As an introduction, investor citizenship schemes, or "golden passport" schemes, allow any wealthy person to acquire a new nationality based on payment or investment and in most cases in the absence of a genuine link with the country.

These schemes are different to investor residence schemes (or "golden visas"), which allow third-country nationals, subject to certain conditions, to obtain a residence permit to live in an EU country (Malta provides both). Moreover, for a while, Malta's main competitor remains Turkey. The latter has recently increased its application fee to $400,000, while the average timeframe has increased by 152 days with a possibility of minimum investment to return to $1 million.

As a general rule, the conditions for obtaining and forfeiting national citizenship are regulated by the national law of each member state, subject to due respect for EU law. As nationality of a member state is the only precondition for EU citizenship, and subsequent access to rights conferred by the Treaties, the Commission has been closely monitoring investor schemes which facilitates a nationality of member states.

So far, Malta was able to raise €1.4 billion since 2015 by enticing investment in exchange for passports. Such a treasure chest helped Castille finance the heavy cost of furlough subsidies during the two years of the pandemic. Originally launched in 2014 as the Individual Investor Programme (IIP), the scheme has since granted citizenship to a significant number of applicants, many of whom were attracted through international conferences organised by Henley & Partners and frequently addressed by Joseph Muscat (see picture).

At the end of 2020, Malta revised the scheme, after the original one came close to reaching its limit of 1,800 successful main applicants. Many discovered that the scheme abused of the principle that nationality can be awarded systematically, in return for pre-determined payments, without having to establish any permanent link between the applicant and Malta.

A fund styled National Development and Social Fund was set up in 2015, administering a percentage of the revenue generated from passport sales. This saga was promoted by a sole concessionaire Henley & Partners who took a cut from proceeds of successful applicants. All other local agents, who paid a license fee, shared no percentage of passport revenue.

Henley & Partners said in a statement to BBC News, it was "fully aware of the potential inherent risks in handling client applications for residence and citizenship" and was committed to perform due diligence.

Wealthy Russian, Indian and Chinese citizens have been major beneficiaries of the scheme. According to a revised scheme, it will be limited to no more than 400 successful candidates per year. Other member states, such as Bulgaria and Cyprus, have also come under pressure from Brussels for similar practices and dropped them. Also, Ireland and Portugal closed their popular golden visa schemes thus leaving Malta as the only member state still offering "golden passports and visas".

What are the basic requirements for the golden passport scheme? Essentially, investors must be over 18 years, with a minimum contribution of €600,000 to the state but they must reside for a minimum period of 36 months or pay a higher €750,000 for a minimum of 12 months. Successful applicants need to purchase property of €700,000 or rent one for a minimum of €16,000 annually.

A voluntary donation of €10,000 to sport, cultural or NGOs is recommended. The fly in the ointment is that the European Commission has requested Castille to scrap the scheme. This was not acceded to by Malta, so the Commission proceeded to refer it to the European Court of Justice. Leaked documents show some investors met the one-year residence requirement by renting empty and unfinished properties in Gozo. The EU has repeatedly raised concerns over "golden passport" schemes in Malta, Cyprus and elsewhere.

It objected saying the golden passports scheme does not create any genuine link and is not compatible with the principle of sincere cooperation enshrined in Article 4(3) of the Treaty and with the concept of Union citizenship, as provided for in article 20 of the Treaty on the Functioning of the European Union.

On 6 April 2022, the Commission sent a reasoned opinion to Malta. Malta's reply did not satisfactorily address the concerns raised by the Commission. The EU noted that investor citizenship schemes carried "inherent" security issues, as well as risks of money laundering, tax evasion and corruption. The Home Affairs Ministry, which oversees the scheme disagreed. It said granting of citizenship falls within the national competence of a member state, adding that "it should remain as such".

At the outbreak of the Ukraine invasion, Malta promptly suspended the scheme for Russian and Belarusian nationals alongside Cyprus, ever so popular among rich Russians, and stopped processing applications as of 15 October 2021. Cyprus unilaterally revoked the citizenship of 39 investors. On 24 March 2022, the Bulgarian Parliament approved an amendment to the Bulgarian Citizenship Act, which aims to end the investor citizenship scheme.

Why is there this sudden impetus to harangue Malta over its popular scheme? The answer is that most investor citizenship schemes undermine the essence of EU citizenship and have implications for the Union as a whole. Every person that holds the nationality of a member state is at the same time an EU citizen.

EU citizenship automatically gives the right to free movement, access to the EU internal market, and the right to vote and be elected in European and local elections. The Commission stressed that member states operating investor citizenship schemes need to terminate them immediately. The popularity of Malta's scheme was highlighted by licensed agents who actively sold them to applicants. It argued strongly that Malta has a sovereign right over issue of its passports. This principle was confirmed by the opinion of Advocate General Anthony Michael Collins, published on 4 October 2024, who also concluded that there was no case against Malta. Finally, the saga of the "golden passports" has been decided by the EU Court of Justice which decided this week that the scheme violates EU law. In the decision, the court found that the acquisition of EU citizenship cannot result from a commercial transaction.

European Parliament president Roberta Metsola said the court has established what we have always known: the acquisition of EU citizenship cannot result from a commercial transaction without a genuine link established in Malta by applicants. The government said it remains committed to continuing to attract the best investment.

George M. Mangion is a senior partner at PKF Malta

gmm@pkfmalta.com