Sunday

19th Nov 2017

Investigation

Malta's sale of EU passports causes controversy

  • Fortress Valletta? The scheme is being marketed as a back door to the EU and US (Photo: Wikimedia Commons)

A British consultancy firm, Henley & Partners, stands to make tens of millions of euros for helping Malta create up to 20,000 new EU citizens-on-paper.

The scheme will provide money for a €1 billion investment fund in the tiny Mediterranean country, whose national budget is just €3 billion a year.

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It will see Malta sell 1,800 passports for €650,000 each, before closing down the programme.

But every main applicant can also buy additional passports for children up to 26 years old, for their spouse, and his or her spouse's parents and grandparents, for between €25,000 and €50,000 per head.

The newcomers will have the right to freely travel, reside and work in all 28 EU states. They will also buy the right to enter 69 non-EU countries, including the US, with minimal security checks under Malta's visa-free travel pacts.

Several EU states have similar schemes, which require people to live there for a few years before they get citizenship.

But the new Maltese citizens will hardly have to set foot in the country to change their status.

The rules oblige them to visit Malta to swear an "oath of allegiance." They also oblige them to buy or rent Maltese real estate and buy Maltese financial instruments, such as stocks or bonds, which might force them to visit two or three times more to sign related documents.

The new Maltese government, which took power last May, hired Henley to design the legal and administrative structures behind the project. The firm will also provide day-to-day services, such as marketing, and vetting of potential buyers.

In return, it will get a 4 percent cut of the €650,000, €50,000 and €25,000 passport fees.

Henley will also compete with other Malta-based agencies to process sales, and plans to charge buyers €70,000 each for its services.

The set-up means that even if nobody adds on relatives, and even if Henley sells just 10 percent of the 1,800 places, the firm, which is based in Jersey, a British tax haven, stands to bring in some €60 million.

Kurt Farrugia, the spokesman of Maltese Prime Minister Joseph Muscat, told this website that Malta is not doing it because it needs the money: "We have a strong economy. We're doing this to attract reputable people who can invest in the country."

Hugh Morshead, Henley's chairman, added that the 4 percent cut is justified because "we've done a lot of advising to the government in terms of the legal set-up, the promotion, and actually setting up our own office in Malta. We've done all this without being paid so far, so it's a commercial risk we've taken."

Controversy

But the scheme is causing controversy in Brussels and in Valletta.

The European Parliament will hold a debate on it during the first plenary session of the new year. The Maltese parliament is holding a debate this week.

Neither the EU institutions nor the Maltese opposition can stop it from entering into life in February, as planned: There is no EU law against it and the opposition Nationalist Party is nine seats short of a majority.

But some opposition MPs say it makes Malta look like it has a financial crisis, or that it makes it look silly in its appeals for EU solidarity on African boat migrants.

Others are putting the spotlight on Henley's "conflict of interest."

Under the contract, a new Maltese body, Identity Malta, will have the final say on who is eligible to buy the passports. But it will do so on the basis of a "risk weighting assessment" filed by Henley after the firm does "due diligence" on each would-be client.

If Identity Malta says No, Henley does not get its 4 percent cut.

The set-up creates an incentive for positive risk assessments.

It is also likely to make buyers flock to Henley instead of to other approved agents in the hope that Henley will show favouritism to its clients.

"It's like giving a teacher a stack of exam papers to mark and saying: 'I'll give you €26,000 for every student who passes the exam'," Nationalist Party MP Jason Azzopardi told this website.

He added that the favourable terms of the Henley contract have stirred "mounting rumours" that it made financial contributions to Muscat's Labour Party before last year's elections.

"I don't have any proof of this. But there is a certain overzelaousness on the part of the government to accomodate Henley," Azzopardi said.

He noted that Henley also got the job of vetting the first batch of other Maltese agents entitled to process sales - an exercise which gives it access to commercially sensitive information on competitors.

He is calling on Muscat to publish the contract in full to allay suspicions.

The PM has declined to do so, saying it contains commercially privileged data on Henley.

His spokesman described Azzopardi's words as "mud-slinging."

"We could have directly awarded the contract to anyone we liked. But we chose an open, transparent, tender. There was a competitive process and ... the best company was chosen," Farrugia said.

Henley's Morshead noted the deal is also governed by British anti-corruption law: "There's a thing called the Bribery Act [in the UK] and I don't think we would want to fall foul of that."

He added that Henley's due diligence personnel and its sales staff are separated by a "Chinese wall."

"The people who will run things are in completely different locations. They won't fraternise. They can't talk to each other except through the medium of Identity Malta ... so there's no way we can show favouritism [to our clients]," he said.

Due diligence

With Malta wary of bad PR, Farrugia and Morshead gave EUobserver an insight into the due diligence process.

The vetting is to have four levels.

When a buyer submits an application, Henley will first check that accompanying documents, for instance, birth certificates or police clearance certificates, are authentic and that the buyer's money comes from legitimate sources.

It will use Malta's anti-money laundering legislation as a reference book for paperwork requirements.

It will also check the applicant is not blacklisted in UN or EU sanctions.

At the second level, Henley will hire due diligence specialists to carry out background checks.

The subcontractors, firms such the US-based Kroll or the UK-based GPW, typically employ ex-policemen, former intelligence officers, and forensic accountants, to do the work.

At the third level, Henley will collate information and use in-house staff to draw up the "risk weighting assessments" which it files to Identity Malta.

Identity Malta and its subcontractors will do similar checks in parallel to Henley.

At the fourth level, Maltese authorities, including its national security services and its police, will use special resources, such as databases run by the joint police bodies Europol and Interpol, and will summon some applicants for interviews in order to weed out undesirables.

With news of the scheme already attracting queries from people in Libya, Saudi Arabia and Syria, Henley said "there will be enhanced due diligence on politically exposed persons."

Farrugia noted: "We're confident that the due diligence process is very rigorous."

Given the worst case scenario - a crime, or even an act of terrorism, committed on EU or US territory by a newly-minted Maltese national - the rigour is questionable, however.

The rules say the process will take a minimum of six months - a short timeframe, as many applicants are likely to come from difficult countries, such as post-Soviet or Middle East states.

The buyers will be charged an extra €7,500 to cover the costs of due diligence - a modest budget, given the high prices charged by subcontractors such as Kroll, especially if they were to send investigators to the applicant's country of origin.

Farrugia also noted that Malta has "strong institutions."

But its national security and police resources are microscopic compared to large EU states, with Malta having a population of just 420,000. The US, for one, has also criticised gaps in its anti-money laundering laws, especially on sources of terrorist financing.

Back door

Meanwhile, emails sent out by Henley and information put up by other agencies highlight the nature of the scheme as a back door to other jurisdictions.

An electronic leaflet circulated by the British concultancy in Russia last year underlines the fact that Maltese passport holders do not need a visa to enter the US.

EUobserver in January posed as a potential Iranian buyer in an email to Henley's Dubai office.

The firm wrote back saying: "Malta will be very strict to not face a risk in the EU. Therefore only persons with a top background will be successful ... We do not know yet if they will accept Iran citizens. We have to see."

It noted that there is "no residence requirement," however.

It also alluded to considerations to create a fast-track vetting scheme lasting just three months. Morshead separately told this website the fast-track idea has been scrapped, but his Dubai office said: "The funds [the €650,000 fee] are lost for the applicants but applicants get citizenship within 3-6 months!"

A Maltese agency, Zentura, which is also keen to scoop business, is being more brazen.

Its website says: "What is unique about Malta is the complete lack of restrictions which makes this programme the fastest to obtain European citizenship."

The original story said Farrugia did not rule out extra quotas of passports once the 1,800 cap is reached. He subsequently contacted EUobserver to "categorically rule out" such a move. The story was amended at 11am Brussels time on 7 January

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