Ban, tax or regulate the golden passport? MEPs discuss a way forward

MEPs will propose a way forward to member states on the sale of EU citizenship

MEPs from the European Parliament’s civil liberties (LIBE) committee and experts discussed a study on citizenship-by-investment (CBI) schemes, which revealed a surprising lack of regulatory structures within the EU to tackle golden passports and golden visas.

“The scale is not evident due to a lack of transparency; moreover, some schemes can threaten the financial stability of the country,” the study’s co-author Meenakshi Fernandez, a policy analyst at the European Parliament Research Service, said.

Even Malta has come under fire over its Individual Investor Programme, despite its high standard among golden passport schemes. The IIP has since been rebranded under further rules that require mandatory residency prior to acquiring citizenship.

Passport Papers | Secrecy and bid to avoid scrutiny was always the mark of IIP


MEPs joining the discussion were very concerned at CBIs and RBIs (residency schemes) following the Panama, Paradise and Pandora Papers leaks revealing the way the complicity of global elites and politicians in tax avoidance measures. “We cannot assess the magnitude but we know these risks are there,” Fernandez said of the risk CBIs posed to good governance in EU states.

There are 13 EU member states which run some form of scheme, so far raking in €20 billion in revenue across the EU.

Using data from over 300 interviews in 16 countries, Prof. Kristin Surak of the London School of Economics told MEPs that RBIs attracted mainly Chinese nationals (55% of all schemes’ applicants) while CBIs were popular with Russian applicants (45%).

The schemes had accounted for annual revenues of €3.5 billion in the EU, becoming “a substantial industry”, Surak said.

The EPRS study on these passport sales delved into the commodification of EU citizenship and residency, tax avoidance, corruption, money laundering and security threats.

Fernandez suggested that EU states employing CBIs were essentially “free-riding” economically, despite the “negative externality” risks they were imposing on the European community. “It’s unfair as these schemes offer a fast-track route to residence and citizenship based solely on wealth,” she said.

The EPRS suggested three option for the future of CBIs: a ban, a tax, or regulation. Bans could be unpopular but swiftly rectify most of the issues violating the sincere cooperation principle. The tax option could be justified owing to the risks on-boarded by those not running their own schemes, and would discourage member states from operating schemes.

Regulation could be more complex, requiring many measures to reduce conflicts of interest with service providers, enforce minimum physical presence requirements in member states for schemes, and excluding RBI applicants from the EU’s long-term residence directive.  “These kinds of regulatory changes would shift demand to investors who actually want to spend time in the EU.”

Surak called for greater scrutiny on CBI applications, especially where due diligence is only carried out on main applicants but not on questionable family members included in applications made by ‘strawman’ relatives.

She said CBI services providers musty also be regulated through licencing, good conduct enforcement, fines and licence-withdrawal over breaches. “This would put pressure on the whole supply chain and incentivise the submission of only strong applications.

Dutch MEP Sophie in’t Veld (Renew Europe) described the situation as a “growing, alarming problem”.

“Given the gravity of the situation it is all the more remarkable that the European Council literally refuses to talk about this... the situation shows clearly sincere cooperation is not taking place and unfair competition is.

“What is intriguing is the Commission has started infringement proceedings against Cyprus and Malta and yet it says it has no legal basis for legislating or for regulating. That’s peculiar... the Commission is being very timid when it comes to calling the member states to task.”

Other MEPs, such as Birgit Sippel (S&D), weighed in. “The problem really is the Commission and more-so the member states obviously not willing to talk about what they are doing and how they are doing it… Where is the readiness to regulate this migration investment service industry?”

MEP Saskia Bricmont (Greens) said she would like an outright ban but accepted that regulation was the most realistic solution given the disposition of member states involved in the practice. MEP Vladimir Bilčik (EPP) expressed worry that due to the inherent broadness of proposed regulations, the EP would end up with a “big shopping list and nothing happens”

Konstantinos Arvanitis (Left group) called for transparency and signalled a need to clarify terms and a legal framework to tackle these issues effectively.

Ewropej Funded by the European Union

This article is part of a content series called Ewropej. This is a multi-newsroom initiative part-funded by the European Parliament to bring the work of the EP closer to the citizens of Malta and keep them informed about matters that affect their daily lives. This article reflects only the author’s view. The European Parliament is not responsible for any use that may be made of the information it contains.

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