Relaxing the "cash for residency" programme could create a national security risk, the Latvian ministry of defence claimed on February 10, as it stepped into the ongoing debate over dropping the threshold on the controversial scheme.

Just a year after the Latvian cash for residency scheme was tightened, by raising the threshold from as little as €70,000 to €250,000 for real estate purchases, a debate has been pushed by some MPs calling for a return to the lower threshold required to apply for a residency permit.

The Latvian parliament – which has the power to change the rules of the scheme - is divided on the issue. The right-wing coalition party National Alliance is calling for the scheme to be scrapped altogether, while other parties defend the scheme for bringing cash into Latvian economy. 

Who precisely is behind the lobbying campaign is unclear, though it is believed that local banks specializing in non-resident deposit accounts are heavily involved. Latvian banks have long been warned over the high ratio of deposits stemming from Russia and other CIS countries in the system. They are regularly mentioned in relation to questionable money flows originating in the region also.

The debate comes as Riga casts a wary eye across the border to Russia and its support of rebels in eastern Ukraine. The country has a large ethinc Russian minority that Moscow regularly complains is ill-treated. Meanwhile, Latvia also currently holds the rotating EU presidency.

The ministry of defence insisted on February 10 that making residency permits cheaper to obtain would create security risks, because of the authorities' limited capacity to check on incoming foreign nationals.

“With sanctions and travel bans taking a toll on the Russian elite, there is also the possibility that a revised scheme might offer a way to circumvent sanctions for high-net-worth individuals,” the ministry stated, as reported Latvia’s public media on February 10.

The cash for residency programme drew criticism as soon as it entered into force in 2010 due to its potential to attract non-European Union citizens who, once in possession of a residency permit, are eligible for a Schengen visa that allows free travel across the bloc.

The scheme grants a residency permit in return for a €35,000 investment into a Latvian company, or a €300,000 bank deposit or bond purchase. Most reports on the program claim, however, that the most popular route is via real estate purchases.

According to the ministry of defence, not only is there limited capacity to check on applicants to the programme, but also the programme’s alleged economic gains are not worth the risk.

The promise of foreigners bringing in cash into the real estate sector or starting businesses in return for an EU member state residency permit are “vague” and the Latvian economy would be much better off if it focused on effective use of €4.5bn of EU cohesion funds coming in to the country in the next few years, the ministry insists.