There is an uncomfortable question at the heart of the citizenship-by-investment industry.

Is citizenship a product?

Or is citizenship public policy?

For the investment migration industry, the distinction is fundamental. For governments, it may determine whether these programmes have a future.

Citizenship Is Different

Residence and citizenship are not the same thing.

A residence programme gives an individual the right to live in a particular country, subject to the terms of the programme.

Citizenship is different.

Citizenship creates a permanent legal relationship between an individual and a state, and when that state is a member of the European Union, citizenship also creates EU citizenship. That means the consequences extend beyond the country issuing the passport.

An EU citizen has rights connected with free movement, residence and work throughout the Union. This is one of the principal reasons the European Commission has taken a much harder position on investor citizenship than on investor residence.

The Golden Passport Problem

The expression “golden passport” has become politically toxic.

It suggests that citizenship is simply something that can be purchased.

Pay a predetermined amount. Make a qualifying investment. Complete the paperwork. Receive the passport.

From an investment migration perspective, the reality is more complicated.

Governments can legitimately decide that attracting wealthy investors is in their national interest. Investors can legitimately decide that a second citizenship provides value. The difficult question is whether there is a sufficient connection between the investor and the country granting the citizenship.

That is precisely where the European debate has moved.

Malta Became the Test Case

Malta is now at the centre of this debate.

The European Commission opened infringement proceedings against Malta over its investor citizenship scheme and, in September 2022, referred the matter to the Court of Justice of the European Union.

The Commission’s position was that granting nationality in return for predetermined payments or investments, without a genuine link to the Member State, was incompatible with EU law and the principle of sincere cooperation. This was an important escalation.

The issue was no longer simply whether a particular national programme was politically desirable. It had become a question about the relationship between national citizenship and European citizenship.

Why Does the EU Care?

The argument from Brussels is straightforward.

Every citizen of Malta is also an EU citizen. Every EU citizen has rights that extend beyond Malta. Therefore, the consequences of Malta granting citizenship are not limited to Malta. This creates a fundamental difference between a residence permit and a passport.

A residence permit issued by one country does not automatically make the holder a citizen of the European Union. A passport does.

That is why the European Commission has described investor citizenship as having implications for the Union as a whole.

But There Is Another Side

There is also a legitimate argument on the other side.

Nationality remains fundamentally connected to the sovereignty of individual states. Countries have historically had broad discretion over who can become their citizens. Citizenship has been granted for many reasons.

Family connection.

Birth.

Naturalisation.

Marriage.

Exceptional contribution.

Military service.

Long-term residence.

Economic contribution.

There is nothing inherently unusual about a country deciding that significant economic contribution can form part of its nationality policy.

The controversy arises when the economic contribution becomes essentially a price tag.

The Difference Between Contribution and Purchase

This distinction may ultimately determine the future of the industry.

There is a significant difference between:

“Invest €X and receive citizenship.”

and:

“Make a substantial contribution to the country, establish a genuine connection and satisfy a demanding naturalisation process.”

The first looks transactional. The second looks like public policy.

That distinction matters enormously.

Investment Migration Has Always Been About More Than Money

The strongest investment migration programmes are not simply capital-raising mechanisms.

They are policy instruments.

A government may want:

• foreign direct investment;
• entrepreneurs;
• new businesses;
• employment;
• investment into strategic sectors;
• philanthropic contributions;
• development capital;
• innovation;
• international networks.

Citizenship or residence can then become an incentive for achieving those objectives.

This is a much more defensible proposition than simply selling a passport.

The European Commission Has Drawn the Line

The Commission’s position had already become clear by 2022.

In March 2022, following Russia’s invasion of Ukraine, the Commission urged Member States to repeal existing investor citizenship schemes and to strengthen checks on investor residence schemes. It specifically distinguished citizenship schemes from residence schemes while arguing that both required stronger scrutiny.

This was not a subtle message.

The Commission considered investor citizenship schemes particularly problematic because of their implications for the integrity of EU citizenship, as well as risks relating to security, money laundering, corruption and tax avoidance.

The political environment had therefore changed dramatically.

Cyprus Had Already Learned the Lesson

Cyprus provides another important example.

The country terminated its investor citizenship programme for new applications in November 2020 after coming under scrutiny from the European Commission.

The Commission subsequently continued infringement proceedings in relation to pending applications.

The lesson for other countries was clear. An EU Member State could no longer assume that a national citizenship programme would be treated purely as a domestic matter.

The Industry Has a Choice

This creates a strategic choice for the investment migration industry. It can continue presenting citizenship as a financial product. Or it can reposition itself around economic contribution and public policy.

I believe the second model has a much better future.

The industry should not be asking:

“How much does a passport cost?”

It should be asking:

“What does the country want the investor to contribute?”

That is a much more sustainable proposition.

The Investor Also Wants More

There is another reason this matters.

The sophisticated investor is not necessarily looking simply for a passport.

They may want:

• mobility;
• security;
• political optionality;
• access to markets;
• education;
• business opportunities;
• family protection;
• succession planning;
• tax flexibility;
• a long-term alternative residence.

Citizenship is only one part of the equation.

This is why the investment migration market is increasingly moving toward a broader concept of wealth mobility.

Citizenship as an Option

For a wealthy family, a second citizenship can be extremely valuable.

It can provide an additional layer of security.

It can provide an alternative jurisdiction.

It can provide access to a different legal and political environment.

It can simplify international travel.

It can provide options for future generations.

But these benefits do not necessarily require the citizenship to be treated as a commodity.

The value is precisely that citizenship is a long-term relationship.

The Public Policy Test

Perhaps every citizenship-by-investment programme should therefore be judged against five questions.

What does the country receive?

What does the investor receive?

Is there a genuine connection?

Is the economic contribution measurable?

Would the programme still make sense if the passport itself had no monetary value?

That last question is particularly revealing.

If the answer is no, the programme may simply be selling citizenship.

If the answer is yes, it may actually be pursuing an economic policy.

This Is Where Funds Become Interesting

There is a potentially important evolution here.

Instead of requiring investors to make fragmented individual investments, a country could establish qualifying investment vehicles directed towards national economic priorities.

A fund could invest in businesses.

Infrastructure.

Technology.

Real estate development.

Renewable energy.

Private equity.

Strategic industries.

The investor receives a qualifying investment opportunity. The country receives professionally managed capital, and the investment can potentially have a measurable economic impact.

That is a much stronger public-policy argument.

The Difference Between a Fund and a Donation

There is also an important distinction between investment and contribution.

A donation is money given away. An investment is capital deployed with an expectation of economic return.

For investors, that distinction matters enormously. A wealthy individual may be prepared to invest €1 million in a professionally managed fund if there is a credible investment thesis. They may be much less interested in simply writing a cheque to a government.

That means the investment migration industry has an opportunity to move from selling access to structuring investment.

The Next Generation of Programmes

I expect investment migration programmes to become more sophisticated. The weakest programmes will be increasingly difficult to defend.

Programmes based primarily on passive residential property purchases will face greater political scrutiny. Programmes that appear to sell citizenship for a fixed price will face even greater scrutiny. But programmes that generate genuine economic value may remain viable.

That means investment migration could evolve from an immigration product into a form of economic policy.

The European Union Is Forcing the Issue

The EU has effectively forced governments to confront the distinction.

Residence by investment remains primarily a national competence, although the Commission has raised concerns about security, money laundering and other risks.

Citizenship is more complicated because it automatically carries EU citizenship with it.

The Commission’s 2022 position was that existing investor citizenship schemes should be repealed, while investor residence schemes should be subject to strong checks.

The difference is important for it suggests that Europe may tolerate investment migration, but it increasingly wants investment migration to be connected to genuine economic and personal substance.

What Happens to the Passport?

The passport itself is therefore becoming less important.

The real product is optionality.

The ability to live somewhere else.

The ability to invest somewhere else.

The ability to educate children somewhere else.

The ability to establish a business somewhere else.

The ability to protect family wealth across jurisdictions.

The ability to respond if political or economic circumstances change.

Citizenship can be part of that strategy.

But it is not necessarily the whole strategy.

The Future Is Not Necessarily the End of Investment Migration

There is a temptation to conclude that the political attack on Golden Passports means the end of investment migration.

I don’t think that is correct.

It may instead mark the end of a particular type of investment migration. The transactional model is under pressure. The policy-driven model has considerably more room to evolve.

That could mean fewer programmes. Higher standards. Greater due diligence. More substantial investments. More genuine residence requirements. More economic substance, and potentially greater emphasis on productive investment.

Product or Public Policy?

That brings us back to the original question.

Is citizenship a product?

For an investor, it can certainly have economic value.

But for a government, citizenship is something fundamentally different.

It is a public institution.

That is why governments that want to attract wealthy investors need to be careful about how they structure and market these programmes.

The strongest proposition is not:

“Buy a passport.”

It is:

“Make a meaningful investment in our country, establish a genuine connection and become part of our economic future.”

That is a very different proposition.

And it may be the only version of investment citizenship that can survive the political scrutiny now emerging across Europe.