Martijn van den Brink (University of Oxford)
Investor migration has been a thorn in the side of the European Commission for some time now. After publishing a critical report on investor citizenship and residence last year, it launched infringement proceedings against Malta and Cyprus regarding their investor citizenship schemes on 20 October 2020. This attempt to crack down on investor citizenship schemes raises important legal issues. This contribution discusses these in light of the legal arguments raised by the Commission. Note that the brief press release is all we can go on so far. The Commission has not yet spelled out its legal arguments in detail. According to the press release, the Commission considers that the granting of EU citizenship for pre-determined payments or investments without any genuine link with the Member States concerned, violates the principle of sincere cooperation enshrined in Article 4(3) of the Treaty and undermines the essence of EU citizenship.
In a forthcoming chapter, Daniel Sarmiento and I distinguish between three different areas – nationality, residence, and money-laundering and corruption – and explain that EU competences to regulate investor migration vary depending on the area to be regulated. We show that the EU has competence to legislate in respect of investor residence and that the existing legislative framework already restricts the range of options Member States can offer to investor residents in terms of freedom of movement and residence. Likewise, the EU also has the competence to act against possible negative side-effects of investor migration such as money-laundering and corruption. Efforts are also being made to remedy some of these negative side-effects. However, as far as nationality is concerned, the EU does not seem to have the same legal tools to act. As the infringement proceedings launched related only (or primarily) to the last issue, this post focuses only on the question of nationality under EU law. And it focuses only on whether investor citizenship is lawful; not whether it is desirable.
The state of the law
The Commission believes that investor citizenship programmes are intrinsically problematic, for which it puts forward two arguments: investor citizenship is incompatible with the very essence of EU citizenship and with the principle of sincere cooperation. This is a daring legal strategy in part because the Treaties do not attribute to the EU the competence to define who can be a citizen of the Union. According to Article 20 TFEU, EU citizenship is derivative of Member State nationality: ‘Every person holding the nationality of a Member State shall be a citizen of the Union’. In addition, this provision provides that European citizenship does not entail the suppression or alteration of Member State nationality: ‘Citizenship of the Union shall be additional to and not replace national citizenship’. These provisions were joined by three Declarations that all emphasise that decisions on the attribution of nationality are for the Member States to take. For example, Declaration Nº 2 on nationality of a Member State states expressly that ‘the question whether an individual possesses the nationality of a Member State will be settled solely by reference to the national law of the Member State concerned’.
Of course, according to established case law, ‘Member States must exercise their powers in the sphere of nationality having due regard to European Union law’. However, there is no precedent for the arguments brought by the Commission against Malta and Cyprus. Existing case law imposes two restrictions on the powers of the Member States in the sphere of nationality. The first, established in Micheletti and affirmed in Garcia Avello, is that it is impermissible for Member States ‘to restrict the effects of the grant of the nationality of another Member State by imposing an additional condition for recognition of that nationality’. The second, established in Rottmann and affirmed in Tjebbes, is that a decision that places EU citizens ‘in a position capable of causing him to lose the status [of EU citizenship] and the rights attaching thereto falls, by reason of its nature and its consequences, within the ambit of European Union law’. The restrictions laid down in these judgments relate to the recognition and loss of nationality. They do not concern the acquisition of nationality (though this may change depending on the decision in the pending case JY v Wiener Landesregierung).
The Commission now argues that EU law should also restrict how the Member States exercise their powers in the latter context. It would be a watershed moment for the relationship between national and EU citizenship for the CJEU to go along with this argument (assuming the dispute reaches the CJEU). Decisions on the acquisition of national and thereby EU citizenship have so far been left entirely to the discretion of the Member States. Moreover, despite all their glamour and fame, the aforementioned decisions imposed hardly any restrictions on national citizenship laws. Micheletti and Garcia Avello merely expect of Member States that they recognise each other’s decisions as regards the acquisition of nationality. Rottmann and Tjebbes were perhaps ground-breaking in terms of legal argumentation but did not change much in practice. Mr Rottmann ultimately became stateless, and it is also unclear whether Tjebbes has any concrete implications for the regulation of nationality. By contrast, a successful legal challenge to the investor citizenship schemes of Malta and Cyprus is likely to have far-reaching consequences. Not only will it herald the end of investor citizenship; it may also open the door to further legal challenges to national citizenship policies. Are there any legal arguments that support such a development?
The essence of EU citizenship
The Commission claims that ‘the granting of EU citizenship for pre-determined payments or investments without any genuine link with the Member States concerned, undermines the essence of EU citizenship’. It is not clear whether the Commission considers the absence of genuine links alone as problematic, or whether granting EU citizenship for investment combined with the absence of genuine links justifies its legal challenge. It is also unclear how the essence of EU citizenship is undermined. The only argument the Commission offers is that, because the acquisition of EU citizenship is linked to the award of nationality, ‘the effects of investor citizenship schemes are neither limited to the Member States operating them, nor are they neutral with regard to other Member States and the EU as a whole’. Surely this cannot be an argument for limiting the powers of the Member States to lay down the rules on the acquisition of nationality. Since any acquisition of nationality leads to the acquisition of EU citizenship, no decision to grant nationality is limited to the Member State making that decision or neutral with regard to other Member States. There must therefore be another argument put forward by the Commission.
I suspect that the Commission is particularly bothered by the fact that investor citizenship schemes are not predicated on a genuine link. In its report on investor citizenship, it argued that because ‘a host Member State cannot limit the rights of naturalised Union citizens on grounds that they acquired the nationality of another Member State …, each Member State needs to ensure that nationality is not awarded absent any genuine link to the country or its citizens’. It clarified that a genuine link is ‘established either by birth in the country or by effective prior residence in the country for a meaningful duration’. The principle of genuine links thus gives expression to the ideal that the granting of citizenship should be reserved for those who have social membership of the granting State: those who have built up a relationship with their place of residence over a certain period of time. It should therefore be noted that this objection ought to target a much larger set of nationality rules than the two that are the subject of the legal infringement proceedings. The example often given in this context is that Spain and Portugal allow the descendants of the Sephardic Jews forced into exile in the 15th and 16th centuries to be naturalised. The principle of genuine link does not, therefore, make it possible to distinguish between investor citizenship programmes and the schemes set up by Portugal and Spain or the many other national rules which allow people without genuine links to acquire nationality.
It is difficult to see on what grounds naturalisation policies that are not conditioned on a genuine link violate the essence of EU citizenship. Of course, it is controversial what the essence of EU citizenship is (which is one reason why it is difficult to build a case on this argument). Perhaps the Commission objects to the instrumentalization of EU citizenship and the possible cross-border implications of citizenship by investment programmes. One can object to such schemes on moral grounds, but that does not make them unlawful. After all, if one element defines the essence of EU citizenship, it is that it is a derived status. The CJEU may believe that EU citizenship is ‘destined to become the fundamental status of nationals of the Member States’, but the Treaties do not support the view that this destiny also implies that the competence of the Member States with regard to the acquisition of their nationality may be subject to substantial restrictions. Article 20 TFEU and the different declarations on nationality support this view. As Shaw has rightly argued, investor citizenship ‘may be a mercantilist practice, but it is not arbitrary according to the norms of EU law’.
The Commission also mentions the principle of sincere cooperation in its press release announcing the commencement of infringement proceedings. It is not entirely clear from this statement whether it considers the principle to be a self-standing or secondary argument against investor citizenship. In the past, the Commission has always used it as a secondary argument in support of genuine links (see here and here). In that case, it adds little to the arguments discussed in the previous section.
Others seem to suggest that the principle can serve as an independent argument against investor citizenship. The principle of sincere cooperation has been interpreted in different ways, but generally includes an obligation for Member States to actively contribute to compliance with EU law and an obligation to abstain from any action contravening the objectives of the EU. As I have argued in the previous section, investor citizenship schemes do not appear to violate EU law. Could it be said that Malta and Cyprus contravene any other EU objective? It could perhaps be argued that this is the case where investor citizenship encourages significant malpractices that undermine the interests of other Member States and the EU as a whole. However, this argument would relate only to the side effects of investor citizenship and not to the practice as such. It is therefore unlikely (or at least unclear) that investor citizenship is incompatible with the principle of sincere cooperation.