Malta, together with Cyprus and Bulgaria, is mentioned among EU countries trading in citizenship
As the BBC notes, the report refers to so-called "golden passports" and "golden visas" acquired in exchange for investments in the country. Such schemes carry a number of risks, including money laundering, corruption, and tax evasion, the European Commission warns.
According to the report, programs granting residency in exchange for investments exist in 20 EU countries (the European Union has 28 member states). Special attention is given to three countries – Bulgaria, Cyprus, and Malta. Only these three countries actually trade in citizenship, the report's authors claim.
These countries are also united by their popularity among Russians. Russians account for up to half of applications under such programs, Nikolai Vargassov, senior lawyer at UFG Wealth Management, told the BBC. About 45% of applicants for Bulgarian citizenship are from the former USSR, cites Kamen Shoylev, a British barrister and partner at New Balkans Law Office. Of the 3,000 people who became citizens of Malta in exchange for investments in 2017, more than six hundred have Russian first and last names, calculated Open Media.
WHAT IS THE PROBLEM
To obtain a Cypriot passport, one must invest at least 2 million euros in the country's economy and purchase real estate. In Malta, one must pay 650,000 euros (the money goes to the national investment fund) and purchase real estate worth at least 350,000 euros. For Bulgaria, the investment amount is 1 million euros.
All applicants must prove they have no criminal record. But these countries have problems with applicant vetting, the European Commission believes. For example, authorities may approve an application even if the candidate does not fully meet the criteria.
Another problem, according to the European Commission, is that EU countries do not consult each other about applicants. A person denied citizenship by one EU country can freely apply for a "golden passport" in another, the commission's report states.
The European Commission intends to develop measures by the end of 2019 to close these loopholes.
In October 2018, the European Parliament also expressed concern over "golden passports" and "golden visas." Its report indicated that some countries have minimal requirements for investors, and in addition to resident or citizen status in an EU country, they also gain access to favorable tax regimes.
IT'S NOT THAT SIMPLE
Bulgaria's Ministry of Justice has already stated that the country plans to phase out the program. According to Bulgarian authorities, only 50 foreigners – from Russia, Egypt, Israel, and Pakistan – have received passports in exchange for investments since 2013. So from an economic standpoint, continuing the program makes no sense.
Malta and Cyprus are a different matter. In October 2018, Forbes wrote that Cyprus had earned 4.8 billion euros ($5.5 billion) from citizenship sales programs since 2013. Malta received 718 million euros ($831 million) in foreign direct investment since 2014. For comparison, Cyprus's GDP in 2018, according to IMF forecasts, was $23.9 billion, and Malta's was $14.3 billion.
Looking at the process of obtaining citizenship in other EU countries, Cyprus, Malta, and Bulgaria stand out – getting a "golden passport" there is much easier. "No other country offers such conditions," Vargassov believes. For instance, in most other EU states, there is a residency requirement, and often exams on language and history are required.
But even in Malta, Cyprus, and Bulgaria, the process is quite complex. Cyprus introduced quotas on the number of new passports last year. Malta already has them. Cyprus previously issued passports without requiring prior residency, but has abandoned that practice.
"For vetting, states often hire private agencies that check information from the application in open sources in the applicant's home country. So it's hard to agree that the issue of the origin of funds receives little attention, especially compared to 5-6 years ago," Vargassov admits. According to him, Maltese authorities now reject every second application from Russians.
In Bulgaria, almost all candidates for investment citizenship buy Bulgarian government bonds. To do this, they usually open bank accounts and undergo a "know your customer" check, says Shoylev. The check involves the Bulgarian Ministry of Internal Affairs and special agencies for combating organized and financial crime. The vetting process takes about two years and involves about 15 different agencies.
CONSEQUENCES
The report itself will have no consequences, believes Dimitri Kochenov, professor at the University of Groningen. After all, EU rules exclude the possibility of supranational regulation of member states' citizenship, and the European Commission has no power to regulate citizenship acquisition.
Otherwise, it would dictate to the French government who is French, to the Irish who is Irish, and to the Dutch who is Dutch, Kochenov jokes. "No one in the EU is ready for that. The European Commission is very upset about this, so they try to present all investment programs as just risks, without mentioning that they bring billions into the treasury," he told the BBC.
Kochenov calls the report "internal games of the commission." In the future, the commission could refer to this document and say that it has a tradition of work in this area – "in order to someday try to regulate citizenship itself," he suggests. "But then, of course, big problems will arise between the commission and the member states," the expert stipulates.
But a tightening of checks on applicants is definitely to be expected, believes Nikolai Vargaso. "In the near future, any possibility of obtaining an EU country passport without actually moving for residence and changing tax residency will be reduced to zero, while the citizenship-by-investment market will remain in the Caribbean basin countries, whose passports provide exclusively visa advantages," he told the BBC.