C Explanatory memorandum
by Mr Pociej, rapporteur
1 Introduction
1 Through its Resolution of 16
January 2014 on EU citizenship for sale,
Note the European Parliament started public
discussions about national policies for granting residence permits
and citizenship to foreigners in return for investment. Some civil
society organisations addressed this subject, such as the Organized
Crime and Corruption Reporting Project (OCCRP), Sarajevo
Note and Transparency International,
Berlin, which estimated that around 100 000 individuals had received
residence visas through “golden visa” investment schemes in EU countries
over the past decade, generating an income of € 25 billion.
Note
2 Like most aspects of migration policy, investment migration
is a controversial and divisive subject. The unfair aspects are
often put forward, because it allows more affluent persons to immigrate,
while national borders become tighter for migrants without financial
means. The risk of national authorities colluding in money laundering
and tax evasion is also emphasised. On the other hand, some claim
this provides more legal ways of immigration as an alternative to
irregular migration.
3 Investment migration has been practiced globally throughout
the past centuries. But in a globalised world, where the movement
of persons has been made easier, new national rules might be needed
and existing international standards should be upheld.
4 For this report, “investment migration” is understood as the
right of a foreigner to acquire citizenship, long-term residence
permits or a tax domicile in another State because of an investment
made by that person or by a third person. The focus is on natural
persons, but it is obvious that legal persons such as companies, trusts,
foundations or associations often fall under similar national laws
and, in practice, can likewise be used for money laundering and
tax evasion or as a vehicle for obtaining long-term visas for agents
of such legal entities.
5 I am very grateful for the contributions made by committee
members, as well as by the experts heard by the committee, namely
Ms Gillian More, Policy Officer, DG Justice, D.3 – Union Citizenship
Rights and Free Movement, European Commission, Brussels, Ms Ekaterine
Rostomashvili, Advocacy and Campaigns Coordinator, Transparency
International, Berlin, and Mr Bruno L’ecuyer, Chief Executive and
member of the Governing Board, Investment Migration Council, Geneva,
during hearings in Strasbourg on 10 April and in Paris on 2 December
2019, respectively. I also submitted a questionnaire through the
European Centre for Parliamentary Research and Documentation (ECPRD),
which allowed me to receive relevant information from many national
parliaments and may guide parliamentary colleagues when comparing
and evaluating their own legislation and practice.
Note
6 As a practicing lawyer in Poland, I have adopted a legal approach,
while remaining aware that investment migration is primarily a political
issue. However, investment migration can only be regulated by law, and
only becomes a legal pathway to immigration if it complies with
national law and international legal standards. Parliamentarians
as legislators have a key role and responsibility in this regard.
2 Acquisition of citizenship, residence
permits, passports and tax domiciles
7 In the past, nearly everyone
had one citizenship only, whereas nowadays many people have dual
or multiple citizenship. This trend has blurred the traditional
notion of citizenship and might have led to some change in the understanding
of what citizenship actually means and how it can be acquired lawfully.
Therefore, some general requirements should be recalled at the outset.
8 Citizenship is typically received by birth, either in a given
country (
jus soli) or from
parents (
jus sanguinis). In
addition, citizenship can be acquired by naturalisation. Where the
right to citizenship is a part of the return for payment, investment
migration falls under the latter category. A typical case of naturalisation
is by marriage to a person with another citizenship. Like investment
migration, citizenship by marriage can and has been misused for
illegal purposes. The report on “Concerted action against human
trafficking and the smuggling of migrants” (
Doc. 15023) by Mr Vernon Coaker (United Kingdom, SOC) refers to
cases of false declarations of parentship and sham marriages for
the purpose of gaining citizenship illegally.
9 The Council of Europe’s
European
Convention on Nationality (ETS No. 166) stipulates some standards regarding the acquisition
and loss of nationality or national citizenship. For instance, Article
6.3. requires that “each State Party shall provide in its internal
law for the possibility of naturalisation of persons lawfully and habitually
resident on its territory.” The voluntary acquisition of another
nationality can lead
ex lege or
at the initiative of the State Party to the loss of the nationality
of that State Party under Article 7.1.
11 The right and the power to award citizenship or residence
permits rests with the State concerned and its authorities. This
is part of the sovereign powers of a State. Investment migration,
like any other legal immigration, therefore requires administrative
acts by the national authorities of internationally recognised States.
The European Commission establishes with European Union member States
and Schengen Associated States a list of travel documents or passports,
which entitle the holder to cross external European Union borders
and which may be endorsed with a visa, as well as a non-exhaustive
list of known “fantasy and camouflage” passports and documents of
territories not internationally recognised typically offered for
sale.
Note The latter cases cannot be considered
as investment migration.
12 Only internationally recognised States can grant citizenship.
Under public international law, the existence of a State requires
that power is lawfully and effectively exercised over a population
in a territory and both, the borders of such territory and the authorities
exercising the power are internationally recognised.
Note As a consequence, non-recognised
de facto regimes cannot award citizenship
under international law.
Note This is particularly evident where
terrorist groups illegally seize
de facto control
over a territory and award own passports
Note or false passports of the occupied
or controlled State.
Note Likewise, public international law
excludes that foreign authorities, who illegally exercise
de facto power in a non-recognised
territory outside their own territory, impose their citizenship
upon nationals of the occupied territory by delivering their passports.
Note Investment migration into such territories
would not be recognised under international law.
13 A particular case is that of diplomatic and service passports
of subjects under public international law, such as international
organisations like the United Nations and the Council of Europe
as well as other internationally recognised subjects. Among the
latter, the Sovereign Order of Malta has a long tradition of issuing
diplomatic passports,
Note but also of providing aid for refugees.
Note With such passports, their holders
can travel across borders of countries which recognise that international
organisation. While such organisations cannot grant any citizenship
or a residence permit, a diplomatic passport may also entail the
right to be resident in a country which has diplomatically accredited
the granting organisation.
14 Citizens of a State have the fundamental rights to enter,
and to reside in, that State and to maintain their citizenship in
accordance with Protocol No. 4 to the European Convention on Human
Rights (ETS No. 46). Persons do not automatically have the right
to enter the territory of a State of which they are not a citizen.
Article 5.1.f. of the European Convention on Human Rights refers
to such unauthorised entry. The legal authorisation to enter a State’s
territory requires typically an entry visa or residence permit.
Such residence permits are awarded by many countries to investors.
Therefore, investment migration can also be based on long-term residence
permits.
15 Tax privileges offered by a State are also attractive to investment
migrants. Member States of the Council of Europe have a wide variety
of national tax obligations. In Monaco, for example, citizens of
Monaco and foreign residents do not pay income tax, capital tax
and inheritance tax for direct descendants, except French citizens
in Monaco who must pay French taxes.
Note Among the 38 100 inhabitants of
Monaco, 9326 are Monegasque nationals.
Note
16 In addition, States can authorise investments by persons or
companies seated in fiscal paradises. Analysing land registry data,
the
Financial Times found
in 2014 that at least £ 122 billion of property in England and Wales
were held through companies in offshore tax havens where ownership
was difficult to trace.
Note In 2018,
Bloomberg reported
that wealthy Chinese invested the equivalent of approximately $US 1
trillion in funds and trusts abroad, in order to avoid new Chinese
tax legislation.
Note Tax evasion is therefore a major
issue regarding investment migration.
3 European
Union citizenship and work permits
17 The European Union (EU) cannot
confer an EU citizenship, but the citizens of all EU member States
are by definition EU citizens with specific rights such as freedom
of movement within the European Union, the right to participate
in elections of the European Parliament and the qualification to
become an EU civil servant working for an EU organ. In the same
vein, the European Union cannot issue visas or residence permits,
but EU member States have the exclusive power to do so. The Court
of Justice of the European Union found that EU law establishes only
the procedures and conditions for issuing visas by national authorities
for transit through, or intended stays on, the territory of EU member
States not exceeding 90 days.
Note
18 The discussions about investment migration within the European
Union are related to the ongoing discussions about the EU’s competence
to regulate and possibly issue visas and residence permits for the territory
of the European Union. For the time being, EU member States retain
their competences in this field, as upheld by the Court of Justice
of the European Union. In January 2019, a report by the European Commission
identified Bulgaria, Cyprus and Malta as the only EU member States
which operated investor citizenship schemes.
Note
19 Among EU member States, the Blue Card is a work and residence
permit for non-EU/EEA nationals, similar to the famous Green Card
of the USA. It is issued by EU member States. The minimum work salary
for the EU Blue Card in France is € 53 836 gross per year.
Note An EU Blue Card in Cyprus requires
a gross annual salary of € 23 964
Note, Malta requires € 16 036
Note, Latvia € 13 776
Note and Bulgaria at least € 8 168.
Note Therefore even EU frameworks like
this are means-tested and depend on the “financial potential” of
recipients, even if the sums concerned are small compared to typical
thresholds for visas and residence permits delivered to investors.
20 While the EU Blue Card offers only a work and residence permit
in the country concerned, the holder of a Blue Card could travel
throughout the European Union and the Schengen Area. This might
offer opportunities for wealthy individuals, as well as for criminal
organisations, to create such an employment contract with a pro forma employer, for instance
through the creation of a letter-box company with its seat and tax
domicile in a given EU country and its agent or employee holding
the EU Blue Card.
4 Investment
migration programmes of non-European Union countries
21 Non-European Union countries
have similar programmes for work and residence permits as well as
for investor visas. This report cannot describe them exhaustively,
but the replies to my ECPRD request provide some overview.
Note
22 The British Government announced on 19 February 2020, that
the salary threshold for skilled workers wanting to come to the
United Kingdom would be lowered from £ 30 000 to 25 600 or 20 480
for persons in specific shortage occupations.
Note On 4 April 2019, the Serbian Government
adopted legislation which simplified the procedure for work visas
for foreigners, in order to attract foreign investment.
Note Turkey grants Turkish citizenship
to investors without a minimum residence requirement, which subsequently
allows those investor citizens to establish a business and apply
for permanent residence in every EU member State in accordance with
the Ankara Agreement of 1963 creating an association between the
European Economic Community and Turkey.
Note
23 Therefore, the discussion about investment migration should
not be limited to the European Union or EU member States. Just as
with investment migration, national authorities must control that
EU Blue Cards and similar visas issued outside the European Union
are not abused for illegal purposes or fugitive criminals.
5 Criticism
by the European Parliament
24 The European Parliament views
so-called “golden visas” critically in the context of European Union values,
corruption and crime.
Note The EPP Group in the European Parliament
called for an end to “golden visas” and special tax schemes to attract
foreign investors,
Note following a report to the Special
Committee on Financial Crimes, Tax Evasion and Tax Avoidance of
the European Parliament by Mr Luděk Niedermayer (EPP, Czech Republic)
and Mr Jeppe Kofod (S&D, Denmark) – the current Minister of
Foreign Affairs of Denmark. Based on this report, the European Parliament
adopted its Resolution of 26 March 2019 on financial crimes, tax
evasion and tax avoidance.
Note
25 A restrictive approach by the European Union is currently
opposed by several member States which consider it their national
competence to decide on questions regarding visas, residence permits
and citizenship. Several countries around the globe continue to
openly attract wealthy investors with citizenship, residence permits
and tax advantages.
Note In this regard, they follow what
several countries are doing in attracting foreign companies through
tax and other privileges.
Note
26 The European Union’s criticism focuses mainly on financial
crimes such as money laundering through investments and tax evasion
by delocalising taxable revenue and assets. In the following chapter,
those aspects will be dealt with in more detail in the context of
international standards.
27 In addition, EU member States are criticised for monetising
their EU membership by gaining revenue for citizenship and residence
permits. It is difficult to determine the value and impact of EU
citizenship rights in the context of investment migration. Non-EU
States seem to do well in attracting investment migration, such
as the Virgin Islands
Note and other states in the Caribbean
as well as smaller European States with significance in the financial
and banking sectors. Some voices in the United Kingdom even claim
that it might become a tax haven for wealthy individuals and companies
or trusts after leaving the European Union.
Note
6 International
standards regarding investment migration
6.1 Money
laundering
28 Schemes for investment migration
typically require investment in real estate or the business sector. While
most such investments may be legal, real estate investments are
a prime area for persons seeking opportunities for money laundering,
as well as investments in businesses such as restaurants, hotels,
fashion shops or used car dealerships, because such businesses can
produce a lot of cash revenue without a clear traceability of the
products and services provided for money.
29 According to INTERPOL,
Note “money laundering is concealing
or disguising the identity of illegally obtained proceeds so that
they appear to have originated from legitimate sources. It is frequently
a component of other, much more serious, crimes such as drug trafficking,
robbery or extortion.” The United Nations Office on Drugs and Crime
(UNODC) carries out the Global Programme against Money-Laundering,
Proceeds of Crime and the Financing of Terrorism since 1997 and
administers the International Money-Laundering Information Network.
Note
30 Obviously, not every foreign investment qualifies as money
laundering. To the contrary, investments must be deemed legal unless
proven otherwise or where legal requirements for investments have
been violated. However, enormous figures by wealthy investors from
countries with a low average income have caused suspicion in some
media.
Note
31 Portugal was described in the media as having received huge
investments by billionaires from its former colony Angola,
Note where 48% of the population were
classified as poor in 2016.
Note Two billionaires from Venezuela
living in Florida, USA were charged with money laundering,
Note while the daughter of the late Hugo Chavez
was reported to have a fortune of $US 4 billion in European banks,
Note at a time when nearly 90% of Venezuelans
were considered to live in poverty with a median monthly wage of
$US 6
Note and the numbers of Venezuelan asylum
seekers in Europe on the rise.
Note
32 In Germany, reports suggested that up to half a million persons
belong to clans of Lebanese, Turkish, Kurdish, Albanian, Kosovan
and Chechen extended families engaged in money laundering and criminal activities.
Note With the help of Europol, the French
police arrested in 2019 members of an organised crime network of
Armenians engaged in money laundering throughout France.
Note Media reported that illegal cannabis cultivations
in the United Kingdom valued at £ 2.6 billion annually are largely
in the hands of Vietnamese clans engaged in money laundering and
migrant smuggling.
Note Such media reports have caused public
criticism of, and opposition to, immigration connected with dubious
money.
34 The work of MONEYVAL is geographically complemented by the
Financial Action Task Force (FATF), Paris, which is an inter-governmental
body established in 1989 in order to set standards and promote effective implementation
of legal, regulatory and operational measures for combating money
laundering, terrorist financing and other related threats to the
integrity of the international financial system.
Note In 2018, the OECD published a guidance
for financial institutions on residence and citizenship by investment
schemes,
Note which has been based on a study of
more than 100 schemes.
Note
35 Although investment migration might have decreased or even
come to a halt during the Covid-19 pandemic due to border closures
and shutdowns in administrations, such circumstances have been identified as
a particular risk for increased money laundering and terrorist financing
by the FATF.
Note
36 Having adopted the first anti-money laundering Directive in
1990, the European Union addresses money laundering through its
Directive (EU) 2018/843 of the European Parliament and of the Council
of 30 May 2018 amending Directive (EU) 2015/849 on the prevention
of the use of the financial system for the purposes of money laundering
or terrorist financing, and amending Directives 2009/138/EC and
2013/36/EU.
Note
37 As expressed in the Resolution of the European Parliament
of 26 March 2019 on financial crimes, tax evasion and tax avoidance,
there is the fear that money coming from illegal sources is transferred
into a country through investment migration.
Note The same risk has been identified
by the OCCRP.
Note
38 The Investment Migration Council, which is an association
of persons and companies dealing with investment migration, produced
a study on due diligence in investment migration and a set of minimum standard
recommendations for consultants or agents as well as governments.
Note Transparency and measures against
money laundering are key aspects of those recommendations.
39 The London-based NGO Tax Justice Network produces regularly
a Financial Secrecy Index, which currently includes the member States
Switzerland, Luxembourg, the Netherlands as well as the British Overseas
Territories Cayman Islands and British Virgin Islands among the
top 10 countries with highest financial secrecy.
Note Financial secrecy or a lack of transparency
and traceability is the basis for money laundering.
40 Member States should require people who work in financial
services or a related industry and suspect money laundering or terrorist
financing to alert the police about such suspicious transactions.
In the United Kingdom, for example, a Suspicious Activity Report
has to be submitted.
Note
41 Real estate agents can be included in this group of persons
who have such an obligation. In fact, the acquisition of real estate
is in most countries a transaction with high transparency requirements,
for instance through public land registers and for tax purposes.
42 Therefore, investment migration based on real estate investments
and investments in companies and businesses can actually be controlled
through higher transparency obligations. In this regard, Transparency International
Portugal has recently won a request for information about Portugal’s
visa schemes before the Administrative Court of Lisbon.
Note
6.2 Tax
delocalisation
43 States are generally free to
determine their tax system and thus have different tax obligations
for natural persons including taxable foreigners as well as for
companies or trusts. Lower taxation is a common incentive for the
migration of persons and legal entities. Some countries are indeed
considered as tax havens for foreigners. Besides the level of taxation,
international co-operation and transparency or the lack thereof
are decisive aspects of the delocalisation for tax evasion. Research
suggests that several trillion $US have been invested by individuals
in tax havens globally, leading to annual losses in tax revenue
of several hundred billion $US.
Note
45 The European Union establishes an official list of non cooperative
jurisdictions for tax purposes, which includes only non-EU countries.
Note In 2000, the OECD established a
list of unco-operative tax heavens. The last countries removed from
this list were Andorra, Liechtenstein and Monaco.
Note At first published in 2009, the OECD
recently updated its Money Laundering and Terrorist Financing Awareness
Handbook for Tax Examiners and Tax Auditors.
Note
46 In addition, the NGO Tax Justice Network regularly publishes
a Corporate Tax Haven Index. The 2019 Index lists among the top
tax havens the member States United Kingdom with its territories
British Virgin Islands, Bermuda, Cayman Islands and Jersey, the
Netherlands, Switzerland, Luxembourg and Ireland.
Note
47 In principle, investment migration could be made by using
cryptpocurrencies. This may lead to a lack of traceability and transparency.
The European Parliament produced in 2018 a study on “Cryptocurrencies
and Blockchain: Legal context and implications for financial crime,
money laundering and tax evasion”, which points to obvious risks
and contains policy recommendations for future European Union standards.
Note In
the USA, tax authorities have started targeting owners of cryptocurrencies.
Note The British Government’s tax authority
recently requested blockchain analysis tools in order to track and
tax cryptocurrency users.
Note All member States should have a
coordinated approach in this respect.
48 Investment migration for tax evasion is therefore primarily
a political issue. National parliamentarians should take a stand
in political discussions of this subject, being guided by the European
Parliament’s Resolution of 26 March 2019 on financial crimes, tax
evasion and tax avoidance.
Note
6.3 Delocalisation
of criminals
49 Through investment migration,
criminals and suspects might attempt to gain an undue advantage
by acquiring another citizenship or a long-term residence permit,
where law enforcement cooperation and mutual legal assistance do
not exist between the country of origin of the investor and the
country of the new citizenship or residency.
6.4 Corruption
51 The OCCRP established links
between foreign investments and corrupt practices in the receiving state.
Note In addition, NGOs such as Transparency
International have worked on cases of corruption and investment
migration.
Note
52 In this respect, the
Criminal
Law Convention on Corruption (ETS No. 173) and the
Civil
Law Convention on Corruption (ETS No. 174) of the Council of Europe can play an important role.
The Group of States against Corruption (GRECO) monitors compliance
with Council of Europe anti-corruption standards and prepares recommendations
to members, which include also non-member States. However, investment
migration might not be more prone to corruption than other financial
transactions or administrative decisions worth a lot to individuals
or companies.
6.5 Restrictions
during the Covid-19 pandemic
53 As a reaction to the Covid-19
pandemic, all member States introduced travel bans across national borders
and sometimes internal local borders. The European Union restricted
non-essential travel from third countries into the EU and members
of the Schengen Area.
Note Visa-free travel is normally a decisive
part of investment migration schemes, thus the Covid-19 restrictions
are considered a temporary exception.
Note Virtually all countries have allowed
their own citizens to return to national territory, possibly combined
with quarantine measures.
54 However, mixed nationality families were at risk of being
separated or treated differently regarding travel to a country,
evacuation from a country or the permission to reside in a country.
This raises serious human rights concerns with respect to the protection
of family life under Article 8 of the European Convention on Human
Rights.
Note Persons with dual nationality were
sometimes allowed to enter a country, but other countries prohibited
all border-crossings.
Note
55 Such travel bans frequently applied also to owners of secondary
residences, who were banned from using their secondary homes in
some countries.
Note Residence permits seem to grant in
practice lesser rights of travelling across borders. Nevertheless,
human rights must also apply during an extreme situation like a pandemic.
In this regard also, member States must respect the right to private
and family life under Article 8, as well as the right to the protection
of property under Article 1 of the Protocol to the European Convention
on Human Rights (ETS No. 9) and the prohibition of discrimination
under Protocol No. 12 to the Convention (ETS No. 177).
7 Conclusions
56 As can be seen from the numerous
legal standards above, investment migration can be measured against
several legal yardsticks established by the Council of Europe. As
members of the Parliamentary Assembly of the Council of Europe,
we should ensure that our member States respect these conventions
and that they are effectively implemented. This requires a political
analysis by everyone of us.
57 Among the member States of the Council of Europe, sham citizenships
and off-shore residencies should be impossible for wealthy individuals,
tax evaders and fugitive criminals as well as for any other citizen
of member States. This seems to require a critical analysis of the
Council of Europe’s legal standards and their domestic implementation.
58 National practices may be evaluated and reviewed from the
replies to my request to the ECPRD.
Note Specific national action plans should
follow from this report, in order to achieve more co-operation and
co-ordination.
59 I invite all Assembly members to follow-up this subject in
their own national parliament.
