What’s in the EC’s report on investor citizenship?

By Jelena Dzankic, GLOBALCIT coordinator


Most EU Member States have some mechanism in place that enables them to grant citizenship in return for investment. Authorities can use broad discretion in attributing citizenship in most cases, which is generally justified by referring to the ‘national interest’ or ‘exceptional achievements’ in the economic domain. Such discretionary provisions enable states to waive some or all of the naturalisation conditions applicable to other applicants. However, three EU Member States – Bulgaria, Cyprus and Malta apply explicit investor citizenship programmes specifying conditions under which investment or payment will result in citizenship. Moreover, 20 Member States offer residence rights in exchange for investment. A new report by the European Commission highlights risks associated with citizenship and residence programmes for investors.

 

On 23 January, the European Commission published its long-awaited Report on Investor Citizenship Schemes. The report is accompanied by a Commission Staff Working Document, which provides definitions of investor residence and citizenship programmes, as well as an overview of policies applicable across the 28 European Union (EU) Member States. On the basis of an empirical study of investor citizenship and residence schemes in the EU, the report calls for due regard of EU law in national citizenship policies, especially concerning the link between residence and physical presence, common standards for security checks, and enhanced oversight of intermediaries involved in acquisition of citizenship and residence by investment.

The report highlights that investor citizenship foresees less stringent conditions for citizenship acquisition than those commonly applied, and that this has particular significance in the EU context as a result of EU citizenship rights. Commonly, investor citizenship is marketed not as a national policy, but as a means to obtain EU citizenship and the rights and privileges associated with it.

In view of this, the Commission’s report takes note of earlier views of the Court of Justice that while each Member State has the sole prerogative to decide on the rules for the acquisition and loss of nationality, in doing so, Member States are bound to have due regard to EU law. It urges the Member States to consider their approaches to the establishment of the ‘bond of nationality’ through the lenses of a ‘genuine connection’ to the country or its people. Such a connection is demonstrated through naturalisation conditions, which prospective citizens are required to meet. The Commission maintains that “Granting naturalisation based on a monetary payment alone, without any further condition attesting to the existence of a genuine link with the awarding Member State and/or its citizens departs from the traditional ways of granting nationality in the Member States and affects citizenship of the Union” (p.6).

In this regard, the Commission emphasises the importance of establishing a connection to the state awarding EU citizenship through residence. Investor citizenship schemes in Malta and Cyprus require a “proof of residence” for twelve months as evidence of such a connection, yet this requirement can be met without continuous physical presence. As a result of the difficulties in monitoring the residence condition, investor residence schemes too may eventually give access to EU Long Term Resident status or even EU citizenship without the actual continuity of residence.

Citing recent studies by Transparency International and OECD, the European Commission warns that while some individuals may pursue investor citizenship for legitimate reasons, these programmes involve risks of money laundering, corruption and tax evasion, which are exacerbated by the cross-border rights associated with EU citizenship and residence in a Member State. The report further notes the shortcomings of the fifth Anti-Money Laundering Directive (to be transposed by January 2020), which requires economic operators to perform enhanced due diligence for investor citizenship and residence applicants, but creates no obligations for national agencies responsible for the conferral of citizenship or residence status. Urging Member States to adopt enhanced transparency in design and governance of these schemes, the Commission has called for a greater interoperability of the information databases and greater consultation among Member State authorities on applicants for investor citizenship. Such an approach to information exchange and development of common criteria for security checks would prevent the ’shopping around for the most lenient conditions’ (p.12) and circumvention of EU rules, as had happened in cases of application for an airline operating licence.

The report states the significance of oversight of non-public bodies involved in the development and management of these programmes and of greater involvement of national authorities in the process. This is particularly relevant since the same businesses ‘advise the governments on operating the scheme or carry out proactive tasks involving the exercise of the powers of a public authority in managing such schemes, yet at the same time also advise individuals on their applications to the scheme’.

Beyond the situation in the Member States, the European Commission highlights that these schemes will become integrated in the EU accession conditions. They may also result in suspension of visa-free access to the EU, as the latter should not be used as a mechanism for attracting investment in third countries.

While some sources have already commented on or criticised the report, the latter has raised a number of significant concerns that emanate from the sale of passports and residence permits. This is important, especially because national citizenship policies give rise to union-wide rights. In this context, pushing for the basic minimum standards for defining residence, harmonisation of security screening, and scrutiny of non-public bodies involved in nationality acquisition is a reflection of the ideas of solidarity and due regard to EU law stipulated in the Treaties. Future activities of the EC in this regard will be crucial for strengthening the substance and meaning of EU citizenship rights.

 


For further information on investor citizenship and residence in the EU, see: Shachar, Ayelet and Rainer Bauböck. Should Citizenship be for Sale?. RSCAS EUDO Citizenship Working Paper 2014/01. Florence: EUI; Dzankic, Jelena. 2018. ‘Immigrant investor programmes in the European Union (EU).’ Journal of Contemporary European Studies 26, no. 1 (January): 64–80.

Jelena Dzankic’s monograph The Global Market for Investor Citizenship is forthcoming with Palgrave Macmillan in 2019.