Malta's model: 5 pillars of a reputable citizenship-by-investment programme

Designed to attract foreign investment and fuel countries’ economic growth, the investment migration industry faces increased scrutiny by supranational organisations like the OECD and the EU. Earlier this year, the OECD launched a consultation process to investigate concerns relating to potential tax avoidance practices that could be facilitated through residency and citizenship by investment (RCBI) programmes.

This week, the EU Commissioner for Justice Vera Jourova announced that European countries offering RCBI programmes will come under increased scrutiny to ensure that the source of wealth of applicants (in particular for Russian citizens) comes from legitimate and verified sources. Whilst acknowledging that the granting of citizenship remains within the competence of individual Member States, the Commissioner stated that the EU Commission can put high requirements on countries offering such programmes.

In view of such concerns, we aim to mention a few of the fundamental characteristics that a reputable RCBI programme must have to be considered legitimate and reputable enough to pass any rigorous requirements set forth by such institutions.

1. Thorough Due Diligence Process

The primary concern expressed by critics of RCBI programmes is that applicants with questionable reputation or a criminal record could gain access to alternative citizenship due to lack of proper verification. Taking the Malta Individual Investor Programme (MIIP) as a benchmark, a multi-tier due diligence process is carried out by the Maltese authorities to verify that applicants have a clean criminal record and unimpeachable sources of wealth on a personal and business level. The Maltese due diligence process taps into international databases such as Interpol as well as international security agencies, and requires applicants to strictly provide detailed information on the source and origin of funds required under the programme. This extensive and exhaustive due diligence process ensures that only reputable individuals and families are accepted under the programme.

2. Transparency and Accountability

Increasing the visibility of the outcomes of RCBI programmes helps to eliminate the speculative and often unfounded negative perception attributed to the industry. The publication of official statistics on the approvals, rejections, nationality and type of investments provides a factual basis for discussion and analysis of the contribution that the industry provides to the economy. In Malta, the Office of the Regulator (Individual Investor Programme) is tasked to conduct and publish an extensive yearly report on the performance of the programme, which is then presented to the Maltese Parliament. The Regulator also provides feedback and recommendations to the IIP Agency for improvements in the management of the programme. This model ensures that the IIP Agency remains accountable to the Regulator and the Maltese parliament whilst ensuring transparency on its conduct of activities.

3. High Standards of Ethics and Professional Representation

Regulation of agents and professional representatives of applicants under the programme is of utmost importance to maintain a high level of professionalism and work ethic within the industry. Agent regulation and supervision has been adopted by Malta and very recently also by Cyprus under the revised rules of the programme. The setting of standards and minimum requirements for representation of applicants provides an important safeguard for the programme and applicants themselves. Appropriate vetting of providers eliminates unwarranted risks that could potentially be taken by individuals or companies operating in an unregulated environment, thus posing a risk to the programme and the industry at large.

4. Genuine Link with Country

One of the requirements that the EU Commission imposed on the Maltese government prior to the approval of the IIP was to make sure that prospective citizens would show a genuine connection or link to Malta. This requirement is an essential part of the Maltese investment programme, and today there are various forms through which new citizens may establish a link to the Maltese community. Beyond a minimum residency period and a physical address, applicants look at other ways to establish links to Malta, such as through business investments, philanthropy, memberships and sponsorship of cultural and social causes. Such activities show that the link between new citizens and the country goes well beyond the initial phase of the acquisition of the passport and takes on a personal dimension that is very often actively pursued.

5. Managing Public Perception through Marketing Guidelines

The setting of a code of conduct or marketing guidelines for investor programmes provides a framework in which agents and professional representatives can compete within established boundaries whilst ensuring the programme stays of high repute. The Maltese government has from the very start launched a code of conduct as part of the regulatory framework for promoting the programme to ensure that marketing efforts remain worthy of the seriousness of the programme. Such a model has been recently adopted by the Cypriot authorities to curb on potentially low quality or misleading information being distributed by certain agents.

It goes without saying, that any reputable RCBI programme must comply with principles of international law and the highest industry standards. With a proper regulatory framework based on the principles discussed above, there is clearly an opportunity for the RCBI industry to continue to grow and facilitate international investments, whilst minimising risks for countries offering such investment programmes.