End times for the passport programme – Ryan Murdock

Vladimir Putin’s invasion of Ukraine has put the final nail in the coffin of Malta’s cash-for-passports programme. It’s only a matter of time before the last shovel of dirt buries Joseph Muscat’s sleazy cash cow.

Even The Local, an English-language publication in Berlin aimed at foreign residents, ran a story this week called, ‘Shady Characters: Will EU countries now put an end to golden passport schemes?’

Every article I’ve read in the foreign press singles out Malta as the most shameless offender.

Three Member States are currently making money by selling EU citizenship. Bulgaria’s government has already begun discussions to stop its programme.

Cyprus saw the writing on the wall when the EU opened infringement proceedings against it. Applications submitted before November 2020 are being processed, and then it ends.

The same infringement proceedings were opened against Malta, but only Malta remains defiant, with Parliamentary Secretary for Peddling Alex Muscat insisting the golden passport programme isn’t a golden passport programme, and therefore it can continue.

The only concession — which Malta made grudgingly — was to temporarily stop applications from Russian and Belarusian citizens. As with the other war-related sanctions, Malta’s actions were minimal and taken only after considerable pressure had been applied.

Alex Muscat and Robert Abela still think this easy money engine can be restarted when the Ukraine conflict ends. They’re being blinded by the dollar signs in their own eyes.

This week’s vote at the European Parliament put numbers to the conclusions Europe had already come to.

Cash for passports is a security risk to all Member States. They don’t attract legitimate investment. They facilitate money laundering. The vetting process is corrupt. And the practice undermines common EU values by flogging a ‘good’ that is collectively created and provided at the EU level.

Dutch MEP Sophie In’t Veld said it best. These programmes are “designed for shady business, shady money and shady characters.”

But peddling passports isn’t the only way to abuse the Union for personal gain. Twelve Member States, including Malta, also grant residence permits for cash.

‘Golden visas’ are cheaper than citizenship because they can be revoked, but they still give the customer freedom of movement and the ability to undertake economic activities in the single market. Family members can also benefit.

What happens if an applicant can’t provide proof of a clean criminal record? Vetting is up to the issuing Member State. Malta can waive such requirements “where the competent authority considers such a certificate impossible to obtain” and they don’t even have to tell anyone about it.

The Passport Papers investigation revealed how easy this is with the right political connections.

A solution to ending these programmes for good is still a long way off, but the EU took an important political step toward one this week.

The EP resolution to ban golden passports and to rein in golden residency visas passed with an overwhelming majority of 595 votes out of 681. Just 12 voted against it, including all four Labour MEPs from Malta, and 74 abstained.

So what’s next?

The vote is non-binding. The European Commission has to come up with a detailed proposal for ending the schemes, and national governments will have the final say.

Malta will inevitably vote against it. Because citizenship falls under ‘unanimity’ rather than qualified majority voting, one tiny country with the population of a medium-sized city can stand alone against the other 447 million EU citizens, and the proposed law will be defeated.

This leaves just two possible options.

The EU can argue that citizenship conditions are a Member State’s competence but golden passports breach other obligations like sincere cooperation. Extra demands could be attached to the programmes, including having actual ties to the country selling the passport.

Renting an empty flat would no longer be accepted as proof, nor would a couple of cinema tickets or pastizzi receipts. But who would verify the new criteria are being met? Malta? This option has been tried and failed.

The second option is to make selling passports so painful that Malta decides to stop on its own. There’s a lot more scope for action here.

The EU could take a steep cut of the profits, arguing that such a tax would compensate for some of the negative externality (ie. the costs incurred by other Member States when a country operates these schemes).

It’s much more difficult to defend a sleazy programme that soils the country’s reputation if only a portion of the profit goes to Malta.

The EU could also ban intermediaries from these programmes on the grounds that they’re not accountable for the decisions they make —decisions that affect all Member States — and the vetting process is not transparent.

You’ll recall that when Joseph Muscat announced his intention to peddle citizenship for cash in 2014, what little domestic backlash existed dissolved in an instant when the government opened up the ability for anyone to make a commission on sales.

Even the Abelas got in on the action, with the current prime minister’s wife Lydia having been listed as an agent who could process applications for potential passport customers.

Banning intermediaries stops entities like Henley & Partners and local Maltese law firms from taking a cut from referrals. Malta would pay a steep price in reputation for continuing the programme while reaping few of the benefits.

Brussels could also assume regulatory powers over these schemes, ensuring background checks really do check backgrounds, due diligence really does demand clear proof of source of funds, and actual investments are made by applicants, rather than the box-ticking exercise being accepted by Malta.

Mandatory checks could include running names against EU justice and home affairs databases and conducting vetting procedures in third countries. Other Member States could also be given the opportunity to object to golden visas or passports being granted to shady characters. And that’s fair, since these ‘customers’ are using Malta as a backdoor into other countries.

The goal with each of these policy options is to reduce the benefits of peddling passports while increasing the difficulties so that Malta and other ‘free riding’ Member States end these programs on their own.

Other countries can also apply pressure by making life difficult for anyone who holds a Maltese passport.

The recent American proposal to exclude countries that sell citizenship by investment from the US visa waiver programme is one such initiative. If it passes, then everyone travelling on a Maltese passport will have to apply for a visa to visit the US.

This means no more easy online ‘visa waiver’ application for you. You’ll have to queue up at the embassy instead, and there’s no guarantee your visa application will be accepted. The visa requirement also applies if you’re transiting through the US — changing planes in Miami, say, to visit your Caribbean tax haven.

Restrictions like this make life difficult for all Maltese, not just those who bought a passport.

Treating a Maltese passport as a red flag for possible money laundering also turns banking into a massive headache and makes opening a business much more difficult.

Banks and regulatory agencies may simply conclude that it’s easier to turn away potential clients rather than go to the extra trouble of enhanced due diligence procedures. This will hurt Maltese citizens who live, bank or do business abroad, but collective punishment is the price you’ll pay for the easy money Joseph Muscat and friends raked in.

Robert Abela could end this hurt in an instant by stopping the scheme.

Instead, ‘under repeated fire from the skies, Malta stands alone and defiant. No George Cross will be awarded this time.