European Commission vs. Malta: What the Future Holds for Citizenship by Investment

By Oliver Said, CEO | Endevio

June 20, 2024

The recent hearing at the European Court of Justice (ECJ) has brought Malta’s Citizenship by Investment (CBI) program into sharp focus, drawing attention from across Europe. As the court deliberates whether Malta’s program aligns with European Union (EU) principles, many are left wondering about the implications of either outcome. Here’s a look at the potential scenarios and their broader impacts on Malta, other EU countries, and the future of citizenship and residency by investment programs. 

The Stakes: Sovereignty and EU Citizenship 

At its core, the case challenges the balance between national sovereignty and the collective values of the European Union. Malta asserts its sovereign right to grant citizenship, emphasizing its rigorous due diligence and historical precedents. In contrast, the European Commission contends that such programs undermine the integrity of EU citizenship by not requiring a “genuine link” to the granting state. 

Regardless of the outcome, the decision will have significant repercussions for Malta and the broader landscape of Citizenship by Investment and residency by investment (RBI) programs across the EU.

Scenario 1: The implications for Citizenship by Investment if Malta Wins

Should Malta prevail in this legal battle, several key developments are likely: 

1. Affirmation of National Sovereignty:

• A ruling in favor of Malta would reaffirm the right of EU member states to independently determine their citizenship policies. This would be a significant endorsement of national sovereignty within the EU framework. 
• Such a decision would validate Malta’s Citizenship by Investment program, potentially encouraging other countries to implement or continue similar schemes. 

2. Stability for Existing and Pending Applications of CBI:

• For Existing Citizens: The citizenship status of individuals who obtained Maltese citizenship through the Citizenship by Investment program would be confirmed, ensuring that their rights and privileges remain secure. 
• For Pending Applications of Citizenship by Investment: Applications currently in process would likely proceed with minimal disruption, maintaining the current criteria and procedures. 

3. Encouragement for Other EU States:

• Other EU countries may feel empowered to continue or start their own Citizenship by Investment programs, seeing the court’s decision as a green light to pursue policies aligned with their national interests. 
• This could lead to a more varied array of CBI and RBI options across Europe, tailored to attract global talent and investment. 

4. Focus on Enhanced Due Diligence:

• Malta’s stringent due diligence standards would be upheld as a benchmark, while other EU nations may be prompted to strengthen their scrutiny to ensure that only the most qualified applicants are granted citizenship or residency. 

• Harmonizing due diligence standards across the EU could become a focal point, ensuring high security and integrity in all member states. 

Scenario 2: The Implications for Citizenship by Investment if Malta Loses 

A ruling against Malta could lead to significant shifts in how CBI programs operate within the EU: 

1. Re-evaluation and Reform of Citizenship by Investment Programs:

• Malta, along with other countries with similar programs, would need to re-evaluate and possibly reform their CBI schemes. This might involve introducing more stringent requirements, such as longer residency periods or stronger economic and cultural ties. 
• Malta might temporarily halt new applications as it restructures its program to comply with the ECJ’s directives, affecting both pending applications and future prospects. 

2. Uncertainty for Pending Applications of CBI:

• Applications in process might face delays or additional requirements as Malta adjusts its criteria to meet the new legal standards. This could include more rigorous checks or extended processing times. 
• Existing Citizenship by Investment citizens are likely to retain their status, as broad revocations of citizenship are legally and ethically complex. However, they might undergo enhanced scrutiny to ensure ongoing compliance with new regulations. 

3. Impact on Other EU Nations:

• Countries considering or operating Citizenship by Investment programs would need to pause and reassess their policies. A ruling against Malta could deter new programs or prompt significant revisions to existing ones. 
• This decision might set a precedent encouraging a uniform approach to citizenship and residency, emphasizing substantial ties to the country beyond financial contributions. 

4. Movement Towards Harmonized Standards:

• The ruling could accelerate efforts to harmonize due diligence and compliance standards across the EU. Under the Six Anti-Money Laundering Directive (6AMLD), which specifically addresses the role of citizenship and residency by investment advisors, there would be a push to ensure that all member states apply rigorous checks uniformly. 
• This harmonization would involve all EU nations adopting high standards to prevent the misuse of CBI and RBI programs, aligning with the gold standard of due diligence upheld by Malta. 

Scenario 3: The Implications of a Vague or Compromised Outcome on Citizenship by Investment 

While the ECJ generally delivers clear and decisive rulings, there is a slim possibility of a nuanced or vague outcome that neither fully supports nor completely opposes Malta’s stance. In such a scenario: 

1. Continued Negotiations and Adjustments:

• Malta might need to negotiate further with the European Commission to find a middle ground, possibly resulting in adjusted guidelines or additional requirements for its CBI program. 
• This could involve implementing changes that address the Commission’s concerns without fundamentally altering the sovereign right to grant citizenship. 

2. Political and Diplomatic Pressure:

• Even if Malta wins, the European Commission is likely to continue exerting significant political pressure. The Commission might leverage diplomatic channels to encourage stricter controls and harmonized standards across all member states. 
• However, if history is any guide, small nations like Malta have shown resilience and a refusal to be bullied into submission. Malta will likely continue to advocate for its sovereignty and the integrity of its CBI program. 

Ensuring Integrity and Fairness in Citizenship by Investment Programs 

In fairness to Malta, it has always championed rigorous due diligence, often setting a gold standard for others to follow. Imagine the EU as a stadium with 27 entrances—some guarded by vigilant sentinels, like Malta’s robust CBI program, and others with less stringent controls. For the EU to maintain its security and integrity, it is crucial that all entrances are fortified with the highest standards of due diligence. 

The Six Anti-Money Laundering Directive (6AMLD) explicitly calls for stringent oversight of citizenship and residency by investment advisors. This directive underscores the need for harmonized standards across the EU, ensuring that all applicants, regardless of where they apply, undergo thorough scrutiny. This collective effort will help uphold the values of the EU and ensure that only the most deserving individuals gain the privileges of EU citizenship and residency. 

Looking Ahead: The Future of Citizenship by Investment Programs in the EU 

As we approach October 3, 2024, the day the Advocate General will deliver their opinion, the future of Malta’s CBI program and similar initiatives across Europe hangs in the balance. Whether Malta wins or loses, the decision will shape the discourse on sovereignty, citizenship, and the harmonization of due diligence within the EU. 

In the meantime, it’s essential for all stakeholders—countries, advisors, and applicants—to stay informed and adaptable. The ongoing dialogue about citizenship and EU law will continue to evolve, reflecting the complexities and dynamics of our interconnected world.