The European Union on Wednesday warned countries running lucrative schemes granting passports and visas to rich foreigners to toughen checks on applicants amid concern they could be flouting security, money laundering and tax laws.
EU countries have welcomed in more than 6,000 new citizens and close to 100,000 new residents through golden passport and visa schemes over the past decade, attracting around 25 billion euros ($28 billion) in foreign direct investment, according to anti-corruption watchdogs Transparency International and Global Witness.
In a first-ever report on the schemes, the EU Commission said that such documents issued in one country can open a back door to citizenship or residency in all 28 states.
Justice Commissioner Vera Jurova said golden visas are the equivalent of "opening the golden gate to Europe for some privileged people."
"We want more guarantees related to security and anti-money laundering. We expect more transparency," she told reporters in Brussels.
Bulgaria, Cyprus and Malta offer passports to investors without any real connections to the countries or even the obligation to live there by paying between 800,000 and 2 million euros ($909,000 to $2.3 million).
Twenty EU states offer visas in exchange for investment: Britain, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, France, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia and Spain.
Investment can range from 13,500 euros to over 5 million euros ($15,350 to $5.7 million) in the form of capital and property investments, buying government bonds, one-time payments to the national budget or certain donations to charity.
Cyprus toughened up vetting procedures last year after it was accused of running a "passports-for-cash" scheme. It said passport numbers would be capped at 700 a year.
The Mediterranean island introduced the scheme in the wake of a 2013 financial crisis that brought the country to the brink of bankruptcy and forced it to accept a multibillion-euro rescue program from creditors. One Cyprus lawmaker has estimated that the scheme generated around 4.8 billion euros ($5.4 billion) between 2013 and 2016.
In compiling the report, Commission researchers struggled to obtain clear information about how the schemes are run, the number of applicants and where they come from, as well as how many are granted or refused visas. They noted that EU countries exchange little or no information about the applicants.
But the report did find that the security checks run on applicants are insufficient, and it recommends that EU computer databases like the one controlling Europe's passport-free travel area be used routinely. Tougher "due diligence" controls are also needed to ensure that money laundering rules are not circumvented, while more monitoring and reporting could help tackle tax evasion.
Migration Commissioner Dimitris Avramopoulos said the Commission "will monitor full compliance with EU law."
"The work we have done together over the past years in terms of increasing security, strengthening our borders and closing information gaps should not be jeopardized," he warned.
The Commission proposed setting up a working group with EU member countries to study the schemes by year's end.
The report angered Cyprus President Nicos Anastasiades, who underlined that, over the past five years, the number of citizenships granted by Cyprus under its scheme amounts to 0.3 percent of the EU's total.
He said that Cyprus has the toughest citizenship criteria among all 20 countries, "and despite this, Cyprus is being targeted."
"These double standards must finally come to an end and I want to be strict about this," Anastasiades said.
Malta welcomed the Commission report, but said it has "reservations on a few issues," notably that people it accepts under the schemes undergo far more rigorous checks than others granted residency or citizenship. It also underlined that physical presence in Malta is mandatory.
In reaction, the Government of Malta said it is pleased to note that the European Commission recognises the economic benefits of investment migration, a sector that has significantly boosted employment across the EU and beyond. Government endorses some of the key outcomes of the highly awaited report from the Commission to the European Parliament, The Council, The European Economic and Social Committee and The Committee of the Regions – Investor Citizenship and Residence Schemes in the European Union.
The report also raises a number of concerns and arguments on the Residency and Citizenship by Investment (RCBI) industry’s impact on the Union, focusing on the 20 Member States that offer investor citizenship and residency schemes in the EU. Malta agrees and supports many of the report’s recommendations, while having reservations on a few issues raised.
Constructive step towards coordinated action
Government said it welcomed the report as another constructive step towards coordinated action and standardisation in RCBI across the EU and agrees with the recommendation that there should be more cross-border cooperation when it comes to information sharing. Malta has been at the forefront of this and has constantly been advocating for further cross-country collaboration. Malta also recognises that this is beneficial to both the country and to the wider industry in general, and has been working on establishing cooperation mechanisms via various bilateral meetings and fora in this respect.
Concerns about security risks
The Maltese Government said it disagreed with the report’s statement that investor citizenship is granted under less stringent conditions than under ordinary naturalisation rights. Persons given residence and citizenship rights in the EU via other avenues, which on average is estimated to exceed four million a year (where in contrast RCBI beneficiaries represent a fraction of this figure), do not undergo the rigorous due diligence checks and investigations in place for RCBI applicants.
Another concern for the report is physical presence. Malta is one of the few jurisdictions where physical presence is mandatory and a residence status is required for a minimum of twelve months. Malta reiterates that a link to the country where naturalisation happens is an important element of the process. Moreover, other links with the community are established that attest the individual’s relationship with the state, namely travelling to Malta, business connections, donations to philanthropic causes, memberships in societies and other diverse activity.
Enhanced due diligence
Malta adopts one of the most stringent due diligence processes based on a strict 4-tier investigative procedure spanning over a number of months, which also results in the highest rejection rate in the industry, averaging 25% of all applications received compared to only 10% of other jurisdictions. This to ensure that applicants who make it through are those with a clean bill.
Malta’s due diligence process is considered by the industry as one to emulate – the ‘gold standard’. Checks using the EU’s centralised information systems mentioned in the report are part of the investigative process in place. MIIPA goes into a serious level of detail including the impact that an applicant has on their immediate network and society in general.
Malta agrees and supports the report’s call for a uniform process across countries, and is ready to share its experience and best practices it adopts, whilst maintaining an open mind to continue improving these due diligence processes.
Money laundering and tax evasion
The Malta programme adheres to the EU’s AML directives, also in place across other institutions as demanded via the local financial regulator, the government said Checks on the source of wealth are an elemental part of the investigative checks done on applicants, as are investigations of business connections, political affiliations and criminal court cases.
While reiterating that the Malta RCBI programmes do not offer any tax benefits, the main concern highlighted in the study points towards risk of circumventing Common Reporting Standard (CRS). Malta, as an EU member state, abides by the EU agreed directive on automatic mandatory disclosures.
Furthermore, Malta has not only cooperated in the discussion and compilation of information on such schemes, but also made a number of commitments to mitigate further any potential risks. This shows Malta’s commitment to ensuring that the Malta Programmes are not used for the purpose of circumventing the CRS. Malta also welcomes any additional mandatory disclosure obligations to come into effect in 2020 and in the same manner that it supports the exchange of information in other areas.
Transparency and governance
In its commitment towards transparency, Malta is one of few European countries that publishes the names of individuals who obtain citizenship. The nature of the due diligence checks is also public. Additionally, professional firms and practitioners who are members of professional bodies, and accredited to submit applications, give an additional layer of good governance. Malta is also the only country that has a Regulator which is another dedicated institution that monitors the governance of the programmes and agencies, and publishes additional statistical information yearly.
Conclusion
The Government of Malta said it welcomed the EU’s acknowledgement that the decision to naturalise citizens is the sovereign right of each member state. It is also clear from the report that Malta stands out as having a robust programme. Indeed, many of the criticisms levelled have, in fact, already been taken into account by Malta, with measures in place countering the lacunae mentioned in the report.
Malta’s programme has had a positive impact on the country by attracting a wealth of new talent and foreign direct investment from across the globe. During the first four years, the Individual Investor Programme generated an income of over €700 million, 70% of which will be reinvested in infrastructural and social projects for the benefit of current and future generations.
At a time when geopolitical volatility is high, Malta believes it can offer a second home to successful families where they can re-settle in a safe and stable country with opportunities to work, study and do business both in Malta and beyond.
As a proud member of the EU, Malta holds Union law in high regard and always acts in the spirit of good faith and will continue doing so. Malta welcomes the Union’s commitment to keep monitoring the sector and will support any action that strengthens the integrity of the industry. We look forward to continue working very closely with the Commission with an open mind and with the spirit of sincere cooperation to further improve the standards in this industry. The livelihood of many depends on it and Malta will continue to invest in all the necessary mitigating factors to ensure the sustainability of this dynamic economic sector.
The Maltese Government thanks the European Commission for the hard work and the great effort it has put in to understand this relatively new and emerging industry, and to contribute towards its integrity by making recommendations to member states.