Updated at 7pm with Henley and Partners statement

Citizenship schemes like the one operated in Malta pose security, money-laundering and corruption risks, a draft report by the European Commission says.

The report, expected to be published on Wednesday, delves into what is termed as “investor citizenship schemes” in Malta, Cyprus and Bulgaria.

In the draft report, seen by Times of Malta, the Commission said that Malta’s scheme has no actual mechanisms to ensure that passport buyers actually lived on the island or formed a genuine link in other ways.

The Commission also noted how non-public bodies such as approved agents or the schemes concessionaire Henley and Partners played a significant role throughout the application process, acting on behalf of applicants and interacting directly with the competent authorities.

Read: 2,500 golden passports sold in four years

In last year’s report about Malta’s citizenship scheme, the local scheme's regulator latched on to a suggestion by one of the scheme’s agents to stop publishing the names of Maltese passport buyers in the Government Gazette.

The regulator expressed its agreement with the suggestion that instead of the names being published in the Government Gazette, the list should be subjected to parliamentary scrutiny whereby MPs are given access to the data but would be bound by an oath of secrecy.

Read: MEPs urge EU Commission to regulate golden visa programmes

A source familiar with the drawing up of the report said it had been toned down by the EU’s executive.

In the version seen by Times of Malta, a passage saying the Commission did not endorse any of the citizenship or residence schemes operated by member states had been deleted.

Malta had encountered strong resistence from the Commission when the passport sale scheme was first introduced in 2014.

The Commission had backed down after the government agreed to ensure that passport buyers established a genuine link with the country through a 12-month residency period prior to the applicant becoming a Maltese citizen.

The draft report says that the lack of coordination between member states left room for “shopping around” for the most lenient conditions.

An applicant refused citizenship in one member state could make a fresh request in another, the report says.

It said member states did not inform each other of rejected applicants, not even of those rejected for posing a security risk.

Identity Malta confirmed to the Commission that due diligence definitions and procedures set out in the anti-money laundering directive were followed in the four-tier process of due diligence it used.

FIAU deputy chairman Anton Bartolo told MEPs last January that the anti-money laundering unit received very few suspicious transaction reports related to applications for passports under the scheme.

The draft Commission report says the risks posed by citizenship schemes were accentuated by shortcomings in the transparency and governance of such schemes.

The study said only incomplete information was available about citizenship and residence schemes operated by member states.

A group of experts from EU countries will be set up to further address issues identified with the various schemes, in an “inclusive process”.

Henley and Partners say criticism is 'misguided'

In a reaction, Henley and Partners dismissed the report writers’ concerns, saying that while many were understandable, most were “fundamentally misguided and reflect an inherent lack of understanding of how the investment migration industry actually operate”.

It noted what it felt was a lack of coordination between different EU departments when it came to putting together the report and criticised Brussels’ unwillingness to engage with sectoral players such as itself.

The report writers, Henley and Partners said, had seemingly not taken into account the “genuine societal advantage” that such IIP schemes created, from spillover foreign direct investment to the “generation of new opportunities across all levels of society”.

It said there was a clear need for greater communication between governments, the EU Commission and leading investment migration firms.

“It is vital that the European Commission takes up the numerous invitations extended by our firm and other legitimate operators, as well as the IMC, to engage in mutually beneficial information sharing and dialogue, as is standard in other industries. It is obvious that it is not possible to produce credible policy solutions and recommendations without the engagement of the industry,” the company said.

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