Charles Savva, Managing Director at C.Savva& Associates Ltd

The European Commission has for the first time ever reported on the risks of investor citizenship (also known as Citizenship by Investment Schemes)and residence schemes in the EU and outlines steps to address them.

The report states that ‘Indeed, citizenship and residency by investment schemes undoubtedly carry several risks. For citizenship schemes, this includes a devaluation of EU citizenship. Such schemes not only put a price tag on EU citizenship: it has been argued that they also undermine its fundamental values. The increasing trend towards forms of marketisation of both citizenship and residency schemes is confirmed by a growing business specializing in ‘residence and citizenship planning’ for wealthy investors, advertising the benefits of a second passport or alternative residence worldwide. Other significant and related risks include the potential for corruption, money laundering and tax evasion. In recent years, and even more so in recent months, news reports and/or new criminal investigations have shed light on dubious practices and scandals surrounding citizenship and residency schemes. These have pointed to the vulnerabilities of these schemes. While in principle, checks on criminal records are included in the legal framework governing these schemes, their accuracy is questionable. The adequacy of the checks performed on the applicants and the origin of the funds invested is also questionable. In addition, tax-related incentives provided”.

Since becoming a citizen of one Member State also means becoming an EU citizen with all its rights, including free movement and access to the internal market, the EC’s argument is that persons obtaining an EU nationality must have a genuine connection to the Member State concerned, and as result more transparency on how nationality is granted and more cooperation between Member States is being sought.

In the EU, two Member States (Cyprus and Malta) currently operate schemes which grant investors the nationality of these countries under conditions which are less strict than ordinary naturalization regimes. It should be noted that just this past week the Bulgarian government officially announced the closing of its short-lived citizenship by investment scheme, citing a lack of interest from potential investors.

The report identifies the following areas of concern: 

Security: insufficient background checks.

Money laundering: enhanced procedures are necessary to ensure rules on anti-money laundering are not circumvented;

Tax evasion: monitoring and reporting is necessary to make sure that individuals do not take advantage of these schemes to benefit from privileged tax rules;

Transparency and information: The report finds a lack of clear information on how the schemes are run, including on the number of applications received, granted or rejected and the origins of the applicants. In addition, Member States do not exchange information on applicants for such schemes, nor do they inform each other of rejected applicants.

The report goes on to state that investor residency schemes, while different from citizenship schemes in the rights they grant, pose equally serious security risks to Member States and the EU as a whole. While EU law regulates the entry conditions for certain categories of third-country nationals, the granting of investor residence permits is currently not regulated at EU level and remains a national competence. Currently, 20 Member States offer such residency schemes.

The European Commission will now monitor wider issues of compliance with EU law raised by investor citizenship and residence schemes and it will take necessary action as appropriate.

In response to the above, the President of the Republic of Cyprus, Mr.Nicos Anastasiades, has said that Cyprus has been targeted by the EU over its investment programme in the framework of which non–Cypriot entrepreneurs, investors and members of their families are granted the Cypriot citizenship.

Cyprus has granted only 0.3% of the total citizenships that have been granted across the EU, the President said.

He added that the matter of citizenship is clearly a national competence.

The President of the Republic of Cyprus noted that Cyprus has not experienced any terrorist attacks on its soil nor was it connected to any terrorist attacks in Europe and said that his country has been criticised by other countries where football teams or big infrastructure belonging to those, that Cyprus has been accused of supporting. 

“Double standards need to end at some point eventually” he said, pointing out that Cyprus has the strictest criteria among the 20 countries that offer such passport/residency schemes.