BRUSSELS – Cyprus and Malta are punished with European Union penalties if they do not forego lucrative programs that sell “golden passports” to foreigners, according to the bloc their home countries – with travel documents.
The European Commission, the bloc’s administrative division, has kept the two nations in its crosshairs for years because of the practice, and its hand has been forced by recent revelations from high-level politicians involved in the programs.
Most recently, a study by Al Jazeera in Cyprus reportedly revealed monstrous practices by prominent politicians that could enable wealthy criminal records to acquire EU passports through citizenship of both countries, and offer them legal protection and the right to travel freely around the block.
The initiatives have brought the two island states a stroke of luck over the years. Both are known for their lax financial regulation frameworks and have historically built opaque banking systems that have been used by Russian and Asian billionaires in particular for money laundering and tax avoidance.
Bulgaria, which also runs a passport payment program, is being investigated by the Commission and could subsequently take similar legal action. While the Cypriot and Maltese initiatives are the best known in the bloc, most EU countries offer residency-for-investment programs that have been criticized by anti-corruption activists and by the bloc itself. Twenty of its 27 members grant foreign investors the right to reside against payment, which in some cases puts investors on the path to full citizenship.
In a report from 2018, the anti-corruption organization Global Witness found that 100,000 people had used such initiatives, so-called “golden visas”, in order to obtain legal residence in countries of the European Union. A 2019 report by the European Commission said that even the lighter programs that offered resident perks to investors were a cause for concern and risk of abuse.
Announcing its decision to initiate infringement proceedings against Cyprus and Malta, the Commission issued a statement on Tuesday that “granting EU citizenship for predetermined payments or investments with no real connection to the Member States concerned undermines the very essence of EU citizenship”.
The infringement procedure is quite lengthy. The first phase consists of the exchange of information between the European Commission and the countries concerned, and country authorities have two months to respond to the allegations. If the answers are not ‘satisfactory’, the Commission can raise the stakes, which makes penalties more likely.
Punishment for Cyprus and Malta will only take place if the programs are not abolished by the end of the process.
Cyprus, which went bankrupt in 2013, vowed to overhaul its banking sector and put in stricter safeguards in order to receive bailout from other European countries and the International Monetary Fund. While many commercial banks were being overhauled, the passport program was seen as a new way of doing business with clients who had previously relied on the island’s opaque financial services.
The “Golden Pass” plans also provided the island economies with limited resources and small industrial, agricultural and manufacturing sectors with a source of government income that avoided investing or taxing other sectors. And in both Cyprus and Malta it has capitalized on its strengths as financial service centers with significant skilled workers.
Since Cyprus started its current program in 2013, it has issued around 4,000 passports, generating sales of 7 billion euros or around 8.2 billion US dollars. The program allows foreigners to obtain a Cypriot passport in return for an investment of at least EUR 2 million in the country, usually in real estate, with minimal additional requirements and a light oversight process.
The country revoked recently issued passports from 26 people from Cambodia, Iran, Malaysia and Russia last year, including Jho Low, a Malaysian financier on the run from a major financial scandal called 1MDB.
Last week Cyprus said it would end its golden passport program on November 1st, but that it would continue to process the backlog of applications. And while the government recognized that the initiative had been misused, it denied any wrongdoing.
In Malta, Prime Minister Robert Abela spoke out in favor of his program on Monday in anticipation of the EU’s legal steps. “We will defend Malta,” he said, according to local news media.
Mr. Abela also pointed out the financial support it had given to the country. “Without the contributions from this program that we are running, we probably would not have been able to come up with a budget of this magnitude,” Abela said.
Malta’s program started in 2014 and had issued more than 2,000 passports by mid-2017 and raised € 718 million in 2018, according to the Global Witness report. The bureau that oversees the Maltese program did not respond to a request from the New York Times on Tuesday for more timely information and comment.
The European Commission did not appear to be convinced of the commitments to end the program in Cyprus and revise it in Malta.
“Malta has actually informed the Commission that it is planning to renew citizenship for investments,” a spokesman, Christian Wigand, said Tuesday. “And while Cyprus recently announced that it would end its current program on November 1st, it will continue to process pending applications.”
“We know there are already calls to introduce new systems,” added Wigand. “Such systems are against EU law, and that’s why we’re starting the violations today.”
Activists welcomed the news on Tuesday. “For years, the governments of both countries have ignored public outrage,” said Laure Brillaud of Transparency International EU in a statement. “The decision of the European Commission means that they could go to the European Court of Justice if both countries do not take swift action to end the abuse.”
“We hope that the urgent and necessary EU-wide reform will complement the infringement procedures,” she added. “As a next step, the European Commission should come up with a plan to phase out the golden visa systems.”
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