The government is desperate to look like it’s cleaning its stables before the Moneyval sword falls in October. A cosmetic clean-up of the passport scheme was inevitable but the government is risking allowing Moneyval to see through the subterfuge and understanding that nothing much is changing with the ‘reform’ announced yesterday.
The IIP is definitely not dying in September. The existing passport scheme, that has helped in the branding of this country as a refuge for pirates and crooks, already has a one-year residency requirement as it exists. Yesterday this has been presented as an innovation. But that exact same requirement was inserted in the second draft of the law in 2014, when an earlier draft created so much outrage and unease in the European Commission. It has applied since the first day of the passport-selling scheme.
The residency requirement has been observed in the breach. Most applicants ‘proved’ their residence by entering into bogus lease contracts for properties they never visited and declaring them their residences.
The only change this time is the application for the passport will only be processed when the one-year of ‘residence’ has expired rather than before it starts. Ironically this will make the residency requirement harder to enforce rather than easier.
In the old system applicants were claiming they would live at a Malta address after the date of their passport application. All Identity Malta needed to do was randomly inspect addresses supplied by passport applicants any time after their applications to check if they really lived where they said they did.
Identity Malta didn’t do that. Out of choice. That’s while journalists including yours truly hunted for elusive passport acquirers at addresses where billionaires were supposed to be living a life of ease, finding instead boarded up basements or modest apartments where someone else altogether lived with instructions to hand over any official correspondence received in the mail and addressed to the tycoon who was supposed to live there.
The ‘reform’ announced yesterday says that the application for a passport will be handled after an applicant has already lived in Malta for a year. There will be no way of verifying they really lived at the address they supplied, removing the complicit pretence of the government looking the other way when it knowingly handles applications containing false information.
A proper reform to the scheme would have dropped the “advice” given by Henley & Partners’ puppet lawyer Dimitriy Kochenov, recently admonished by his Dutch university for breach of ethics. That “advice” was the basis of the government’s definition of a “resident” which is a piece of legal fiction that allows someone that has never visited a property, never seen it from the inside or out and never means to, to be defined as “resident” for the purpose of the law that entitles him to a passport.
Retaining this definition means that whatever the other parameters of our passport-selling law, Malta will continue to sell passports to people who have nothing to do with Malta at all and are merely acquiring the passport to get free access to the EU and easy access to the USA.
The new “three-year” requirement is also a sop thrown in by the government to distract critics and Moneyval inspectors. The €650,000 fee up till now get you a passport within a year of so-called residence. For that same price, the scheme announced yesterday to come into force in September, you will need to wait 3 years for your new passport.
But an extra €100,000 buys a fast lane process to get a passport within a year. That means that all the government has done in practice is raise the fee by 15% or an average increase of 2.5% per annum since the scheme’s introduction. This amounts to an inflationary adjustment pure and simple. No practical change has been made to the scheme.
The increase in the minimum spend on local property for eligibility of the scheme is also a smokescreen. The bulk of applicants do not purchase property but opt to lease a property (usually a garage or a very modest apartment) for the required minimum 5-year period. The government has made no indication it would drop the lease-option that allows applicants to opt out of purchasing property, which is what most of them prefer to do.
For those who do go for the “investment opportunity” of purchasing a property to go with the scheme, the increased minimum spend from €350,000 to €700,000 is close to immaterial as the investment market for properties purchased by high net worth individuals in Malta is far higher than €350,000 and often considerably higher than the symbolic minimum of €700,000.
A minor innovation is the obligation for applicants to donate €10,000 to a locally registered NGO which is an odd requirement given that the government claims to ring-fence a large portion of its revenues from the schemes to spend on good causes in any case. NGOs have led the charge of domestic opposition to the scheme and the government may expect that the opportunity of a little extra cash from passport-buyers might get some to turn enthusiastic for the scheme.
Prime Minister Robert Abela yesterday said it would not have been a good idea to go from IIP1 to IIP2, insisting that his reform was radical and would address the reputational harm the passport-selling scheme caused this country. But the measures announced by the government yesterday make this an IIP1.01, a re-pricing and re-branding of a virtually identical scheme.
The government has made no commitment to abolish the secrecy of the list of successful applicants of the scheme, saying facetiously that it would “publish” the names. It already does so, but it mixes them with every other naturalised citizen, alphabetises them by the first name to make it hard to identify family-group acquirers of passports, and keeps their declared addresses as a state secret. There has been no indication the government intends to change any of this.
The government has also not announced any changes to the investment requirements for applicants, such as job creation in Malta, or value added to the economy, or research and development and innovation conducted within the country. Instead the government has retained the purely property and government bond loan cash combo as its understanding of ‘investment’ under the scheme, ensuring that passport-buyers who want nothing at all to do with Malta except hold its passport can continue to use the country for their money-laundering and tax-fraud schemes.
Money-launderers and tax-frauds want a Maltese passport to get turn around the cash generated by their other … investments. The last thing they would be interested in is a scheme that encourages them to conduct a proper business in or from Malta. It is these crooks the Maltese government wants to continue to chase, preferably without the heat from Moneyval.
A proper reform would have abolished passport acquisition by payment altogether. It would have instead provided residency rights to any investor willing to relocate to Malta and conduct their business here or from here, hiring staff and creating economic activity within the territory.
An investor who binds themselves to Malta in this way for a number of years should be perfectly entitled to become a Maltese citizen paying the standard €40 or so applicable to all citizens taking out a Maltese passport.
But this is not an investment-promotion initiative. It is a crooked scheme for people who need to hide their nationality, and in some cases their identity altogether, so they and their money can enter countries that would otherwise stop them or check them more thoroughly, if they did not think the person was Maltese.
Bottom line: the new scheme by the government is identical to the old one, just a little more expensive.
In 2014, the European Commission was blinded by Joseph Muscat’s smoke and mirrors, blessing a scheme it would later repeatedly condemn and pledge to apply its pressure to have abolished. Robert Abela looks set to try to repeat the trick.