Why was Malta’s ‘golden passports’ scheme scrapped? | Explained

European Court of Justice strikes down Malta's 'golden passports' scheme, highlighting risks of citizenship by investment in the EU.

The story so far: In late April, the European Court of Justice (ECJ) struck down Malta’s ‘golden passports’ scheme — a 2020 scheme which authorises the naturalisation of foreigners in the country, and consequently the European Union, in return for hefty financial investments in the country. Brussels had launched infringement proceedings against Malta, as it persisted with its own scheme, blocking access only to Russians and Belarusians consequent to Russia’s war against Ukraine.

Citizenship by investment (CBI), known as golden passports, and residency by investment (RBI), or golden visas, enable third country nationals to live and work in host countries in exchange for financial investments. The European Parliament and the Commission have called for both forms of mobility to be abolished in view of the inherent risks to security, such as money laundering, organised crime, tax evasion and corruption. Between 2013 and 2019, about 1,32,000 persons had obtained entry into the EU through CBI and RBI schemes, generating financial inflows of over €20 billion, as per a 2022 European Parliament Research Service report. The risks from CBI and RBI have been highlighted by the Organisation for Economic Cooperation and Development and the Financial Action Task Force. Principal among the beneficiaries of such migration are nationals from China, Russia and West Asia.

Within the 27-member bloc, the acquisition or loss of nationality falls within the exclusive jurisdiction of each country. That said, the historic 1992 Maastricht Treaty inaugurated common EU citizenship. That is to say, nationals of an EU state are simultaneously common EU citizens. Therefore, the matter of the grant or rejection of nationality must accord with EU law.

The European Commission contended that the attractiveness of Malta’s CBI scheme did not lie in the acquisition of Maltese nationality per se, but instead in the rights that accrue from the complementary EU citizenship. The implicit assumption here being the unique appeal of the absence of internal frontiers, the right to free movement and work across the bloc, the right to vote and to be elected in local as well as European parliament elections. The Commission President Ursula von der Leyen made a pointed reference to golden passports in the 2020 State of the Union address, declaring that “European values are not for sale.” Brussels further argued that the grant of nationality in return for investments — a commodification of citizenship — was incompatible with the principles of membership of the bloc. These are sincere cooperation, fairness and non-discrimination — codified in Article 4(3) of the 1992 Maastricht Treaty and under Article 20 of the 2009 Treaty on the Functioning of the EU.

Upholding the Commission’s claims, the court reasoned that the pillars of European citizenship are dependent on mutual trust among member states and mutual respect for national decisions. The bond of nationality of a given state is underpinned by a “relationship of solidarity, good faith and the reciprocity of rights and duties between the state and citizens,” the court added. These principles are infringed upon once citizenship is sought to be granted as a commercial transaction in exchange for an investment. The 2020 Maltese scheme is tantamount to the commercialisation of the grant of nationality of a particular state, and by extension, of the entire bloc. This is incompatible with EU treaties.

In theory, Malta could exercise its authority to confer nationality to those who availed the CBI scheme, minus union citizenship. This would risk diminishing its appeal as a destination state.

The writer is Director, Strategic Initiatives, AgnoShin Technologies.