The Investment Migration Council's latest report examines Hungary's residency bond programme.

There are strong indications that Hungary's residency bond programme does not aid the country's economy but is instead used to benefit numerous politically influential individuals and their affiliated companies, according to the Investment Migration Council's latest report.

Transparency International's Corruption Perception Index ranked Hungary 51st out of the 168 countries assessed.

There are grounds to believe that the national framework in which investors are rewarded with a passport for their financial contributions - also known as the market for golden visas - has fallen victim to the party state capture of Hungary as the system is controlled by a few members of the Hungarian Parliament, according to IMC.

The investment migration programme cannot be justified by the state's economic interests as it does not generate investment into the economy or produce jobs, both of which are supposedly the key aims of the scheme, the IMC said in its report. Instead, the real beneficiaries are companies domiciled predominantly offshore, which enjoy monopolies over their respective geographical areas to act as mediators between the investors and the government debt management agency. The IMC said these investors do not buy state bonds, but securities of designated private companies, and therefore do not receive the protections offered to investors of Hungarian state bonds. 

Overall, the programme lacks transparency at “many points”, including the beneficial owners mediating the above 'designated' companies, the IMC said.

WealthBriefing recently sat down with the co-authors of the report to discuss the potential backlash of this seemingly corrupt scheme.

“The scheme undermines the industry and throws a shadow over similar schemes in other jurisdictions,” said Dimitry Kochenov and Boldizsár Nagy, co-authors of the report, adding: “The scheme is built on rotten foundations; it should have been impact assessed and publicly debated but this didn't happen.”

The pair explained that, ultimately, Hungarian tax payers end up taking the hit as there is “no benefit to the country's tax regime” as the companies are not registered in Hungary. “The only realistic solution is self-regulation,” explained Kochenov and Nagy, as the current “Hungarian rules don't fit into a decent concept of law”.

The IMC's report suggests that the selection process of designated companies is an “open invitation to corruption”, as the application procedure is controlled by a committee of the parliament and “lies outside normal administrative law”. Instead of benefiting the Hungarian economy, the immigration investment programme functions as a “loosely-controlled back door into the Schengen area, as well as an income generator for five unnamed private companies.