On 10 September 2013, when Malta's parliament was in recess, Prime Minister Joseph Muscat quietly introduced a scheme for individuals to buy Maltese passports.
He published the details in Legal Notice 269, which established a new state agency, Identity Malta, incorporating all departments responsible for passports, identity cards, work, and residence permits. Three days later, his government signed an agreement with Henley and Partners Holdings to operate a passport sales programme.
Henley & Partners, which registered their Malta branch a year before the agreement with Malta's government was signed, became the sole concessionaire of Maltese passports, which provide all the rights of a European Union citizen. The firm engaged Muscat to promote the passport scheme.
Breaking news - passports for cash
Speaking to Bloomberg BusinessWeek a few weeks after the legal notice was published, Muscat said he was “interested in bringing in all those reputable people, who are willing to take up residence in Malta.” He clarified that “due diligence and choosing the right type of person will be paramount.”
Daphne Caruana Galizia published quotes from Muscat's Bloomberg interview on her blog, Running Commentary, and later published details on the scheme that had been strategically hidden in the government gazette that contained Legal Notice 269. She revealed Muscat's government was planning to sell passports for cash.
The backlash, the law, and the secrecy clause
The following months saw a backlash against the scheme with many opposition MPs, international organisations, and EU member states raising concerns about the risks involved in allowing those with the financial means the freedom to become an EU citizen by paying for it.
Despite those objections, on 12 November 2013, Muscat's citizenship bill was voted into law. The vote saw all government MPs, bar two absentees, vote in favour of the bill and all opposition MPs vote against it.
The law required individuals to pay €650,000 into a national development fund, with any subsequent spouses or dependents under the age of 18 paying an additional €25,000 euros each.
It placed no requirements on prior investments in Malta or a residential link to the country and blocked the publication of passport buyers' names. Then-Deputy Prime Minister Louis Grech said the secrecy clause was recommended by “experts.” The experts' names were not specified.
Spotlight on Malta
Under international pressure, Muscat changed the details of the investor programme on 23 December 2013, so that other agents can participate and raise the price of a passport.
The price now involved a property purchase of €350,000 or a €16,000 annual rental for 5 years, and €150,000 investment in bonds or shares in Malta kept for five years. The updated regulations also required that the names of passport buyers would be published, but alongside naturalised citizens with no way to differentiate between the two.
Muscat's updated regulations failed to appease international pressure and in January 2014, MEPs tabled a 14-point resolution that called on Malta to bring the scheme in line with European values. The matter was escalated further when EU legal experts discussed whether there was a basis for infringement proceedings against Malta over the scheme.
Making a house a home?
Proving residency was a major point of tension. Questions were raised on how potential citizens were going to prove residency in Malta prior to their application. The Maltese government committed itself to the “introduction of an effective residence status”, which needed to be proven for 12 months prior to granting citizenship, but officials often waived the requirement for a physical presence.
Passport scheme head Jonathan Cardona said, in a March 2015 interview with Bloomberg, “It doesn't say physical residency…we expect an individual to be in Malta for a number of days; we don't go into the specific number. If you're asking me, are these people going to move here entirely, I would say, ‘Listen, let's not fool ourselves’.”
Identity Malta consultant Dimitry Kochenov argued that since residence is a “legal status” it does not depend on the “presence of a particular individual within that territory,” but rather focuses on rights and obligations. Kochenov also argued that any requirement for a “constant physical presence” would place restrictions on freedom of movement “for EU citizens”.
A lucrative business
The scheme was a lucrative business for Malta, with reports claiming that it generated over €1 billion in the first 18 months of operation. Between July 2015 and June 2016, it accounted for 2.8% of the Maltese economy. Henley & Partners, which operates across a number of small-island jurisdictions, credited Malta as their number one citizenship programme.
European Commission: “golden passports” undermine essence of EU citizenship
Beneath its glossy exterior, Malta's scheme was seen by potential buyers as “one of the easiest to satisfy” with “lax” residency requirements, the Panama Papers leak revealed. By 2020, the scheme became known as a “golden passport” scheme and the European Commission finally decided to initiate infringement proceedings against Malta. Cyprus, which runs a similar scheme, is facing infringement proceedings too.
The Commission said that “the granting of EU citizenship for pre-determined payments or investments without any genuine link with the Member States concerned, undermines the essence of EU citizenship.”