24 March 2022

E.U. New Legislation on CBI and its Implications on Migration Investment Industry

The European Parliament has voted overwhelmingly for an end to citizenship-by-investment (CBI) schemes and the regulation of residency-by-investment programs in the EU.

Members of Parliament are calling on the EU Commission to draft legislation to phase out CBI programs (currently offered by Austria, Malta, and Bulgaria) by 2025. They are also calling for strict controls, EU regulatory oversight, and veto powers on the many RBI programs offered by EU nations – including Portugal and Spain.

This initiative is not new. The EU called for an immediate ban on EU Member States’ CBI programs in 2020, citing as reasons what they believe to be the link between the issuance of ‘Golden Passports’ to tax evasion, corruption, and money laundering in the EU and globally.

However, prior calls to end or regulate RCBI in the EU have gained traction and support within the EU Parliament since the Russian invasion of Ukraine. It also comes on the back of the EU’s recent withdrawal of the visa-waiver agreement with Vanuatu.

EU RCBI REGULATORY PROPOSALS

Various recommendations for banning and/or regulation of the EU’s CBI and RBI schemes have been put forward over the years by EU MEPs, with most still proposed for the urgent legislative proposal being demanded of the EU Commission.

The proposed RCBI regulations for the EU include:

  • Common standards and EU laws applicable to all EU CBI schemes – to combat corruption, tax evasion, and money laundering in the EU.
  • More rigorous background checks on applicants – with EU standardized and approved due diligence procedures. This would include checking all applicants against an EU database to filter out any ‘undesirables’. This would include individuals previously rejected for visas in any EU Member State, sanctioned individuals (such as Russian Oligarchs), criminals, or individuals suspected of working in organized crime or linked to terrorism.
  • Limitations on, or full exclusion, of all Russian applicants with immediate effect.
  • The suspension of residence visa renewals for Russian citizens with links to Putin or his regime, or subject to EU sanctions.
  • An integration and reporting system to allow EU members states to object to any CBI applications or approvals.
  • Diversification of investment options with a move toward investments with more applicants involved and provable economic benefits.
  • Greater physical presence and residency requirements for RCBI applicants and for annual visa renewals in RBI schemes.
  • Regulation of intermediary agencies with new rules for transparency, certification, and EU regulatory oversight.
  • An EU levy on all EU Golden Visa schemes.

The proposed RCBI regulations for non-EU third countries

As the EU does not have any jurisdiction over non-EU countries, the regulatory power of the EU Commission and EU Council is effectively limited to RCBI in EU Member states.

However, recommendations are that the EU Commission put pressure on non-EU CBI jurisdictions to implement the same measures – even so far as the EU being allowed to approve applications as being currently called for by the EU MEPS behind the move to ban CBI and regulate RBI.

IMPLICATIONS & RESPONSE

Whatever restrictions, regulations, dissolutions, standards, and sanctions the EU proposes or enforces on EU RCBI schemes, they are limited to ending or amending diplomatic agreements only in non-EU countries; the EU cannot force an end of global CBI schemes.
However, the impact of the EU ending visa-waiver agreements with global CBI jurisdictions could impact very significantly on the economies of certain nations – small island nations in the Caribbean and Pacific in particular. This includes the nation’s top 5 ranked CBI programs in the world.

Caribbean response – from the world’s top-ranked CBI jurisdictions:

In response to both the EU proposal and a similar initiative by legislators in the US, the government of Antigua & Barbuda has proposed the formation of a CBI Regulatory Commission by the five members of the Organisation of the Eastern Caribbean States (OECS) – Antigua & Barbuda, St Kitts & Nevis, Grenada, St Lucia, and Dominica. The formation of the Commission is intended to:

  1. Demonstrate a willingness to work with the EU, US, and the UK on their Caribbean-origin CBI-related national security and money laundering concerns.
  2. Draft measures to diversify CBI schemes (or CIP schemes as they are termed in the Caribbean) – focusing on residency-by-investment which is deemed less problematic than CBI by both the EU and USA as well as other nations concerned with the same drive to ban or regulate RCBI on a global level, such as the UK and Canada.

These Caribbean nations have, in the meantime, banned CBI applications from Russians and citizens of Belarus.

EU Member States responses:

While the UK and other countries implemented sanctions and bans on CBI and Russian citizens, among other measures, in response to the Ukraine conflict, Bulgaria MEPs are reported to have voted in favor of suspending its CBI program due to EU pressure.

The other EU nations offering CBI, including Malta, have already suspended CBI applications from Russia and Belarus in response to both the conflict and the EU proposal.

It remains to be seen how the EU nations respond in the long term.

Where will this leave the migration investment industry?

Only time will tell how this plays out. The impact on the global migration investment industry depends on the extent to which ‘third country’ nations can convince the sanctioning superpowers that their programs are not, or will not be, national or global security threats and furthermore will not promote money laundering and other shady finance.

EU RCBI Nations will at the very least need to prove exceptional discretion with their RCBI applicants, with higher refusal rates and strict adherence to any new EU regulations and laws on RCBI.

If the EU Parliament’s proposal to phase out CBI by 2025 is accepted by the EU Commission (as opposed to an immediate ban), EU RCBI nations have three years to turn things around for EU migration investment.

If non-EU CBI nations cannot find a way to maintain current visa-waiver agreements, the global industry will no doubt take a huge hit. Many argue that CBI is too lucrative (and in many cases too economically essential) for most of these nations to give up the schemes altogether, but it will certainly spark widespread changes. In this case, CBI offerings are likely to become further diversified, along with more extensive background checks, proofs, reporting, and global due diligence procedures as participating nations seek to get back their prime CBI drawcards.

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