The European parliament has voted on a resolution to implement legislative package on new proposals regulating Citizenship by investment (CBI) and Residence by investment(RBI) schemes
The EPRS EAVA Study estimates that, from 2011 to 2019, 42 180 applications under CBI/RBI schemes were approved and more than 132 000 persons, including family members of applicants from third countries, obtained residence or citizenship in Member States via CBI/RBI schemes with the total investment estimated at EUR 21,4 billion
Proposals
Proposal 1: a Union-wide gradual phasing out of CBI schemes by 2025
▪ A Union-wide notification system, with measurable targets, strictly applicable to the existing programmes only and thus not allowing for new programmes to be legitimised by this system, for the maximum number of citizenships to be acquired under CBI schemes across the Member States should be established with the number to be gradually lowered each year, reaching zero in 2025, thereby leading to the complete phasing out of CBI schemes. Such a gradual phasing out will allow the Member States that maintains CBI schemes to find alternative means to attract investment and sustain their public finances. Such a phasing out is in line with the previous position of Parliament expressed in several resolutions and is necessary in light of the profound challenge that CBI schemes pose to the principle of sincere cooperation under the Treaties (Article 4(3) TEU).
▪ This proposal could be based on Article 21(2), Article 79(2) and, because CBI schemes affect the single market, Article 114 TFEU.
Proposal 2: a comprehensive regulation covering all RBI schemes in the Union
▪ To address the specificities and widespread occurrence of RBI schemes across the Member States, a dedicated Union legal framework in the form of a regulation is necessary. Such a regulation will ensure Union harmonisation, limit the risks posed by RBI schemes and make RBI schemes subject to Union monitoring, thereby enhancing transparency and governance. It is also a means to discourage Member States from establishing harmful RBI schemes.
▪ The regulation should contain Union-level standards and procedures for increased due diligence and rigorous background checks for applicants and for the source of their wealth. In particular, all applicants should be structurally crosschecked against all relevant national, Union and international databases by the Member State authorities while respecting fundamental rights standards. There should be an independent verification of documents submitted, a full background check of all police records and involvement in previous and current civil and criminal litigation, in-person interviews with the applicants and a thorough verification of how the applicant’s wealth was accumulated and is related to the reported income. The procedure should allow sufficient time for the proper due diligence process and should foresee the possibility to annul positive decisions retroactively in cases of substantiated misrepresentation or fraud.
▪ The practice of joint applications, where a main applicant and family members can be part of the same application, should be prohibited: only individual applications subject to individual and rigorous checks should be allowed, while taking into account the links between applicants. Rigorous checks should also apply when residency rights can be pursued by family members of successful applicants under family reunification rules or other similar provisions.
▪ An important element of the regulation, possibly complemented by other legislative measures, where needed, should be the regulation of intermediaries. The following should be included:
(a) a Union-level licensing procedure for intermediaries containing a thorough procedure with due diligence and auditing of the intermediary company, its owners and its related companies. The license should be subject to renewal every second year and be featured in a public Union register for intermediaries. Where intermediaries are involved in applications, Member States should be allowed to process such applications only where prepared by Union-licensed intermediaries. Applications for licensing should be made to the Commission, to be supported by the relevant Union bodies, offices and agencies in carrying out the checks and procedure;
(b) specific rules for the activities of intermediaries. Those rules should include detailed rules concerning the background checks, due diligence and security checks that the intermediaries are to carry out on applicants.
(c) a Union-wide prohibition on marketing practices for RBI schemes that use the Union flag or any other Union-related symbols on any materials, website or documents or that associate the RBI schemes to any benefits linked to the Treaties and the acquis;
(d) clear rules on transparency of intermediaries and their ownership;
(e) anti-corruption measures and best due diligence practices to be adopted within the intermediary, including on appropriate staff remuneration, the two-person rule (that every step is checked by at least two persons) and provisions for a second opinion when preparing applications and carrying out checks on applications, and a rotation of staff members across the countries of origin of applicants under RBI schemes;
(f) a prohibition on combining the consultation of governments on the establishment and maintenance of RBI schemes with involvement in the preparation of applications. Such a combination creates a conflict of interest and provides the wrong incentives. Furthermore, intermediaries should not be allowed themselves to implement RBI schemes for Member State authorities but should only be allowed to act as intermediaries in individual applications and only when being approached by individual applicants. General public affairs activities of intermediaries should be organisationally separated from their other activities and should comply with all legal requirements and codes of conduct at Union and national level regarding transparency;
(g) a monitoring, investigations and sanctions framework to ensure that intermediaries comply with the regulation. The relevant law enforcement authorities should be able to conduct undercover investigations, including by posing as potential applicants. Sanctions should include dissuasive fines and should, where infringements are established twice, lead to the revocation of the Union license to operate.
▪ A duty for Member States to report to the Commission regarding their RBI schemes should be introduced. The Member States should submit detailed annual reports to the Commission on the overall institutional and governance elements of their schemes, as well as on the monitoring mechanisms in place. They should also report on individual applications, including on rejections and approvals of applications, and the reasons for approvals or for rejections, such as non-compliance with anti-money laundering provisions. Statistics should include a breakdown of the applicants by the country of origin and data on family members and dependents who have gained rights via an applicant under a RBI scheme. The Commission should publish those annual reports, where needed redacted in line with data protection regulations and the Charter of Fundamental Rights of the European Union, and should publish alongside those annual reports its assessment of them.
▪ A system, managed at Union level, for prior notification to and consultation with all other Member States and the Commission, prior to granting residence under an RBI scheme, should be set up. If Member States do not object within 20 days, that should mean that they have no objection to the granting of residence. That would allow all Member States to detect double or subsequent applications and to conduct checks in national databases. Within these 20 days, the Commission should also carry out, in cooperation with the relevant Union bodies, offices and agencies (including through their liaison officers in third countries), Union-level final checks of applications against the relevant Union and international databases and further security and background checks. On that basis, the Commission should issue an opinion to the Member State. The competence to grant residence or not under RBI schemes should remain with the Member States. The Commission should provide any relevant information to help highlight where the same individuals have made several unsuccessful applications.
▪ Member States should be required to effectively check physical residence, including by using the option of establishing minimum physical presence requirements, on their territory and to keep a record of it, which the Commission and Union agencies can consult. That should include at least biannual in-person reporting appointments and on-site visits to the domicile of the individuals concerned.
▪ To combat tax avoidance, specific Union measures to prevent and tackle the circumvention of the Common Reporting Standard through RBI schemes, in particular the enhanced exchange of information between tax authorities and Financial Intelligence Units (FIUs), should be introduced.
▪ Rules on the types of investments required under RBI schemes should be introduced. A significant majority of the required investment should consist of productive investments in the real economy, in line with the priority areas of the green and digital economic activity. Investment in real estate, in investment funds or trust funds or in government bonds or payments directly into the Member State budget should be limited to a minor part of the invested amount. Furthermore, any payments directly into the Member State budget should be limited so as not to create budgetary dependence on this source, and the Commission should request Member States to assess such payments in the context of the European Semester.
▪ This Regulation could be based on Article 79(2) and Articles 80, 82, 87 and, because RBI schemes affect the single market, 114 TFEU.
▪ In case a regulation or any other legislative act concerning RBI schemes comes into force before the complete phase-out of CBI schemes, all rules applicable to RBI schemes should apply to CBI schemes as well in order to avoid less strict controls for CBI schemes than for RBI schemes.
Proposal 3: a new category of the Union’s own resources, consisting of a ‘CBI and RBI adjustment mechanism’
▪ As all Member States and the Union institutions are confronted with the risks and costs of the CBI and RBI schemes operated by some Member States, a common mechanism, based on appropriate data and information, to offset the negative consequences of CBI and RBI schemes to the Union as a whole is justified. Moreover, the value of selling Member State citizenship or visas is inherently linked to the Union rights and freedoms that come with it. By establishing a CBI and RBI adjustment mechanism, the negative consequences borne by all Member States are compensated through a fair contribution to the Union budget. It is a matter of solidarity between the Member States operating CBI and RBI schemes, the other Member States and Union institutions. In order for that mechanism to be effective, the levy payable to the Union should be set at a meaningful percentage of the investments made in Member States as part of CBI/RBI schemes, reasonably estimated on the basis of all negative externalities identified in the schemes;
▪ The mechanism could be established under Article 311 TFEU, which stipulates that “the Union shall provide itself with the means necessary to attain its objectives and carry through its policies”, including the possibility to “establish new categories of own resources or abolish an existing category”. Further implementing measures could be adopted in the form of a regulation. Something similar was done for the Plastics Own Resource that has been in place since 1 January 2021. That option does involve a rather lengthy process of formal adoption of an own resources decision, linked to the respective national constitutional requirements for approving it. It could be combined with the legal basis of Article 80 TFEU which stipulates “the principle of solidarity and fair sharing of responsibility, including its financial implications, between the Member States”, including in the area of immigration.
Proposal 4: a targeted revision of legal acts in the area of anti-money laundering and countering the financing of terrorism
▪ The Commission has made a welcome step by including RBI schemes prominently in its package of legislative proposals of 20 July 2021 to revise legal acts in the area of anti-money laundering and countering the financing of terrorism, especially where it concerns intermediaries. Three further elements should be included:
(a) public authorities engaged in processing applications under RBI schemes to be included on the list of obliged entities under legal acts in the area of anti-money laundering and countering the financing of terrorism, specifically in Article 3, point (3), of the proposal for a regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (2021/0239(COD));
(b) a greater exchange of information on applicants under RBI schemes between the Member State authorities under legal acts in the area of anti-money laundering and countering the financing of terrorism, specifically between the Financial Intelligence Units;
(c) enhanced due diligence measures as recommended by the OECD to mitigate the risks posed by RBI schemes to be foreseen for all obliged entities involved in the RBI process.
Proposal 5: a targeted revision of the Long-Term Residence Directive
▪ The Commission should, when it comes forward with its expected proposals for the revisions of the Long-Term Residence Directive, limit the possibility of third-country nationals who have obtained residence under an RBI scheme from benefitting from more favourable treatment under that Directive. That could be achieved by amending Article 13 of the current Long-Term Residence Directive to narrow its scope of application by expressly excluding beneficiaries of RBI schemes.
▪ The Commission should take the steps necessary to ensure that the legal and continuous residence of five years, required by Article 4(1) of the Long-Term Residence Directive, is not circumvented through RBI schemes, including by ensuring that the Member States enforce stronger controls and reporting obligations on applicants under RBI schemes.
Proposal 6: ensuring that third countries do not administer harmful RBI/CBI schemes
▪ Third-country CBI schemes should be included in Regulation (EU) 2018/1806 as a specific element to take into account when deciding on whether to include a particular third country in the annexes to that Regulation, i.e. as a factor when deciding on the third countries whose nationals are exempt from visa requirements. That element should also be embedded in the visa suspension mechanism set out in Article 8 of that Regulation and in the planned monitoring.
▪ A new article should be added to Regulation (EC) No 810/2009 of the European Parliament and of the Council of 13 July 2009 establishing a Community Code on Visas (Visa Code) on cooperation with third countries on phasing out their CBI schemes and bringing their RBI schemes in line with the new Regulation proposed under proposal 2 above.
▪ For candidate countries and potential candidate countries, the complete phase-out of CBI schemes and the strict regulation of RBI schemes should be a prominent and integral part of the accession criteria.
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