A report by the European Commission released on January 23 expresses concern about the risks posed to the EU by schemes in member states that offer citizenship and residence in return for large investments, naming Bulgaria among countries that do so.
The report emerged after Bulgaria’s Justice Ministry announced that it was proposing the scrapping of the scheme that makes it possible to apply for Bulgarian citizenship in return for large investments.
Bulgaria’s Justice Ministry said that a working group appointed in February 2018 had established that the passport-for-investment scheme had not produced the hoped-for benefits in foreign investment and job creation.
The ministry’s announcement also came as leaks to the media had telegraphed that the European Commission would be naming Bulgaria among countries about which it had concerns regarding “golden” passports and residence visas.
The European Commission’s report is the first such on investor citizenship and residence systems operated by a number of EU countries.
The report maps the existing practices and identifies certain risks such schemes imply for the EU, in particular, as regards security, money laundering, tax evasion and corruption.
A lack of transparency in how the schemes are operated and a lack of co-operation among Member States further exacerbate these risks, the report said.
European Commissioner for Migration, Home Affairs and Citizenship Dimitris Avramopoulos said: “Legally residing in the EU and in the Schengen area comes with rights and privileges that should not be abused.
“Member states must at all times fully respect and apply existing obligatory checks and balances – and national investor residence schemes should not be exempt from that. The work we have done together over the past years in terms of increasing security, strengthening our borders, and closing information gaps should not be jeopardised. We will monitor full compliance with EU law,” Avramopoulos said.
European Commissioner for Justice, Consumers and Gender Equality, Věra Jourová, said: “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.
“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 co-operation between member states. There should be no weak link in the EU, where people could shop around for the most lenient scheme,” Jourová said.
In the EU, three member states (Bulgaria, Cyprus and Malta) currently operate schemes that grant investors the nationality of these countries under conditions which are less strict than ordinary naturalisation regimes, the Commission said.
In these three EU countries, there is no obligation of physical residence for the individual, nor a requirement of other genuine connections with the country before obtaining citizenship, it said.
The Commission said that its report identified areas of concern:
· Security: checks run on applicants are not sufficiently robust and the EU’s own centralised information systems, such as the Schengen Information System (SIS), are not being used as systematically as they should be;
· Money laundering: enhanced checks (‘due diligence’) are necessary to ensure that 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 Commission said that investor residence 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”.
A valid residence permit gives a third-country national the right to reside in the member state in question, but also to travel freely in the Schengen area.
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 EU countries run such schemes: Bulgaria, the Czech Republic, Estonia, Ireland, Greece, Spain, France, Croatia, Italy, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia and the United Kingdom.
The Commission’s report identified areas of concern:
· Security checks: There are certain security obligations under EU law that must be carried out before issuing a visa or residence permit to foreign investors. However, there is a lack of available information on the practical implementation and discretion in the way that Member States approach security concerns;
· Physical residence requirement: Residence permits obtained by investment, with limited or no required physical presence of the investor in the Member State in question, could have an impact on the application of and rights associated with the EU Long-Term Residence Status, and may even provide a fast-track to national and thereby EU citizenship;
· Lack of transparency: The report stresses a lack of transparency and oversight of the schemes, in particular in terms of monitoring and the absence of statistics on how many people obtain a residence permit through such a scheme.
The Commission said that it would monitor wider issues of compliance with EU law raised by investor citizenship and residence schemes and it will take necessary action as appropriate.
For this reason, EU countries need to ensure, in particular, that:
· All obligatory border and security checks are systematically carried out;
· The requirements of the Long-Term Residence Permit Directive and the Family Reunification Directive are properly complied with;
· Funds paid by investor citizenship and residence applicants are assessed according to the EU anti-money laundering rules;
· In the context of tax avoidance risks, there are tools available in the EU framework for administrative cooperation, in particular for exchange of information.
The Commission said that it would monitor steps taken by member states to address issues of transparency and governance in managing these schemes. It will establish a group of experts from member states to improve the transparency, governance and the security of the schemes. That group will be tasked, in particular, with:
· Setting up a system of exchange of information and consultation on the numbers of applications received, countries of origin and on the number of citizenships and residence permits granted/rejected by Member States to individuals based on investments;
· Developing a common set of security checks for investor citizenship schemes, including specific risk management processes, by the end of 2019.
Finally, concerning third countries setting up similar schemes, which may have security implications for the EU, the Commission will monitor investor citizenship schemes in candidate countries and potential candidates as part of the EU accession process. It will also monitor the impact of such schemes by EU visa-free countries as part of the visa-suspension mechanism.
(Photo: Clive Leviev-Sawyer)