Golden keys to the EU’s back door

Golden keys to the EU’s back door
Montenegro's Adriatic coast. The tiny Balkan country recently announced plans for a new investor citizenship programme.
By Clare Nuttall in Glasgow May 9, 2019

EU members including Bulgaria and Hungary have taken steps to end their investment for citizenship programmes as governments that have extended such schemes come under increasing pressure from the European Commission. 

At the same time, however, countries that have been pursuing integration with the EU — notably Moldova and Montenegro — have recently rolled out new and similar schemes, despite also receiving notice from the European Commission that they will be taken into account as part of the EU accession process. 

Investment for citizenship programmes, also dubbed “golden passport” or “golden visa” schemes, make it possible for foreign nationals to secure fast-track citizenship or residency in return for making substantial investments in the host country. Given the popularity of EU passports, the average cost is around €900,000, though this varies from just €250,000 in Greece or Latvia to €2mn for Cyprus and as high as €10mn for Austria (although the Austrian figure has not been publicly disclosed), according to a report from international watchdogs Global Witness and Transparency International published in 2018.

The report found that at least 6,000 passports and almost 100,000 visas had been sold within the EU in the previous decade, with the largest numbers (over 100,000 each) granted by Spain, Hungary, Latvia, Portugal and the UK. 

There are substantial financial benefits to host countries: the report finds that around €25bn was attracted to EU countries through golden visa programmes during the 10-year period, and an estimated $13bn a year worldwide. The market is a growing one, and is expected to reach $20bn a year worldwide within a couple of years. 

Yet there is also a downside. Only Austria and Malta publish lists of new citizens or residents, and seven of the 17 schemes have not disclosed how much investment they have raised, says the Global Witness/Transparency International report. It stresses that schemes are insufficiently monitored and governments “do not seem to question where applicants’ money comes from.” 

“Just like a luxury good, European Union citizenship and residency rights can be bought. There are any buyers and there is not shortage of suppliers, which explains why investment migration is a growing, multi-billion-euro industry,” says the report. 

Given the interconnections between EU member states, while some members profit, the bloc’s citizens as a whole take a “sizeable hit”. “Poorly managed schemes allow corrupt individuals to work and travel unhindered throughout the EU and undermine our collective security,” said Laure Brillaud, anti-money laundering policy officer at TI EU, and a co-author of the report, at its launch.

“By their nature, these schemes pose inherent risks for corruption, as people who steal money from their home countries need other jurisdictions to escape to when the going gets tough,” the report says. 

EU institutions on the case

EU institutions have honed in on the issue in recent months. In January, the European Commission issued a report on the risks of investor citizenship and residency schemes in the EU, and outlined steps to address them. Risks it identified concern security, money laundering, tax evasion and corruption, and these are amplified by a lack of transparency in how the schemes are operated and a lack of cooperation among member states. 

“People obtaining an EU nationality must have a genuine connection to the member state concerned. We want more transparency on how nationality is granted and more cooperation between member states. There should be no weak link in the EU, where people could shop around for the most lenient scheme,” said European Commissioner for Justice, Consumers and Gender Equality Vera Jourova on the publication of the report. 

The EC report singles out the investor citizenship schemes in Bulgaria, Cyprus and Malta, pointing out that: “there is no obligation of physical residence for the individual, nor a requirement of other genuine connections with the country before obtaining citizenship … These schemes are of common EU interest since every person that acquires the nationality of a member state will simultaneously acquire union citizenship.” 

Meanwhile, at a session on March 26, MEPs called for schemes to market citizenship and residency permits to wealthy foreigners to be phased out. 

Some member states have already taken steps to end such schemes. In 2017, Hungary scrapped its citizenship programme that was launched back in 2013. It initially granted residence permits to foreigners who purchased Hungarian government bonds for €250,000, later raising the sum to €300,000. Controversially, businessmen close to the government profited from the programme as selected intermediaries were allowed to sell the bonds, most of them operating offshore. In total, the programme allowed the long-term stay of 19,855 non-EU citizens — despite the government’s political rhetoric against migration — and a further 9,000 residence permits were issued to foreigners after the scheme was suspended, it was revealed in January. 

More recently, the very day before the European Commission issued its report, Bulgaria’s justice ministry said it plans to draft amendments to stop giving citizenship in exchange for investment. The current legislation allows people who invest at least €500,000 in one year and double this amount in the second year to become Bulgarian citizenships. 

At the same time, Bulgaria’s Anti-Corruption Fund (ACF) NGO reported that Sofia had revoked the citizenship of Russian millionaire Sergei Adonyev over a 20-year-old conviction for fraud and money laundering in the US. Adonyev had hidden the conviction from the Bulgarian authorities for more than a decade. 

Reforms are also underway in Cyprus and Malta, but so far the changes have been “piecemeal,” Golden Witness senior campaigner Naomi Hirst tells bne IntelliNews. “There are legal grounds to tighten this up on an EU-wide basis. I don’t think the European Commission has appetite for this but they said in the report they do have the appetite to use the powers they have so far to make sure member states are not abusing the common good of freedom of movement.” 

The European Commission has set up a working group tasked with coming up with a series of recommendations by the end of the year. “It’s important that the working group not only comes up with recommendations but also galvanises member states to implement them as soon as possible,” says Hirst. “It can’t just be a talking shop. Actions have to take place as a result of these meetings.” 

But while EU members are taking steps to end or phase out investment for citizenship programmes, the opposite is happening in some of the countries seen as potential future members. In the last few months both Moldova and Montenegro have launched new schemes. 

Montenegro’s government said in January it would launch a programme offering citizenship to up to 2,000 foreigners in return for investment over the next three years, hoping to boost its economic growth. The measure is part of ongoing government efforts to attract foreign direct investment and expand the economy in the country of just 620,000 people. “The programme aims to further improve Montenegro’s economic development by creating new tourist, agricultural and processing capacities and opening new jobs,” the government said in a statement. 

Participants will have to donate €100,000 for the development of poor communities and invest either €250,000 in developments in the poorer northern or central Montenegro or €450,000 in projects in the capital Podgorica or the Adriatic coast region. The programme will be managed by a special government agency, and the government has launched a tender to hire due diligence agents to check applicants. 

Along with Serbia, Montenegro is one of the closest candidate countries to securing EU membership, with a tentative target date of 2025 set out in a European Commission document last year. However, the country has repeatedly been criticised by the European Commission for failing to adequately tackle corruption and organised crime. 

Moldova launched its citizenship for investment programme in November 2018. The scheme is managed by Henley & Partners, an international firm that calls itself the “global leader in residence and citizenship planning”. The programme was launched at the 12th Global Residence and Citizenship Conference in Dubai, hosted by Henley & Partners and attended by Moldova’s Economy and Infrastructure Minister Chiril Gaburici, who claimed the scheme was “specifically developed with the Moldovan people in mind”. “[I]n order to take the next step forward in our economic development, and also support the social wellbeing of all Moldovans, we need to welcome innovative new ways of generating capital. The MCBI programme is part of this future-focused approach,” Gaburici said. 

Moldova is not yet an EU candidate country; while it signed an Association Agreement in 2014, its people and politicians are still divided over whether its future lies with the EU, with Russia or somewhere between the two. But the new scheme is noted in the European Commission report because of the visa-free regime for short stays in the EU introduced for its citizens in 2014. Like Montenegro, Moldova suffers from high levels of corruption; notoriously $1bn — around 15% of the country’s GDP — was siphoned off from three of its banks in a massive fraud that surfaced in 2014. In 2017, Transparency International Moldova warned that the new provisions in the citizenship law “could represent a new attempt at legalising dubious financial means.”

Global Witness’ Hirst acknowledges that citizenship for investment schemes are part of a “growing industry” that can be particularly attractive for smaller countries. 

“More and more small countries are taking these [golden passport schemes] on,” she says. “I can see that from a small country’s perspective it’s a very attractive opportunity to diversify your economy with quite low overheads, but time and again these schemes proved to be incredibly risky. When you get it wrong … the reputational damage and the risk to citizens is high — and not just to the [EU] accession state or member state in question.”

Now, however, not just EU member states, but accession candidates and potential candidates have been put on notice by the European Commission. Its January report states that citizenship of EU candidate countries “becomes increasingly attractive to investors. This is the case already during the accession process as candidate countries and potential candidates develop closer relations with the EU and can obtain the right for their citizens to enter the Schengen area visa-free for short stays.”

The EC therefore says it will monitor citizenship for investment schemes in the context of the accession process in both candidate countries and potential candidates. 

“In order to prevent such schemes causing risks … conditions regarding citizenship investor schemes will be included as part of the EU accession process (from the opinion on a country's application for membership up to the closing of negotiations). Countries concerned will be expected to have very robust monitoring systems in place, including systems to counter possible security risks such as money laundering, terrorist financing, corruption and infiltration of organised crime linked to any such schemes,” says the report.