Citizenship is a concept that has been associated with economics as far back as the era of Ancient Greece. In modern times, impoverished island states like St Kitts and Nevis introduced schemes to sell their citizenship after they acquired independence from the United Kingdom.
This controversial way of accumulating wealth persists today as small as well as large countries compete to sell passports to those prepared to pay the price.
There are, of course, significant advantages to selling citizenship. Countries struggling economically can attract good investment to promote growth and create employment. Investment, however, is a catch-all word that includes a spectrum of activities ranging from speculative ventures to genuine initiatives aimed at creating long-term value.
Malta’s cash-for-passports scheme is providing significant cash flow for the government’s coffers. This cash should, in theory, enable the government to invest in the social infrastructure of the country. This infrastructure includes the educational, social security and health systems that face formidable challenges because they have long been underfunded.
However, it would be delusional to think that selling passports is without risks. International institutions like the OECD, the European Parliament and the European Commission have expressed concerns about the risks that countries that sell citizenship face.
Malta’s passport scheme has attracted more than its fair share of criticism as it exposes other EU countries to risks to which they are averse, including corruption, money laundering, tax evasion and avoidance, and financing of terrorism.
In an interview with The Sunday Times of Malta, Marshall Billingslea, the assistant secretary for terrorist financing at the US Treasury Department, made some sobering comments about why Malta’s passport scheme is viewed with suspicion by international institutions. He argues that with Malta’s current good economic performance and low unemployment, one needs to ask why revenue from selling citizenship is needed.
The downside risks are evidently harming Malta’s reputation, especially in a context where the law enforcement authorities and regulators are showing little evidence of their success in tackling financial crime. The Maltese-Chinese national Liu Zhongtian was recently indicted in the US amid allegations that he avoided paying $1.8 billion in aluminium tariffs. The Prime Minister’s chief of staff, Keith Schembri, has been implicated in receiving kickbacks from the controversial passports scheme. A magisterial inquiry is still in progress two years after its inception while Mr Schembri denies any wrongdoing.
The collateral damage of promoting high-risk economic activities like selling passports, granting licences to some shady e-gaming companies, and promoting investment in cryptocurrencies that are still perceived to favour financial crime is substantial.
For instance, the Italian media is reporting that a still-unnamed Italian e-gaming company based in Malta and effectively owned by the criminal organisation ’Ndrangheta failed to pay taxes amounting to €4 billion between 2015 and 2016. This is not the kind of media coverage that will restore Malta’s reputation with the OECD, Moneyval, the European Commission and the IMF.
The public consultation process on the passports scheme launched in January 2018 is still ongoing with no indication of what the feedback is to the extension of this scheme.
Restoring Malta’s reputation as a reputable jurisdiction will take years.
It will only be successful if the government listens to the tone coming from international organisations that fight financial crime.