Updated 3.10pm with Malta government reaction.
The European Commission has again formally warned Malta that it may face proceedings before the European Court unless it stops selling passports.
But the Malta government replied that while it will maintain a dialogue with the commission, "the grant of citizenship falls within the national competence of a member state and it should remain as such".
In a 'reasoned opinion' regarding the investor citizenship scheme, the commission said it considers the granting of EU citizenship in return for pre-determined payments or investments, without any genuine link to the member state concerned, to be in breach of EU law.
"Investor citizenship schemes undermine the essence of EU citizenship and have implications for the Union as a whole. Every person that holds the nationality of an EU Member State is at the same time an EU citizen. EU citizenship automatically gives the right to free movement, access to the EU internal market, and the right to vote and be elected in European and local elections," the commission said.
"The inherent risks of such schemes have once again been highlighted in the context of the Russian aggression against Ukraine."
The commission recalled that on March 28 it had called on all member states still operating investor citizenship schemes to terminate them immediately.
It had also called on member states to ensure strong checks of investor residence schemes, adding that residence permits granted under such schemes to Russian or Belarusian nationals, who are subject to EU sanctions in connection to the war in Ukraine, should be withdrawn immediately.
The commission had kicked off proceedings against Malta on October 20, 2020 with a letter of formal notice to Malta asking it to end its investor citizenship scheme. An additional letter of formal notice was sent to Malta on June 9, 2021, following the introduction of a new scheme by Malta at the end of 2020.
The commission observed that although Malta recently suspended this new scheme for Russian and Belarusian nationals following the Russian invasion of Ukraine. it still continued to operate the scheme for all other nationals and had not expressed any intention to stop it.
"The Commission considers that such a scheme is in breach of the principle of sincere cooperation and infringes the very status of citizenship of the Union as laid down in the Treaties," the commission said.
Malta has months to reply to the commission's reasoned opinion. If the reply is not satisfactory, the Commission may bring this matter before the Court of Justice of the European Union.
In a reaction, the Ministry of Home Affairs appeared to rebuff the European Commission's warning, saying that the grant of citizenship falls within the national competence of a member state "and it should remain as such".
"Only worthy individuals benefit from an important right as citizenship on such basis," it said, adding that it will be keeping an open dialogue with the commission and reply to the reasoned opinion in due course.