The keys to the EU for €650,000: how Malta's golden passport scheme will work

MORE Naturalisation by numbers • How the IIP will work - FAQ • Who wants a golden passport? • Citizen Gains, the people behind IIPs

Welcome the super-rich, brave new travellers of a world where money opens up borders, and allows them to shop around for the lowest tax rates.

Malta's Prime Minister Joseph Muscat is taking its economy out of prehistory. In a few months' time, it will be possible for a South African millionaire to pay €650,000 for a passport, perhaps not even reside permanently in Malta, and repatriate taxes from a foreign company to the island to get an 85% refund on the taxed income. Is Malta joining a league of countries buccaneering their way into short-term wealth?

There is an abrasive quality to having to sell off citizenship as a way of making millions. The government says the money will be poured into a ring-fenced posterity fund, but it won't say who will buy Maltese passports. In reality, it is selling EU and border and visa-free travel, something that rich people fleeing instability can certainly need in these taut times.

But there is a gross unfairness to the new IIP scheme: many foreign nationals living, working and bringing up their children in Malta often wait for years, perhaps more than a decade, to become naturalised citizens. They form community bonds but are constrained to renew visas and residence permits. Instead of a clear framework and citizenship tests for good-quality members of the community, Malta wants to sell EU passports at €650,000. Scratch that. Bring your wife and two teenage children, and perhaps one of your parents. On average it will work out at €185,000 per person.

Just another opportunity

To consider the news dispassionately, as the people at Identity Malta and the government want us to, selling an EU passport to multimillionaires is a great way of reaping what they believe is a possible annual €30 million, which will be deposited in a posterity fund dubbed the 'national development fund'.

You might think it ironic that, just over 10 years since Labour declared it did not recognise the referendum result that gave Malta EU membership, it's this very commodity - EU citizenship - that the Labour government wants to cash in on.

But the Maltese have never been strangers to the art of profiteering as the situation arises. Privatisation aside (and a good deal of that has taken place over the past 20 years), the former administration used low tax bases and unbeatable financial incentives to attract the bulk of Europe's and the world's e-gaming industry and other financial services firms to set up shop in Malta.

To put it into perspective, the IIP passport-flogging is another piece in the jigsaw puzzle of Malta's beneficial tax regime. Foreign companies can get up to 85% discounts on the tax they pay on profits they remit to a subsidiary in Malta, which is why giants like Australia's Commonwealth Bank or the UK's Npower have set up small offices in Malta to pay lower taxes here. EU retirees can pay 15% on their pensions at a minimum liability of €7,500 if they own a property that costs at least €275,000 - or, if they are still working, avail themselves of the flat 15% tax rate under the Global Residence Programme, again if they buy a property and are subject to a minimum €15,000 tax. Or if you're a chief executive officer for a Maltese firm, you can get any income over €75,000 taxed at just 15%. Anything above €5 million is tax-free.

So, what does it cost us to start selling off passports to people who really want them?

Stability is the 'pull factor'

Consider the allure of an EU passport for the people who really want it and for those who can afford it. Paying a $250,000 cash donation to the St Kitts' Sugar Industry Diversification Foundation allows new citizens to travel without a visa to over a hundred countries, including Canada and Europe - apart from not paying income taxes. In Malta, €650,000 will buy you an EU passport that allows you to move around 28 member states, take up residence in Germany if you wish, and repatriate profits to Malta for tax rebates - and visa-free travel across most of the world.

They will not be coming here for the fantastic weather.

As the people at Henley & Partners say - the concessionaire that will be marketing Malta's fast-track naturalisation - it is instability that drives the rich and powerful to stable countries that can offer them citizenship. As they told Reuters, Danish citizens in 2006 would have found themselves the target of extremists after the Jyllands-Posten cartoons set the Muslim world alight. "In some countries, you couldn't even enter. That is, unless you had a second passport," partner Christian Kalin said.

There could be expected demand from people in China, Russia, and South Africa or Middle Eastern countries to want a Maltese passport. Henley throw parties for the jet set through invite-only social networks. But they could also be US millionaires who want to start paying tax outside the US, or rich migrants who can buy 'political' asylum - government dissidents, pro-democracy activists, multimillionaires in dangerous industries.

Of course it's political

Joseph Muscat, a self-declared economic liberal, says selling citizenship is the mark of a modern economy. Economically lucrative though it may be, the system is fraught with political pitfalls.

In the first place, the government is striking off the obligation to have to publish the names of naturalised citizens in the government gazette. That means that not only will the public not have access to the names of people naturalised by the standard channels, as is current law, but neither will it know who are the powerful and rich who are acquiring Maltese passports.

Malta is already home to a variety of characters who attract international attention. You may have stumbled across news of multimillionaire Rakhat Aliyev, Kazakhstan's most wanted, who is married to an EU citizen and therefore enjoys freedom of movement and residence in Malta. Or perhaps Vladimir Peftiev, dubbed the banker of Belarusian dictator Aleksander Lukashenko, who has a residence at Portomaso. They could be suitable candidates for the IIP because under the new rules, the minister may exercise discretion on applicants "who may be subject to politically motivated charges or convictions".

The situation would be akin to that of ousted Thai prime minister and billionaire tycoon Thaksin Shinawatra, who left for Montenegro to buy himself a passport there so that he could evade corruption charges opened against him by the Bangkok authorities.

There is no doubt that with this kind of secrecy contemplated for the IIP, the concerns about who is going to be buying the golden passport are well justified. As Dominica's former ambassador to the UN, Crispin Gregoire, told Reuters, the system "encourages people with something to hide. It must be a big source of income for the state, but they're not doing a good job of regulating it".

Unfair citizenship law

But while Muscat is providing multimillionaires with citizenship against payment, the hard-earned naturalisation for foreign residents who have actively contributed to Maltese social life, paid taxes here and brought up their children on the island will not change. The home affairs minister will keep enjoying his singular, non-reviewable discretion to give citizenship by naturalisation; while under the IIP, he can grant the golden passport to rich exiles who might be facing "politically-motivated" charges back home.

The minister's discretion in awarding naturalised citizenship is already an avenue of potential abuse or conflict of interest. So if the IIP has its own strict requirements for candidates, why aren't the common folk getting a proper framework where they too can be awarded citizenship?

"Muscat wants Malta to move out of what he dubbed a 'prehistoric' economy through new mantras [like] selling citizenship rights to those who afford it," says sociologist and former Green Party leader, Michael Briguglio. "So now it is official, Malta is for sale. This is a taghna lkoll which gives citizenship and property rights to those who make millions from our resources, and which proposes pushbacks to those who have nothing. This is social justice in reverse, selling Malta to the rich and closing Malta's doors to the global poor."

Daniela De Bono, an academic who carried out an analysis of Maltese citizenship laws for the EU's observatory on democracy, has said that it was in the government's interest to ensure a fair and transparent system, to dispel the possibility of allegations of abuse.

Under Maltese citizenship laws, requirements for applicants are too broad and vague, and no standardised system, like language tests, exists. Ministers have to be convinced that applicants are of a "good character" or "suitable citizens"; they must have resided in Malta for a four-year period out of a total six years before being considered.

And the slow pace of naturalisation for many applicants who have already formed real bonds of community with the Maltese means they could end up waiting for over 10 years to earn their citizenship.

There is something excruciatingly base and unjust about the golden passport, when naturalisation in Malta gets granted "for exceptional, humanitarian purposes" like forming a family and having children in Malta.

"The idea of citizenship - membership in a community - should not be devalued," De Bono told MaltaToday. "The perception that Maltese citizenship will be granted to the super-rich, in a context where naturalisation is already very difficult and discretionary, makes the law unfair and feeds into this unfairness on two levels," she says, pointing to the fact that it is being awarded to those who can pay for it and also to those who are healthy.

"The first is financial, because it fast-tracks naturalisation for those who can afford it. The second is health, because it can bar people 'suffering from contagious diseases who are otherwise in good health' - so what will happen in the case of applicants or their family members who have HIV or tuberculosis? Will the Act discriminate against them?"

Apart from all this, De Bono says, it is clear that Malta's Citizenship Act needs to be revised. "At the moment it is too protectionist and based on the old, and mythical, assumption that we live in a homogeneous society - we need a citizenship law that is less protectionist, fair and non-discriminatory. These proposed amendments go the other way."

Finally, there is the EU question, De Bono says. "Is this part of a race to the bottom, where member states compete on who can offer EU passports for the lowest price?"

Bulgaria is offering passports at just over €500,000. Austria demands a $10 million investment in the country - and, despite its 50% income tax, a naturalised citizen could still live in Malta and pay 35% tax, and then get up to 85% of that tax refunded. Hong Kong and Singapore offer 15% tax rates, but so does Malta for foreign chief executives earning over €75,000. Going to Australia under its high-net-worth scheme requires $4.7 million.

The cheap passports are for sale in the Caribbean: $250,000 in St Kitts and Nevis or Antigua and Barbuda, and €100,000 in Dominica. But if you want a passport that opens up the borders to 27 other states without immigration control - not to mention visa-free travel to 160 countries around the world - Malta is the place to be.

Naturalisation by numbers

Between 1991 and 2008, only 23% of individuals who acquired citizenship in Malta did so through naturalisation. The rest were mostly Maltese migrants or their descendants living in countries like Australia, who applied for dual citizenship. In 2011 alone, only 107 of the 1,143 persons acquiring citizenship in 2011 were naturalised, foreign-born residents of Malta.

In 2007 dual citizenship was extended to first-, second- and subsequent generations of Maltese born outside Malta and living abroad, whose Maltese citizenship derived from descent rather than birth in Malta. As a result the number of new citizens shot up from 246 in 1991, to 644 in 2008. But only 50 of the new citizens in 2008 were naturalised.

So what difference would a few more naturalised citizens have made, when citizenship by descent accounted for such a sharp increase in numbers? In her EUDO study, Daniela De Bono gives two reasons for this apparent contradiction, namely that the Maltese do not find immigration desirable and that they are not keen to give voting rights to migrants.

Under the IIP, the rich can buy the right to vote and stand in Maltese elections.

How the IIP will work

How much will it cost?

Applicants will pay €650,000, of which €10,000 will be a non-refundable deposit. Their spouses and children under 18 years of age will pay €25,000 each; unmarried children 18 to 25 and parents over 55 years will pay €50,000 each. Other fees will be due diligence fees (€7,500 for the applicant, €5,000 for the spouse, parent and over-18 children, €3,000 for children under 18) and passport fees and bank charges of €500 and €200 per person, respectively.

Who is eligible?

Applicants and dependants must have a

clean criminal record;

must not be indicted or have appeared before the International Criminal Court;

cannot be or have been wanted by INTERPOL;

must not be an "enemy of the State" or "potential threat" to Malta's independence, national security or reputation;

must not have pending charges or have been found guilty of crimes of terrorism, terrorist funding, crimes against humanity, war crimes, crimes against the European Convention of Human Rights;

cannot have been charged or found guilty of paedophilia, defilement of minors, rape, violent indecent assault, inducing underage persons to prostitution, and abduction; or other offences that disturb the good order of the family.

Applications must come with a medical certificate confirming that applicants and dependents are not suffering "from any contagious disease and that they are otherwise in good health".

Are there any loopholes?

Yes. Applicants who provide false information, have a criminal record, are subject to a criminal investigation, are a potential national security risk, involved in an activity that could cause disrepute to Malta, or were denied a visa to a country with whom Malta has visa-free travel "shall not be approved for citizenship... unless Identity Malta is satisfied that the applicant is still worthy of being considered for approval due to special circumstances to be demonstrated by the applicant."

How to apply?

Henley, the concessionaire, markets the scheme to prospective applicants and passes on the application to a due diligence agent approved by Identity Malta. The background check is carried out over 90 days (three months), and then reviewed by Identity Malta for further background checks over 30 days, and issues its recommendation to the minister. A personal interview with the applicant may be carried out. Within five days of approval, the applicant must pay the required fees, and five days later take the oath of allegiance.

Can naturalisation be revoked?

Yes. Apart from a variety of clauses in Article 14 of the Maltese Citizenship Act, the minister can revoke the 'golden passport' if the applicant has become a threat to national security or is involved in conduct that is seriously prejudicial to Malta's vital interests.

Will we know who gets the golden passport?

No. Because the proposed legal amendments strike off Article 25 of the Maltese Citizenship Act, which makes the publication of naturalised citizens law; and instead appoints a regulator to oversee the workings of Identity Malta, by publishing an annual report in Parliament, without the names of the applicants.

Business tycoons needing EU passports

Would Mohammed al-Fayed, once the owner of Harrods Department Store, be happy to settle with a Maltese passport if that would grant him the same kind of permanence in his adopted homeland?

Selling citizenship can only be a boon to people like al-Fayed, who have viewed the refusal of British citizenship as an affront to his dignity. On the other hand, people like ousted Thai prime minister Thaksin Shinawatra, who purchased Montenegrin citizenship, used it to prevent police authorities in Bangkok from taking any action against him after he was sentenced in absentia to two years in jail on corruption charges. He had been ousted in 2006 before his sentence was given and now lives mostly in Dubai.

Many American businessmen already living Malta and running large businesses employing many workers, might consider acquiring citizenship especially for tax reasons.

Insalubrious characters who would gladly consider Maltese citizenship would be Kazakh oligarchs Rakhat Aliyev and Mukhtar Ablyazov.

Aliyev already lives in Malta, having first availed himself of permanent residency under a property-buying scheme, and then gained residence by virtue of the fact that he is married to an Austrian citizen, Elnara Shorazova, herself a naturalised citizen. Aliyev could claim the charges under which he was tried in absentia in Kazakhstan for the murder of two bankers, are politically motivated by the fact that he was stripped of diplomatic immunity and forcibly divorced from his wife by father-in-law Nursultan Nazarbayev, the Kazakh dictator.

The same goes for Mukhtar Ablyazov, who was arrested in a spectacular raid on his French villa in July. Ablyazov faces an extradition request from Ukraine but claims Kazakhstan's President Nursultan Nazarbayev is behind a campaign of politically motivated harassment.

Citizen Gains

Eric Major of Henley and Armand Arton of Arton Capital are arguably the leaders of the global immigration business that allows the rich and powerful to move between countries through the acquisition of passports or to avoid high taxes in their countries of origin.

After Henley was chosen to be the Maltese government's concessionaire, Arton Capital contested the decision. But its appeal was turned down by a board of appeal chaired by Malta Industrial Parks deputy chairman Joshua Zammit, Reno Borg (a PL delegate on the Broadcasting Authority) and Adrian Said.

Arton alleged that Henley had a special relationship with the government because it had already been associated with the former administration, in giving consultation to the government on a similar scheme or a permanent residence programme. But Major told the appeals board that Henley had never been involved in advising the government on 'citizenship by investment', and instead was involved in the Maltese residence schemes of the last 10 years.

Arton Capital was represented in the tender by counsel Tanya Camilleri of FZD Advocates, whose senior partner is Nationalist MP Francis Zammit Dimech. They have filed a judicial protest in court, signed by Therese Commodini Cachia, currently running for the European elections on the PN ticket.