Citizenship By Investment: The Good, The Bad And The Ugly

WRITTEN BY Marco Mazzeschi

Some authors defend the sale of citizenship by pointing out that it is less arbitrary and more transparent than the principles of jus soli, jus sanguinis or discretionary naturalisation.

Instead of stigmatizing the possible negative consequences, CBI should be strictly regulated and carefully monitored to avoid any risks of infiltration of organised crime groups in the economy, money laundering, corruption and tax evasion. Additional requirements could be language competency, extended residency periods and pay local taxes, irrespective of the time spent in the country.

INTRODUCTION

Many States are raising capitals and attracting wealthy individuals by “selling” citizenship (Citizenship by investment or CBI). The European Parliament and many scholars — for various reasons — have expressed concerns and objected to this practice. The main argument is that if citizenship becomes a commodity, the perception of citizenship itself — as bond of allegiance with a State and a community — could also be affected.

But is this practice really so bad? Some authors defend the sale of citizenship by pointing out that it is less arbitrary and more transparent than other ways of acquiring citizenship (such as those implied by the principles of jus soli and jus sanguinis, or discretionary naturalisation). (1) Both traditional criteria for granting citizenship are in fact arbitrary, because one is based on the accident of birth within particular geographical borders while the other is based on the sheer luck of descent (2). Why should those who have citizen parents or who have been born in the state’s territory have a stronger moral claim to citizenship than foreigners who are ready to pay or invest? (2*)

It is also argued that monetary investment can be a way of contributing to the common good of a political community and should therefore not be summarily dismissed as a legitimate reason for acquiring citizenship (3).

ACQUIRING CITIZENSHIP BY INVESTMENT IS NOT A NOVELTY

Selling citizenship is not a novelty. Romans were selling citizenship to raise cash and there is a famous anecdote in the Bible where a Roman centurion who apprehended Saint Paul the Apostle, stated:

‘’I had to pay a lot of money for my citizenship”. (Bible Acts 22:22–23:11).

Similar exchanges existed in the feudal times, where the link between money and membership often served as a mechanism for excluding certain groups from the polity, while granting additional rights and privileges to the wealthy (4).

Recent years have seen a growing trend in investor citizenship (“golden passport” or CBI, i.e. citizenship by investement) and investor residence (“golden visa”) schemes, which aim to attract investment by granting investors citizenship or residence rights of the country concerned. (5)

Selling passports and permits has proved to be a rewarding business. Sale of EU passports accounted for as much as 5.2 per cent of Cyprus’s GDP in 2017; Portugal’s scheme has delivered close to €4 billion to the economy; and Malta enjoys a budget surplus partly because of its booming trade in residency and citizenship.(6)

EACH STATE CAN DETERMINE WHO ARE ITS OWN NATIONALS

Legally, the sovereign prerogative to issue a valid and internationally recognised passport is reserved in our international system to states alone.

The 1930 The Hague Convention relating to the Conflict of Nationality Laws set forth that , “it is for each State to determine under its own law who are its nationals . . . . Any question as to whether a person possesses the nationality of

a particular State shall be determined in accordance with the law of that State”

BUT ……..

the European Court of Justice has held, in what is now settled case-law, that, while it is for each Member State to lay down the conditions for the acquisition and loss of nationality, they must do so having due regard to Union law. (7) Having due regard to EU law means taking into account all rules forming part of the Union legal order and includes having due regard to norms and customs under international law as such norms and customs form part of EU law (8)

WHY CBI SCHEMES ARE SO CONTROVERSIAL?

CBI schemes have raised concerns about certain inherent risks, in particular as regards security, money laundering, tax evasion and corruption. (9)

Many scholars have equated CBI/RBI schemes with a form of commodification of citizenship. Some have underlined that they represent a particularly stark manifestation of the ‘commercialisation of sovereignty’, which has intensified since the onset of the economic crisis in the late 2000s (10).If citizenship still meant what it used to mean, if it still represented ties as a sociological matter, then CBI schems would not exist. In the old world such programmes would have been inconceivable.(11)

Placing a price tag on citizenship, no matter the amount written on it, has a corrosive effect on non-market relations, eroding the ties that bind and altering our view of what it means to belong to a political community (12). CBI schemes, by linking wealth and privileged access to political membership threaten not only the implementation of the ideal of citizenship, ‘but the ideal itself (13). The act of exchanging a higher-value good (citizenship) for a lower value good (money) not only destroys the value of citizenship, it also ‘corrodes public trust in that institution in a way that naturalisation on other bases does not (14).

AND WHAT COULD BE THEIR PROs?

Photo by Volkan Olmez on Unsplash

Some authors, however, defend the practice of granting citizenship by investment and point out, for example, that:

  • it is less arbitrary and more transparent than other ways of acquiring citizenship (such as those implied by the principles of jus soli and jus sanguinis, or discretionary naturalisation)(1)
  • monetary investment can be a way of contributing to the common good of a political community and CBI schemes should therefore not be summarily dismissed as a legitimate reason for acquiring citizenship. (15)
  • that investor citizenship is not essentially different from the widespread practice of offering citizenship to prominent sportsmen and women (16) or with the practice to offer citizenship to foreigners who have served in their army or have otherwise provided exceptional service to the country (17).
  • Last but not least, we do not have to forget the profits that the schemes generate for the finances of some States. According to available statistics, at least €25 billion in foreign direct investment has flown into the EU through golden visa schemes over the past decade (6).

CONCLUSIONS

Photo by Kelly Sikkema on Unsplash

CBI schemes are here to stay and States cannot be limited in their discretion to grant citizesnhip under certain conditions and requirements. Instead of questioning their legitimacy, it will be necessary (7):

  • to strenghten the due diligence process that each State and competent authorities must carry out;
  • as to the EU countries, the integrity of the EU single market and safeguard EU objectives of sincere cooperation, security and justice
  • to ensure transparency and good governance in the implementation of the schemes, with a view to address, in particular risks of infiltration of non-EU organised crime groups in the economy, money laundering, corruption and tax evasion

OECD added (18) that the circumvention of the Common Reporting Standards (CRS) through the abuse of CBI/RBI schemes can be prevented by the correct application of the existing CRS due diligence procedures. Important in this regard are:

(i) The requirement to have a real, permanent physical residence address (and not just a PO box or in-care-of address) for the application of the residence address rule and the necessity to confirm the presence of a real, permanent physical residence through appropriate Documentary Evidence;

(ii) The requirement to instruct Account Holders to include all jurisdictions of tax residence in their self-certification;

(iii) The rule that Financial Institutions cannot rely on a self-certification or Documentary Evidence if they know, or have reason to know, that such selfcertification or Documentary Evidence is unreliable, incorrect or incomplete.

(iv) additional approaches to prevent the abuse of CBI/RBI schemes, may include both tax compliance and policy related measures and will take into account the possible role of all stakeholders involved, including the jurisdictions offering these schemes, the tax administrations of jurisdictions participating in the CRS, financial institutions subject to CRS reporting, the intermediaries promoting the schemes and taxpayers.

References

(1) Kochenov, EUI Working Paper RSCAS 2014/01

(2) Schachar, The birthrigh lottery, 2009

Dumbrava and Bauböck, Bloodlines and belonging: Time to abandon ius sanguinis? EUI Working papers, RSCAS 2015/80

(2*) Baubock, UI Working Paper RSCAS 2014/01

(3) Magni Berton, EUI Working Paper RSCAS 2014/01

(4) Dzankic, The Global Market for Investor Citizenship — Politics of Citizenship and Migration (2019)

(5) EU Parliament 2018 — Study on Citizenship by investment (CBI) and residency by investment (RBI) schemes in the EU

(6) European Getaway: inside the murky world of Golden Visas, Gobalwitness/Transparency International 2018

(7) Judgment of 7 July 1992, Micheletti and Others v Delegación del Gobierno en Cantabria, C-369/90, EU:C:1992:295, paragraph 10; Judgment of 11 November 1999, Belgian State v Mesbah, C-179/98, EU:C:1999:549, paragraph 29; Judgment of 20 February 2001, Kaur, C-192/99, EU:C:2001:106, paragraph 19; Judgment of 19 October 2004, Zhu and Chen, C-200/02, EU:C:2004:639, paragraph 37; Judgment of 2 March 2010, Rottmann, C-135/08, EU:C:2010:104, paragraph 39;

(8) Opinion of Advocate-General Maduro in Case C-135/08 Rottmann, paragraphs 28–29; as regards impact of international law on EU law, see: Judgment of 14 May 1974, 3, Nold KG v Commission, Case 4- 73, EU:C:1974:51; Judgment of 24 November 1992, Anklagemindigheden v Poulsen and Diva Navigation, C-286/90, EU:C:1992:453, paragraphs 9 and 10, and Judgment of 16 June 1998, Racke v Hauptzollamt Mainz, C-162/96, EU:C:1998:293, paragraphs 45 and 46

(9) Report from the Commission to the EU Parliament on Investor Citizenship and Residence Schemes in the European Union, 23.1.2019

(10) Parker, Commercializing Citizenship in Crisis EU: The Case of Immigrant Investor Programmes, 2016

(11) Spiro, EUI Working Paper RSCAS 2014/01

(12) Schachar, EUI Working Paper RSCAS 2014/01

(13) On Citizenship, States, and Markets, Shachar and Hirschl, 2014

(14) Dzankic, EUI Working Paper RSCAS 2014/01

(15) Magni Berton — EUI Working Paper RSCAS 2014/01

(16) Owen — EUI Working Paper RSCAS 2014/01;

Jansen, Nationality swapping in the Olympic field: towards the marketization of citizenship 2018

(17) Armstrong — EUI Working Paper RSCAS 2014/01

(18) OECD Consultation document, Preventing abuse of residence by investment schemes to circumvent the CRS, 2018

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