Brussels-based website EUobserver.com has backtracked on a claim that government spokeman Kurt Farrugia did not exclude having more quotas over and above the 1,800 capping that has been established for the citizenship scheme.

PM Joseph Muscat has said the scheme will close once the 1,800 cap is reached. But when asked by EUobserver, his spokesman declined to rule out extra quotas in future, but the remark was withdrawn by the website soon after.

The scheme will provide money for a €1 billion investment fund in the tiny Mediterranean country, whose national budget is just €3 billion a year.

It will see Malta sell 1,800 passports for €650,000 each.

But every main applicant can buy additional passports for children up to 26 years old, for their spouse, and his or her spouse's parents and grandparents, for between €25,000 and €50,000 per head.

The newcomers will buy the right to freely travel, reside and work in all 28 EU states. They will also buy the right to enter 69 non-EU countries, including the US, with minimal security checks under Malta's visa-free travel pacts.

Several EU states have similar schemes, which require people to live there for a few years before they get citizenship.

But the new Maltese citizens will hardly have to set foot in the country to change their status, the EUObserver reports.

The rules oblige them to visit Malta to swear an "oath of allegiance." They also oblige them to buy or rent Maltese real estate and buy Maltese financial instruments, such as stocks or bonds, which might force them to visit two or three times more to sign related documents.

The new Maltese government, which took power last May, hired Henley to design the legal and administrative structures behind the project. It will also provide day-to-day services, such as marketing, and vetting of potential buyers.

In return, it will get a 4 percent cut of the €650,000, €50,000 and €25,000 passport fees.

Henley will also compete with other Malta-based agencies to process sales and plans to charge buyers €70,000 each for its services.

The set-up means that even if nobody adds on relatives, and even if Henley sells just 10 percent of the 1,800 places, the firm, which is based in Jersey, a British tax haven, stands to bring in some €60 million.

Farrugia told EU Observer that Malta is not doing it because it needs the money: "We have a strong economy. We're doing this to attract reputable people who can invest in the country."

Hugh Morshead, Henley's chairman, added that the 4 percent cut is justified because "we've done a lot of advising to the government in terms of the legal set-up, the promotion, and actually setting up our own office in Malta. We've done all this without being paid so far, so it's a commercial risk we've taken."

But the scheme is causing controversy in Brussels and in Valletta.

The European Parliament will hold a debate on it during the first plenary session of the new year. The Maltese parliament is holding a debate this week.

Neither the EU institutions nor the Maltese opposition can stop it from entering into life in February, as planned, however: There is no EU law against it and the opposition Nationalist Party is nine seats short of a majority.

Some opposition MPs say it makes Malta look like it has a financial crisis, or that it makes it look silly in its appeals for EU solidarity on African boat migrants.

Others are putting the spotlight on Henley's "conflict of interest."

Under the contract, a new Maltese body, Identity Malta, will have the final say on who is eligible to buy the passports. But it will do so on the basis of a "risk weighting assessment" filed by Henley after the firm does "due diligence" on each would-be client.

If Identity Malta says No, Henley does not get its 4 percent cut.

The set-up creates an incentive for positive risk assessments.

It is also likely to make buyers flock to Henley instead of to other approved agents in the hope that Henley will show favouritism to its clients.

"It's like giving a teacher a stack of exam papers to mark and saying: 'I'll give you €26,000 for every student who passes the exam'," Nationalist Party MP Jason Azzopardi told this website.

He added that the favourable terms of the Henley contract have stirred "mounting rumours" that it made financial contributions to Muscat's Labour Party before last year's elections.

"I don't have any proof of this. But there is a certain overzelaousness on the part of the government to accomodate Henley," Azzopardi said.

He noted that Henley also got the job of vetting the first batch of other Maltese agents entitled to process sales - an exercise which gives it access to commercially sensitive information on competitors.

He is calling on Muscat to publish the contract in full to allay suspicions.

The PM has declined to do so, saying it contains commercially privileged data on Henley. But his spokesman described Azzopardi's words as "mud-slinging."

"We could have directly awarded the contract to anyone we liked. But we chose an open, transparent, tender. There was a competitive process and ... the best company was chosen," Farrugia said.

Henley's Morshead noted the deal is also governed by British anti-corruption law: "There's a thing called the Bribery Act (in the UK) and I don't think we would want to fall foul of that."

He added that Henley's due diligence personnel and its sales staff are separated by a "Chinese wall."

"The people who will run things are in completely different locations. They won't fraternise. They can't talk to each other except through the medium of Identity Malta ... so there's no way we can show favouritism (to our clients)," he said.