led by former Podemos star, Iñigo Errejón, has presented a bill in Congress to eliminate golden visas for non-EU citizens who buy a homes worth at least 500,000 euros, which is how 90% of golden visas are currently acquired in Spain.
But even if the bill passes, Latin America’s super rich will still be able to buy golden visas in Spain; they will just have to do so by investing at least €2 million in government debt securities or at least €1 million in shares of publicly listed companies. Opening a €1 million account with a Spanish bank will also suffice.