Explainer: The European Commission takes action against golden passports

On October 20, the European Commission launched an infringement procedure against Cyprus and Malta over so-called “golden passport” schemes, in which individuals can get a fast track to citizenship after investing between € 1 and 2.5 million in the countries’ economies.

This practice has been lucrative for both governments. Since 2013, Cyprus raised € 4.8 billion, amounting to 5% of its GDP, by selling thousands of passports to foreign investors. Malta gained about € 718 million in this manner in foreign direct investment since 2014.

This infringement procedure follows years of criticism by the Commission and other EU institutions, as well as media reporting on the abuse of these schemes. Luise Quaritsch answers our questions on this procedure.

Why does the European Commission consider the Cyprus and Malta policies illegal?

The Commission argues that golden passports violate EU law because these schemes, in essence, “sell” citizenship in exchange for a pre-determined payment or investment. This in turn undermines the integrity of the status of EU citizenship and is incompatible with the principle of sincere cooperation between the EU and member states.

In addition, journalists revealed that high-profile criminals were able to obtain Cypriot passports. The Commission argues that this represents a security threat for the EU as a whole, and increases the risk of money laundering, tax evasion and corruption.

Many countries have investment schemes to attract foreign investors. Why did the Commission single out Cyprus and Malta?

Cyprus and Malta are not the only countries that have put a price tag on their citizenship. The Commission also addressed Bulgaria when it started its infringement action against Cyprus and Malta. In a letter to the Bulgarian government, it stated its concerns over the country’s investor citizenship scheme and requested further information from Sofia.

The requirements for obtaining a golden passport from Bulgaria are largely the same as in Cyprus and Malta. However, the major difference appears to be the scale of the scheme: while Cyprus awarded almost 3000 citizenships between 2013 and 2017, Bulgaria granted only 16 between 2013 and 2018.

Bulgaria’s government now has one month to reply to the Commission’s letter. The Commission will then decide on next steps.

In addition to golden passport schemes, the Commission monitors residence investment schemes, also called “golden visas”. Under these schemes, individuals can obtain a residence permit in exchange for investments such as buying property. In a report published in 2019, the Commission criticised the schemes, which are especially popular in Spain, Hungary, Latvia and Portugal.

Individual countries are responsible for citizenship. Why is the Commission acting on this?

EU citizenship comes with an attractive set of rights, such as the right to move freely and work in any EU country. When countries like Cyprus and Malta grant their citizenship to third-country nationals, they simultaneously confer the rights of EU citizenship. This means that they are also de facto defining the rules to obtain EU citizenship.

The Commission argues that in Cyprus and Malta, the lax immigration requirements do not protect the Union’s interest. Without ensuring individuals applying for citizenship have a genuine connection to their countries – an internationally recognized legal standard for citizenship – they have been taking risks for the EU as a whole.

For example, many of the new owners of a Cypriot passport sought to evade criminal prosecution in their home countries. Mykola Zlochevsky, the owner of the Burisma energy company who is wanted in Ukraine, obtained his passport in 2017. At the time, he was already under investigation in Ukraine for corruption where he offered prosecutors a $ 6 million bribe in cash.

Not only were the lax requirements to “buy” citizenship in Cyprus and Malta legally and morally questionable, in practice, these schemes were also a harbour of corruption. Anyone willing to pay for it could get a passport with no difficulty. The most direct result of this is to give access to the EU to wealthy people evading criminal charges at home.

What are the next steps in the infringement procedure? 

A week before the Commission started the infringement procedure, Cyprus announced it would end the Cyprus Investment Programme on 1 November 2020. The country’s attorney general started a criminal investigation into the scheme and a few passports have already been revoked. However, both Cyprus and Malta made clear that they intend to continue these schemes in some form. With its infringement action, the Commission seeks to deter the two countries from merely replacing their current schemes.

Cyprus and Malta now have two months to respond to the Commission’s infringement action. After that, the Commission could decide to take the case to the European Court of Justice, the highest court of the EU. If the court finds the member state to be violating EU law, it can ultimately impose financial penalties.

Source: democracy-reporting.org
Published: 5 November 2020

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