Maha Shafqat

Introduction

The European Union (EU) has expressed its disfavor towards Citizenship by Investment (CBI) programs, which allow individuals to attain citizenship of a country through substantial investments. Despite their increasing popularity in recent years and the closure of two popular European CBI programs, Malta is still offering a CBI program in defiance of the EU’s objections. The EU’s disapproval of CBI Programs has been a topic of much discussion in political circles due to its potential consequences on the integrity of EU citizenship.

The selection of investment or donation as a means of acquiring the citizenship of a Member State is considered a valid option under both international and EU laws. However, CBI programs have drawn criticism due to their exclusive nature, limited only to wealthy individuals and those who may have obtained their wealth through illicit means. Additionally, there are concerns that these programs may enable tax evasion. In Europe, the acquisition of nationality through CBI programs poses a significant challenge, as it results in the acquisition of EU citizenship. This acquisition is not only a matter of concern for the Member State granting the citizenship but for all other Member States as well. These states are obligated to recognize the acquisition and grant the naturalized individuals their EU rights, including the right to reside and enter their territory, with the exception being if the acquisition goes against international or EU laws.

EU’s Criticism of CBI Programs

The EU has expressed its criticism towards CBI programs for several reasons. Firstly, they may provide avenues for money laundering and other illicit activities. Secondly, CBI programs may enable individuals to circumvent immigration laws and gain access to the EU without proper background checks. Lastly, these programs may compromise the sanctity of EU citizenship by allowing individuals to obtain it without any genuine connection to the country. The CBI programs primarily entail the waiver of certain naturalization requirements such as language and integration tests, renunciation of original nationality, reduced residency period prior to naturalization, or complete elimination of the residency requirement.

In November 2020, the European Commission put forth new regulations to govern CBI programs, incorporating stricter evaluations of the source of funds invested, as well as more thorough background investigations on applicants. The Commission also suggested the creation of a new EU-wide database to exchange information on CBI applicants and mandatory notification to other EU member states when granting citizenship. The suspension or termination of CBI programs has been observed in various EU countries, with the most recent being Cyprus and Bulgaria. 

Malta’s CBI Program

Currently, Malta remains the sole EU member state offering a CBI program, however, a number of other countries have implemented programs that sell golden visa residency by investment programs, leading to citizenship. During the COVID-19 crisis, the Maltese government utilized the revenue generated by the sale of passports, which exceeded 800 million euros between 2014 and 2020, to support the salaries of its workers.

The sale of passports in Malta attracted a majority of investors from Russia, the Far East, and the GCC. The European Commission considered the scheme to be non-compliant with EU law as citizenship was granted without any actual requirement for the beneficiaries to reside in the country. In response, the Malta Home Affairs Ministry stated that it does not believe the scheme to be in violation of the principle of sincere cooperation as outlined in Article 4 (3) of the Treaty of the European Union. 

EU’s Disapproval of CBI Programs

The European Union has voiced opposition to Citizenship by Investment programs offered by member states, citing concerns over the integrity of EU citizenship and incompatibility with EU values. Malta, with one of the most established CBI programs, has faced severe criticism and a resolution by the European Parliament calling for its termination. Despite claims that CBI programs can provide economic benefits, the EU considers the associated risks to outweigh any potential gain, and is dedicated to preserving the principle that EU citizenship cannot be bought, but only earned through a genuine connection to a member state. The EU alleges that Malta is violating EU law and has decided to take the matter to the European Court of Justice regarding the passport scheme. Should the European Court of Justice make a ruling against Malta, the country will incur significant fines for failing to meet its obligations.

Investment Migration & EU’s campaign against Money Laundering

Small states have a clear interest in investment migration due to the significant financial contributions that CBI applicants must make to the state’s economy and budget. The primary advantage of acquiring a second nationality for investors is often not the right to reside in the new country, but the access to visa-free travel to many other countries, particularly when acquiring the nationality of an EU member state. In this case, the investor not only gains visa-free travel to a large number of states but also acquires EU citizenship and the right to live in all other EU member states, making an investment in a visa-free EU state compelling.

At the end of 2019, the Commission exerted pressure on Malta and Cyprus to address money laundering, corruption, and tax evasion associated with CBI. This campaign was a direct result of the European Central Bank’s private decision that required Malta’s largest bank, Bank of Valetta, to take corrective action after an inspection revealed severe shortcomings that could lead to money laundering or other criminal activities. 

EU Member States’ Obligations under EU and International Law

However, Member States’ autonomy in nationality matters does not exempt them from other obligations under EU or international law, including the prevention of tax evasion and corruption. Therefore, deficiencies in the naturalization process of CBI do not undermine the principled autonomy of Member States to determine the links relevant to granting citizenship. The Directive 2004/38 allows Member States to deny entry and residence in certain circumstances. The Commission asserts in its 2019 Report that sincere cooperation could be violated if a Member State grants nationality without a genuine connection to the country or its citizens.

Conclusion

In summary, the EU has expressed strong opposition to citizenship by investment programs due to the associated risks of money laundering and illegal activities, as well as their potential to undermine the integrity of EU citizenship. The EU has proposed new regulations to govern these programs and called on member states to end them. Member States also have the authority to refuse entry and residence in certain cases. However, it should be noted that these programs are typically operated on a small scale and that several other Member States also offer privileged naturalization in the national interest. The main legal argument against these programs is the lack of a genuine link to the naturalizing Member State, but a genuine link is not a requirement for nationality under international or EU law. Moreover, other grounds for naturalization exist for persons lacking a genuine link, such as jus sanguinis or fast-track naturalizations for co-ethnics. Objections to these programs are largely driven by fears of tax evasion and acquisition of EU citizenship by problematic individuals. As long as these programs are conducted with due diligence and on a small scale, such fears are unsubstantiated.