What’s Driving the EU’s Criticism of Cash-for-Citizenship and Cash-for-Residency Schemes?

In March, most members of the European Parliament (MEPs), including all 13 Irish MEPs, voted in favour of a proposal to abolish the sale of European passports and tighten access to residency through investment.

It wasn’t the first time that the 705-member EU Parliament or the Commission, the EU’s executive arm, have criticised these programmes or attempted to end or limit them.

Malta is currently the only country actively in the business of selling passports. Cyprus suspended its “golden passport” scheme, and Bulgaria is bringing in legislation to end it.

But 12 European Union countries, including Ireland, continue to offer residency – although not citizenship – in exchange for investment.

Ireland’s residency by investment scheme differs from “golden passport” schemes as applicants still have to apply for a visa to enter the EU, and have to meet domestic immigration laws to eventually upgrade their residency status to citizenship.

The EU Commission’s 2019 report on both types of schemes had a heavy focus on risks from money laundering and corruption, but little around what the impacts of investments may have been or whether, by further stratifying immigrants by wealth, they are fundamentally unfair.

A spokesperson for the Department of Justice did not respond to a query asking about its position on the MEPs’ move to restrict residency by investment schemes.

Where Has It Gone?

Since 2012, Ireland’s Immigrant Investor Programme (IIP) has brought in more than €1 billion in investment, said a spokesperson for the Department of Justice.

That is only 0.17 percent of the €585.3 billion in foreign direct investment that flowed into Ireland between 2012 and 2020, according to data from the Central Statistics Office (CSO).

In their reform proposal, MEPs called for the rules around investments for visas to include metrics for investments around quality, added value and contribution to the economy.

Ireland’s current metrics for quality of investments aren’t totally clear. A 2017 review of the IIP in Ireland said it was difficult to fully evaluate its effectiveness as the investments hadn’t matured fully.

The results of a later review are being considered by department officials, according to a written response from Minister for Justice Helen McEntee in the Dáil earlier this month.

Applicants can apply to spend their investment under one of four streams.

They can invest at least €1 million in an Irish enterprise, or an approved investment fund, for at least three years, or at least €2 million in Real Estate Investment Trusts (REITs).

Or, they can opt for a cheaper route, giving a €500,000, or occasionally €400,000, philanthropic donation to sports, art, education and cultural projects.

Of the €720 million invested between 2018 and 2021, €247 million went into social housing, €128 million into nursing homes, and €49 million into hospitality and tourism, said a Department of Justice spokesperson. (They wouldn’t give a more detailed breakdown.)

Social housing leasing schemes are when the state agrees to rent a building for a long period – for the enhanced scheme, it’s 25 years – from a developer or fund. At the end of that time, the fund still owns it.

They’ve been criticised as poor value for the state in tight housing markets compared to the state building social homes itself.

Under the government’s Housing for All strategy, Minister for Housing Darragh O’Brien has said he will phase out leasing social homes.

The developer Bartra, which has said it is “fast becoming one of the largest providers of social housing in Ireland”, which it then sells on to pension funds – and also has a big portfolio of nursing homes – is one big promoter of the IIP.

So is Fitzwilliam Group, whose website touts getting 99 investment applications approved and building up an investment portfolio worth a little less than €75 million via the scheme.

A spokesperson for the Department of Justice said that to qualify, investment in social housing can be tied to an outright purchase by an approved housing body or long-term leases to approved housing bodies or local authorities.

They said they’re reviewing the strand of IIP that allows for investing in REITs because it’s barely used, fetching only €12m worth of approved investment between 2012 to 2021.

“The Department remains in regular engagement with the Department of Housing to ensure any arrangements in place are in keeping with the wider work to meet the State’s identified housing needs,” the spokesperson said.

A spokesperson for the Department of Housing didn’t say whether social leasing should be removed as an IIP qualifier since the department plans to phase it out. “The operation of the investor scheme is entirely a matter for the Department of Justice.”

The Department of Justice’s 2017 analysis of IIP said: “Our initial evaluation indicates that there are likely to be economic benefits associated with the programme.”

But its high-level summary said different streams were likely to bring different benefits, with the money through the enterprise and investment fund streams likely or possible to bring benefits but difficult to quantify.

A “mixed investment stream” – since discontinued – brought minimal or possibly negative benefit, it said, and “investment in property unlikely to best use of foreign investment”.

“It is very difficult to estimate the exact number of jobs potentially supported by the programme,” the report said, but put an upper bound number at more than 1,600 “job years” in construction and 1,100 in sustained employment.

Money From Where?

One of the changes that MEPs have asked for in the reform proposal they recently voted for is stringent background checks, including on an applicant’s family and on the sources of funds – as well as mandatory checks against EU databases.

“Member states should not rely on checks carried out by non-state actors,” says a European Parliament statement from March.

That is what Ireland does though. A spokesperson for the Department of Justice said that applicants have to provide a due diligence report “in respect of themselves from a reputable international risk management and security screening organisation”.

These reports cover general background checks, evidence and source of wealth, regulation checks, media and internet research, sanction and compliance reviews, they said.

But the department does its own screening, using international databases and sanctions checks, “to ensure that only reputable individuals are eligible for permission”, the spokesperson said.

Kristin Surak, an associate professor in sociology at London School of Economics and Political Science, who has studied the economic impact of investment schemes, says that background checks for residency via investment schemes can be less stringent than those that are for citizenship.

But Surak would be surprised, she says, if these schemes posed any serious security or money-laundering risks to countries with smaller uptake.

“For Ireland, when I talked to officials there, I got a sense that it was a fairly solid programme, numbers are fairly small, and it’s mainly Chinese investors,” she said.

Between 2018 to 2021, Chinese investors accounted for about 93 percent of approved applications under Ireland’s IIP, government figures show.

A little over 1 percent of approved investors were from the United States, trailed by a tiny number of applicants from Vietnam, Saudi Arabia and South Africa,

Demand for investor visas is presently concentrated in Greece, Portugal and Spain, according to the 2021 study that Surak co-authored.

In October 2020, Al Jazeera exposed how officials, politicians, lawyers and real estate developers in Cyprus were promising to sell passports to those with convictions for money laundering.

In a 2018 report, Transparency International also voiced concerns about member states’ lack of due diligence and gatekeeping of information around how these schemes work.

Surak says that Al Jazeera’s exposé showed that even in countries with deep-rooted corruption, these schemes have imposed little risk.

“In Cyprus, where there was a known workaround, you know, due to corrupt government officials, Al Jazeera exposed that; I think only around 4 percent of people had questionable backgrounds,” says Surak.

The idea that most or all immigrant investors have ties to totalitarian governments is a misconception, she says.

Take an Iranian citizen who moved to Dubai after the revolution in 1979 because they opposed it, she says. “And you still have Iranian citizenship.”

They may apply for the investor scheme as US sanctions make it difficult to get a mortgage and live a comfortable life with an Iranian passport, she says.

After the Russian state’s invasion of Ukraine, Ireland’s Department of Justice said that it no longer accepts applications from Russian investors.

But Surak says generalising that any Russian who applies for these schemes is pro-Kremlin is incorrect.

“If you talk about Russian nationals, you can have some who went for citizenship or residency by investment precisely because they were anti-Putin and wanted to get out,” she said.

In its proposal against these schemes, the European Parliament says that migrant investors using these pathways “have no genuine interest to invest” as applicants seek the lowest threshold schemes rather than those that are the best investments.

The Fairness Question

There is a massive gulf between wealthy migrants buying European citizenship or residency and refugees who risk their lives to reach safety in Europe by way of the sea.

More than 20,000 people have died at sea while trying to reach Europe, since 2014. For over 17,000 of those, the journey ended on the central Mediterranean.

That isn’t really a concern in the European Commission’s 2019 report though, which focuses on the risks of money laundering and corruption.

Albeit the European Parliament touches on the issue in the explanatory statement of its draft proposal for amending and abolishing golden schemes.

“The contrast with the treatment of refugees or labour migrants, or of Union citizens with dual citizenship born in the Union, is staggering,” it says.

But Surak says she doesn’t think the European Parliament or the Commission are too concerned about the unfairness of these schemes for migrants who don’t have the money to avail of them, or worried they might support dictatorships because of its approach toward migration so far.

“I counted at one point, I don’t know the most recent numbers, but slightly more people were getting citizenship by investment in the EU than they were drowned in the Mediterranean through the pushback efforts of Frontex,” says Surak.

“The European Union paid Erdogan in Turkey, who’s not known for being a democrat, €6 billion to keep refugees out,” Surak says.

But the EU Commission and Parliament, Surak says, have made conversations around these schemes so politically charged, that it leaves little room for nuance and rational debates.

“Money is involved in all types of immigration schemes,” she says. “I don’t really know what drives this attention on investment, whether it’s a sexy re-election topic or whether it’s a real concern about the neoliberalisation of government or something like that.”

“But to me it’s become so politicised that some of the real-world complexities get lost in the debate.”

Cathal Malone, an immigration barrister in Ireland, says similar, that money is never an irrelevant matter for migrating to the EU.

“So, if you wish to bring your spouse here, you have to have earned a certain amount of money, and you have to be not predominantly reliant on social welfare,” he says.

It’s just that one has to spend significantly more under investment programmes, Malone says. “That’s just a matter of degree.”

When MEPs vote in favour of a resolution such as the one against investor schemes, it goes to the EU Commission and the Council, for a final call.

“The European Parliament doesn’t legally have the right to initiate legislation in the EU; only the Commission does,” says Malone.

Disciplining member states, Malone says, and telling them what they can or cannot do, is also a function of the Commission.

A spokesperson for the EU Commission did not respond to queries about the proposal for new rules before the deadline.

Author:

Shamim Malekmian: Shamim Malekmian covers the immigration beat for Dublin Inquirer. Reach her at [email protected]

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