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EU Committee Wants to Eliminate Citizenship by Investment Programs

EU Committee Wants to Eliminate Citizenship by Investment Programs

In a bold move against the financial services industry, the European Economic and Social Committee (EESC), a EU branch that allows civil society and other interest groups to voice their concerns over a variety of issues, has called for the gradual elimination of citizenship and residency by investment programs in Europe.

EESC’s Jean-Marc Roirant said, “These schemes often do not comply with the fundamental rights underpinning European cooperation,” adding that “the EESC is very worried about the promotion of EU rights and EU citizenship as a product for sale.”

Overall, the EESC’s opinion highlighted several of the main risks linked to these citizenship and residency by investment programs.

One of their principal concerns involves money laundering, tax evasion and corruption.

According to the EESC, “the profile and the origin of applicants often makes it difficult to carry out proper security checks and not all Member States are equally selective,” and “the intermediary bodies through which the funds paid by applicants are channeled are not subject to EU legislation on money laundering.”

Furthermore, the EESC explains, “Citizen-by-investment and residence-by-investment schemes can be misused for tax evasion purposes, as they allow investors to remain tax residents in their home jurisdiction while benefiting from the featured tax advantages of these schemes.”

There are also further risks related to both transparency and governance.

The EESC believes “the lack of transparency of many of these schemes exposes states and public officials to the risk of corruption, due to weaknesses such as broad discretionary power in decision-making, a lack of independent oversight and the risk of conflicts of interests affecting private agents and intermediaries involved both in the application and the due diligence process.”

Finally, the Committee “acknowledges that the lack of harmonised standards could encourage a race to the bottom in terms of transparency. Not only is EU citizenship used as a selling point to attract investors, but the decision by a Member State to grant a visa or a passport may affect other Member States and the EU as a whole, since such a decision grants access to the entire Schengen area and the internal market.”

EESC Recommendations to Monitor Citizenship by Investment Programs

EESC Recommendations to Monitor Citizenship by Investment Programs

In line with these risks, the EESC set forth a series of suggested recommendations to be put into effect up until these programs are finally phased out.

These recommendations include:

  • Setting minimum standards for due diligence, security checks and the programs’ operational integrity;
  • Designing a method by which Member States can “exchange information on successful and rejected applications for citizenship and residence in order to avoid ‘passport-shopping’ or ‘visa-shopping’ between jurisdictions by risky individuals;”
  • Establishing a public register of all service providers selling these citizenship and residency by investment schemes;
  • Making all those involved in the sale of these programs “subject to EU anti-money-laundering rules;”
  • Introducing “an obligatory code of conduct [and] supervision of regulated professionals” in this field, and;
  • Not permitting accession countries “to run their own schemes when they join, so that no new schemes are added to the ones currently in place.

Reactions to the EESC’s Opinion on Citizenship & Residency by Investment

Industry professionals were fast to react to the EESC’s opinion, primarily pointing out that they did not have a seat at the table during these discussions.

Bruno L’ecuyer, the CEO of the Investment Migration Council, a global association dedicated to promoting these types of schemes, said, “The European policy debate must not be dominated by a limited number of external stakeholders representing one agenda.”

L’ecuyer added: “Best practice governance requires the voice of all parties to be taken into account; especially those of industrial experts, which have been sadly lacking thus far. There is still time to ensure that the voice of an industry which provides millions of euros in FDI and creates significant and verifiable societal value is given the same courtesy as numerous ill-educated and unaccountable third parties.”

“We implore the EU to adopt a more inclusive and, perhaps ironically given the parties involved, a more transparent approach in this process,” L’ecuyer concluded.

Additionally, the World Citizenship Council opposed this opinion.

A WCC spokesperson said: “While big economies such as the US and Canada efficiently operate golden visa schemes attracting FDI, what is the problem with the EU operating such schemes? Instead of the EU helping member states implement efficient policy measures, these schemes are heavily criticized.”

The WCC also warns that eliminating these schemes would wreak havoc on real estate markets throughout Europe and hinder the financial services sectors operating in many of these economies.

For the full EESC opinion on citizenship and residency by investment programs, click HERE.

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