The Maltese government and the European Commission remain at loggerheads on the sale of passports to non-EU nationals.

The government argues that “citizenship is a national competence”. The commission considers that granting EU citizenship for pre-determined payments or investments without a genuine link with the member state undermines the essence of EU citizenship.

Last June, the commission sent a “formal notice” to the Maltese government requesting citizenship sales to stop under the new programme. The Brussels executive said it would proceed with the reasoned opinion in the case of Malta and Cyprus should the government’s response be unsatisfactory.

Commission president Ursula von der Leyen did not mince her words when she was in Malta last week. Putting a stop to the sale of Malta’s golden passports scheme, she said, is of “utmost importance”.

From the response given by the parliamentary secretary for citizenship, Alex Muscat, it looks likely that the government will ignore this advice and that the passports conundrum will eventually have to be resolved in the European Court of Justice.

In July, a survey commissioned by Times of Malta found the Maltese to be split on whether the scheme should be scrapped. This is not surprising. The scheme has encouraged a flow of money into the treasury’s coffers and helped boost the sale of property and the procurement of professional advice.

The government, until quite recently, argued that the flow of funds from this scheme was being invested in projects of an infrastructural and social nature.

It held that the annual budget projections in the last few years did not depend on the success of the sale of passports.

This situation changed after the pandemic caused unprecedented fiscal shocks, which were partly mitigated from the funds generated by the

passports scheme.

The other side of the coin is how different member states perceive Malta’s citizenship-by-investment programme. While both the main political parties in Malta agree that the scheme should carry on, albeit in some rehashed form, many other EU countries object to third-country citizens gaining automatic access to their territory after buying passports from countries like Malta.

Prime Minister Robert Abela’s argument – that thanks to the passports scheme Malta has had a “war chest” to fight the effects of the pandemic – is unlikely to hold much water with other EU countries. They are concerned about the inherent security issues involved in the scheme and the risks of money laundering, tax evasion and corruption.

While it is likely that this problem will drag on for several more months, if not years, in the European Court of Justice, it will be wise for the government to think the unthinkable. It needs to come up with a plan B to aid in the rehabilitation of Malta’s image in the eyes of international institutions.

The FATF greylisting may not have any direct link to the sale of passports. But it is undeniable that the perception that Malta has so far not taken its anti-money laundering obligations seriously could be reinforced by the government’s persistence in selling passports to the rich and mighty who may not always enjoy a good reputation.

Malta’s economic model has too many untenable elements. Dependence on the sale of passports is unsustainable in the long term. It does nothing to confirm the government’s commitment to getting tough on financial crime.

Boosting fiscal management with the cash flow from the sale of passports may seem attractive. But the end does not always justify the means.