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Investor Visas in the EU: a Golden Ticket to Union Protection?

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About The Author

Maya Moss (Regular Writer)

Maya holds an LLB from Durham University and recently completed an LLM in European Law at the University of Edinburgh. Her main interests lie in constitutional and European law, and issues of civil and political rights. A hopeless foodie, she enjoys listening to jazz and spouting useless Harry Potter trivia.

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Wealth is the ability to fully experience life.

Henry David Thoreau

While a given for those living within its borders, the protection, rights, and freedoms offered by the European Union is attractive to many outside the reach of its law. Despite various efforts by the EU to regulate those who may enter its realm, many Member States offer a nationally lucrative option for wealthy third country nationals: investor residency or citizenship schemes.

These schemes, which exist in different formats within 20 Member States, allow third country nationals to gain residency or citizenship on the basis of an investment in the relevant Member State. This includes several countries within the Schengen visa area.

The EU has expressed unease about these schemes on numerous occasions, particularly with regard to internal security, money laundering, and tax evasion. Quite apart from these specific concerns, an overarching consequence of these schemes may be the erosion of the integrity of EU citizenship. As Union citizenship is an automatic consequence of Member State citizenship, investors may be able to ‘purchase’ Union citizenship as a result of these schemes bypassing requirements which any other entrant would be required to fulfil.

What, When, and How?

20 of the current 28 Member States offer investor visas or investor citizenship to foreign investors. Three of these – Cyprus, Malta and Bulgaria – offer citizenship in return for investments of various sizes and configurations. As is settled EU law, however, national citizenship in one or more Member States results automatically in EU citizenship as well. In 2014, the European Parliament highlighted the fact that these schemes involve essentially the sale of citizenship, a practice which ‘undermines the very concept of European citizenship’.

In January 2019, the Commission published a report on ‘Investor Citizenship and Residence Schemes in the European Union’ (‘the Report’), bringing to the forefront concerns surrounding these schemes. The Report focuses primarily on risks regarding security, money laundering, tax evasion, and corruption. Of particular note in the Report are the three Member States which offer citizenship in return for investment.

Investor Citizenship

The three countries which offer investor citizenship have similar but distinct systems of doing so:

  • Bulgaria: the applicant must invest at least €1million overall, and have resided permanently for one year in a fast track option;
  • Cyprus: the applicant must invest at least €2million, own property in Cyprus, and hold a residence permit for six months before naturalisation is possible;
  • Malta: the applicant must invest at least €650,000 into a national investment fund, make a further €150,000 general investment, own or rent property in Malta, and possess an e-residence card for 12 months.

Investor Residence

The Report suggests that the 2007 financial crisis led to a surge in investor residence schemes to aid Member States in their recovery.  These schemes vary greatly, particularly in size – between €100,000 and €5million – and type of the required investment, ranging from capital investment, to investment in Government bonds, or singular contributions to the Member State budget.

Summary of Commission concerns

In its Report, the Commission detailed numerous concerns with the practice of ‘golden visas’, arising specifically from the nature of the Union.

Firstly, for various reasons, the Commission proposes that these schemes may have serious security implications. They may violate the Long-Term Residence Directive on family reunification, as in many Member States family members of investors are not subject to enhanced due diligence. Additionally, it notes that not all investments are made legitimately, stating that investors may be attempting to evade law enforcement and prosecution in their home countries. Investor citizenship may also allow third-country nationals to avoid otherwise standard security checks via, for example, the Visa Information System (VIS) and Eurodac. This is particularly problematic when it occurs within Schengen, which lacks internal border checks.

The Report notes that the Member States offering investor citizenship do conduct certain criminality checks, and some consult INTERPOL and Europol. However, national authorities might still allow requests for naturalisation, even if applicants ‘do not meet certain security requirements’.

Another significant concern is that of money laundering. The Commission advises Member States to ‘devote particular attention to enhanced customer due diligence’ as concerns these schemes to ensure that EU rules on anti-money laundering are not circumvented. Given the magnitude of possible investments under these schemes, Member States ought to pay close attention to the circumstances of these investments. Transparency International has noted that between 2008 and 2015, the UK Tier 1 Investment Visa operated a ‘blind faith’ period, seeing 3000 high net worth individuals entering the EU with funds considered of ‘questionable legitimacy’. Although this scheme has been reformed and previous visas are being reviewed, it demonstrates the potential ease with which such investors may enter and remain in the EU.

In this regard the Commission adds comments on possible tax evasion. Certain schemes make it particularly difficult to identify legitimate tax residence, with information being sent to the wrong state. Particularly states with low taxation rates carry a risk of individuals hiding their real state of residence. The Directive on Administrative Cooperation from 2018 contains, in this regard, a reporting obligation to counter arrangements which ‘undermine or exploit weaknesses in the due diligence procedures’ in reporting information to tax authorities. The OECD, too, has reported that documentation obtained through investment schemes are liable to being misused or to misrepresent tax residence. Both Malta and Cyprus were identified by the OECD as having schemes which posed a high risk to the ‘effective implementation of the Common Reporting Standard’.

Under none of these schemes is ‘comprehensive information’ about the identity of successful applicants available.

Wider issues: citizenship on sale?

The concerns listed by the Commission are especially sensitive and may carry great risks for the Union. Apart from these specific concerns, there is potentially a wider problem arising as a direct result of the acquisition of Member State citizenship. While this remains at the discretion of each Member State, it has implications for the Union given the nature and scope of European citizenship. The Commission tweeted in conjunction with its Report that ‘EU citizenship is not something you can buy – it is something you have to earn’. On the contrary, the European Parliament has characterised investor citizenship schemes as the ‘direct or indirect outright sale of EU citizenship’, with the implication that those naturalising through such means have not in fact ‘earned’ their EU citizenship.

EU citizenship was introduced in the Maastricht Treaty in 1992, and has been the subject of a multitude of ECJ cases. The Court of Justice famously declared that EU citizenship would become the ‘fundamental status’ of all Member State citizens, cementing its place as an important part of European law and identity. It is also EU citizenship which defines many of the rights awarded to those holding citizenship status, and has consistently been interpreted in an expansive manner by the Court so as to offer wide protection, as previously argued by this author elsewhere. For this reason, the potentially haphazard acquisition of EU citizenship may detrimentally affect the reputation of this status.

Malta, one of the EU Member States which offer investor citizenship, has claimed that their visa schemes are designed to ‘attract families who become proud Maltese citizens’, as opposed to a money-making scheme. It is worth noting, however, that Malta also advertises these schemes online by highlighting that Maltese citizenship includes EU citizenship, giving an individual right of establishment throughout the Union. Global Witness, too, has noted that such schemes are particularly appealing in the EU, as it gives an individual ‘free reign to move throughout the EU’; 28 for the price of 1.

It is important to note in this regard how wide-spread this practice is. Transparency International and Global Witness reported that in the last decade, such schemes have allowed for over 6000 new citizens and nearly 100,000 new residents to enter the EU. For context, a total of 994,800 people obtained EU citizenship in 2016. Although it is a relatively small proportion of the total number, obtaining permanent residence is generally a first step in obtaining citizenship. Additionally, even a small number of people may pose a security risk and undermine the notion of EU citizenship generally. Almost €25 billion in foreign investment has entered the EU over the last ten years, and Cyprus, for example, introduced its investor citizenship scheme ‘in the context of a severe economic crisis’; suggestions that such investments are not for the purpose of bolstering the national economy now appears ludicrous.

From the point of view of EU citizenship, this is problematic for numerous reasons. Firstly, it undermines the integrity of EU citizenship as a status by allowing certain groups of people to access these rights based almost exclusively on a monetary contribution. Secondly, and relatedly, it brings the acquisition of citizenship through such means down to the lowest common denominator; clearly the Member State with the most relaxed rules on investor citizenship are most attractive. Thirdly, it undermines the national contribution of those third-country nationals who in good faith fulfil naturalisation requirements through regular means. From an economic perspective this behaviour is understandable, but the possibility of purchasing citizenship flies in the face of the principles and standards the EU claims to represent.

Conclusion – What next?

The Commission is clearly angling for stricter regulation and control as regards investor visas and citizenship. This includes the publishing of data on received applications, country of origin of the applicant, and number of citizenships and visas granted, as well as a clarification and publication of criteria for assessing applications and security checks carried out in that regard. It is clearly outside the competence – and likely the will – of the Union to entirely prohibit such schemes; but improving transparency and rigour in the assessment of applications may help avoid illegitimate acquisition of an enormous set of rights and freedoms.

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Tagged: European Union

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