Insights

A.   Introduction:

In Commission v Malta (filed on the 22 March 2023), the European Commission challenged Malta’s Citizenship by Investment framework.

Timeline: how did we get here?

It is useful at this juncture to recall how the whole process came about:

• 20 October 2020: the Commission first issued a letter of formal notice to Malta on the 20 October 2020, conveying concerns that the Individual Investor Programme (established in 2014) was not in line with EU law, mainly Article 20 TFEU and Article 4(3) TEU;
• November 2020: the Individual Investor Programme was repealed through the establishment of the Granting of Citizenship for Exceptional Services Regulations;
• 9 June 2021: the EU issued a second letter of formal notice to Malta which reiterated that the amended legislation was still not in line with EU law;
• 6 August 2021: the Republic of Malta replied to the letter disputing the Commission’s claims;
• 6 April 2022: the Commission sent a reasoned opinion to Malta, which Malta still did not agree with;
• 22 March 2023: consequently the Commission lodged an application before the Court of Justice of the European Union;
• 27 June 2023: Malta lodged its defence rejecting the Commission’s contentions;
• 17 June 2024: Following an exchange of pleadings a hearing was held during which the Commission and Malta presented their arguments and answered questions from the Court.

On the 4 October 2024, Advocate General Collins issued his opinion, whereby he proposed that the Court dismisses the European Commission’s action against Malta, with costs against the Commission^[1].

The Advocate General, in his opinion, echoed Malta’s submission that the present action is unprecedented. The AG stated that he is unaware of any case to date where the Court examined a Member State’s rules on the acquisition of nationality in the light of EU law and, in particular, by reference to EU citizenship.

According to “The Commission’s action is unprecedented. It seeks to prevent a Member State from implementing policy choices that it has legitimately made in a field of national competence as recognised by Article 9 TEU and Article 20(1) TFEU. The action also contests the legality of an entire national legislative framework governing naturalisation of persons. The Republic of Malta further submits that the expansive interpretation of Article 20 TFEU and Article 4(3) TEU for which the Commission contends will have an immediate impact on the legislative frameworks governing nationality in all Member States, particularly those in which naturalisation is granted on a discretionary basis.” (para.27)

B.   The Maltese Citizenship by Investment Framework:

The Maltese citizenship by Naturalisation for Exceptional Services by Direct Investment framework grants citizenship to an exclusive number of applicants (with an annual cap of 400 main applicants and limited to a maximum of 1500) who contribute in a significant way to Malta’s economic development. Essentially, through Malta’s CBI framework a further pillar was added to the grounds on which citizenship by naturalisation may be obtained at law (i.e. descent, registration in certain scenarios or after marriage, birth and naturalisation on the basis of residence), namely, through the new concept of “exceptional services”, which consist of:

• exceptional contribution to the Republic of Malta;
• exceptional contribution to humanity;
• exceptional interest to the Republic of Malta; or
• exceptional direct investment (in the form of a contribution of €750,000 when combined with a 12-month residence option or €600,000 when combined with a 36-month residence option).

C.   European Commission’s Arguments:

The European Commission essentially raised 3 lines of argumentation against Malta’s Citizenship by Investment framework.  In the first place it is worth noting that according to the Advocate General, as will be seen below, the Commission is alleging a failure by Malta to fulfil its obligations under Article 20TFEU, but is not asserting that Malta abused the law or misused rights afforded to it (para. 51).

The Commission’s first argument is that Malta, by establishing and operating its Citizenship by Investment framework, has failed to fulfil its obligations under Article 20 TFEU and Article 4(3) TEU.

Article 20 TFEU states that: “Every person holding the nationality of a Member State shall be a citizen of the Union.” This article also lays down the rights of EU citizens.^[2]

Article 4(3) TEU, on the other hand, states that: “Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.

The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.

The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.”

While the Commission noted that laws relating to the acquisition of citizenship are completely within the competence of the Member States, EU law, however, places limits on such power. As a result, according to the Commission, such laws still need to respect the concept of mutual trust, and Member States must adhere to EU law (particularly Article 4(3) TEU and Article 20 TFEU) when granting citizenship to third country nationals.

The Commission insists that mutual trust is essential to EU citizenship and therefore Member States must not create citizenship rules that undermine its essence, value and integrity.

According to the Commission third country nationals acquiring citizenship from a Member State also automatically acquire EU Citizenship (which will in turn bestow the right to travel, reside and work within the EU, together with other rights as regulated by Article 20 TFEU), and this when EU law imposes significant obligations on Member States insofar as the treatment of EU citizens is concerned.  The Commission observes that these EU rights express solidarity and mutual trust between Member States.

The Commission further contends that EU citizenship is intended to be the fundamental status for nationals of Member States and therefore the Commission insists that Member States must consider EU law when granting nationality to third-country nationals, despite their competence in the field of the granting of nationality.

The Commission’s ‘Genuine Links’ Argument

Secondly, the EU Commission argued that the automatic conferment of all the benefits that EU citizenship involves expresses the requirements of solidarity and mutual trust between Member States.

The Commission then used the above as a basis for also arguing that the EU is based on the integration of European States with shared aspirations and values, uniting the peoples of each Member State. According to the Commission, EU citizenship strengthens ties between Member State nationals and the EU, fostering solidarity and deeper integration among the different peoples of Europe, thereby forming a single polity within the EU.

The Commission argues, therefore, that the special relationship of solidarity and good faith between a State and its nationals, along with the reciprocity of rights and duties, forms the foundation of nationality and that (always according to the Commission) since nationality reflects a genuine link between a state and its nationals, it follows that a CBI ‘scheme’ that grants nationality in exchange for pre-determined payments without requiring a genuine link between the state and the individual undermines the essence and integrity of EU citizenship and mutual trust and must be unlawful as detrimental to the EU’s objectives.

Citing the Nottebohm case in support of its position about a requirement for ‘genuine links’ (more on this below) the Commission challenged Malta’s position that its CBI framework is based on ‘prospective links’ especially considering that the benefits of EU citizenship are immediate and that successful applicants may also reside in other Member States and not necessarily in Malta.

Linked to the above, the European Commission thirdly argued that by operating a Citizenship by Investment scheme, Malta is granting citizenship to individuals with no “genuine link” with the country, and, as a result, the Maltese framework “meets the criteria of an unlawful investor citizenship scheme since it permits the systemic grant of nationality in exchange for the payment of substantial pre-determined sums without requiring applicants to demonstrate a genuine link with the Republic of Malta” (para.20).

The Commission also highlights how in the Maltese Citizenship Act, citizenship by naturalisation based on residence would require the applicants to provide evidence of residing in Malta throughout a period of 12 months, as well as establishing residence for a minimum of an aggregate of 4 years out of a total period of 6 years. By contrast, according to the Commission, the Maltese Citizenship by Investment framework states that applicants may opt for either a 36-month or a 12-month residency period, but “contains insufficient safeguards to ensure that the residence obligation is more than a purely fictitious requirement or that there is any genuine link between the Republic of Malta and applicants for Maltese nationality thereunder” (para.20).

The Commission also argued that the regulations governing the Maltese Citizenship by Investment framework do not clearly define what the residence period must consist of, and as such the Commission deduces that applicants only need to hold legal residence, and not have an actual physical presence in Malta. The Commission, in its arguments, referenced the Nottebohm judgement, arguing that it supports the argument that international law requires a genuine link in order to acquire nationality. Malta, on the other hand, contends that this same judgement “has been the subject of extensive and well-justified criticism” (para. 26)

D.   Malta’s Arguments:

Malta firstly used history to substantiate the legitimacy of its Citizenship by Investment framework. The practice of offering access to naturalisation through investment in fact dates to ancient times and is by far not a ‘modern trend’. Malta argues that “the power to attribute nationality lies at the very core of national sovereignty” (para.26) – it is actually closely linked to the national identity that article 4(2) TEU requires the EU to protect. Consequently, according to Malta, the Commission’s stand is unprecedented and without any basis in fact and at law.

Secondly, with regards to the EU’s “genuine link” or “prior genuine link” argument, while Malta acknowledges that the existence of such links may be a reasonable basis upon which States may choose to grant citizenship, however it contends that it is entirely up to the States to determine what links it deems to be sufficient to rationalise providing an individual with the possibility of obtaining naturalisation. The EU Treaties and the travaux preparatoires, on the other hand, do not oblige Member States to require a person to have a ‘prior genuine link’.

Malta acknowledges that when citizenship laws are discriminatory and citizenship, for instance, is not available to individuals of a specific race or ethnic origin (and thus constitute a serious breach of EU values and objectives as defined in the Treaties), then the EU can intervene and claim that there has been a violation of their rules. Malta insists, however, that this is not the case here.

Thirdly, Malta argues that the Commission is oversimplifying the Court’s case-law, by trying to equate the loss of citizenship with its acquisition. The withdrawal of a Member State nationality means that that individual would also be deprived of EU citizenship and the rights associated with it. On the other hand, acquisition of a Member State citizenship, and therefore also EU citizenship, expands the range of a person’s rights and duties, which means that the acquisition of citizenship should be reviewed in a different manner to the withdrawal of nationality. The Court’s case-law, as mentioned by the Commission, deals with the consequences of the withdrawal of EU citizenship, rather than the acquisition of it, which is what the case at hand entails. “The Commission’s failure to grasp this fundamental difference has led it to advocate an interpretation of the Treaties that would lead to a disproportionate outreach of EU scrutiny over a field of national competence that is closely linked to the sovereign prerogatives of the Member States.” (para. 28)

Fourthly Malta contends that the European Commission has unjustly oversimplified Malta’s 2020 citizenship scheme, in an attempt to mislead the Court by stating that the Maltese citizenship framework is an “automatic and unconditional” route to Maltese nationality. According to Malta, in fact, the Maltese citizenship rules actually do require applicants to demonstrate “evidence of personal, commercial, financial ties with the country“, in addition to satisfying the minimum investment criteria of the rules.

Malta also strongly contests the Commission’s view on the basis of the fact that while an initial investment is required to access the framework, it is far from an automatic process, but each applicant must undergo a very thorough due diligence exercise to satisfy the conditions of the framework. As a matter of fact, “a rate of refusal of approximately one third [33%] of all admissible applications is sufficient proof of the absence of any automaticity.” (para.29).

Malta claims that its 2020 Citizenship By Investment framework is a “legitimate, robust, professionally run and effective naturalisation scheme”, which does not breach EU law.

As mentioned above, Malta also pleaded to the Court that if the Court were to agree with the Commission’s plea, it would set a dangerous precedent whereby the Court would be intervening in a matter that is within the exclusive national competence, which would in turn increase the EU’s competence in a field that is strictly a matter of national sovereignty.

It is worth noting that over the entire process, the EU Commission advanced various arguments, but eventually changed its approach during the proceedings against Malta. Back in 2013, shortly after the Maltese Citizenship by Investment framework was launched, the EU Commission held a press conference during which a journalist asked about the EU’s thoughts on the Maltese programme. A European Union spokesperson was invited to the stand and replied that: “The European Court of Justice has on several occasions confirmed the principle of International Law that it is for each Member State to lay down the conditions for the acquisition of its nationality…”.

Over the years, however, the Commission’s stand has clearly changed and became more hostile on the more populist grounds that citizenship by investment schemes pose serious security risks, mainly relating to tax fraud, corruption, financing of terrorism and money laundering. Before the Court of Justice of the European Union, however, the EU adopted a different approach, now focusing on the more esoteric concepts of sincere co-operation and mutual trust under the European Treaties.

What is certain, however, is that the EU Commission did not also launch an attack on the probity of applicants who have been, or are in the process of being, granted Maltese citizenship, or Malta’s multi-tiered due diligence process and its compliance with EU laws on anti-money laundering, corruption and terrorism, in that way tacitly endorsing Malta’s CBI framework as the ‘gold standard’ in the industry, when it comes to due diligence, something that Malta has always insisted it is.

Similarly, by rejecting the Commission’s argument that Malta’s framework contains insufficient safeguards to ensure that the residence obligation is more than a merely fictitious one or that there are genuine links between Malta and applicants, the Advocate General has also endorsed Malta’s residence requirement.

E.    Advocate General’s Opinion:

In summary the Advocate General, whilst rejecting some of Malta’s more procedural pleas, concluded – in no uncertain terms – that the Commission has not proven a breach of the Treaty provisions governing citizenship and that there is therefore no basis, in law or in fact, for the claim that Malta is in breach of the duty of loyal co-operation (para.40). The Advocate General confirmed that:

“it is settled case-law that it is for each Member State, acting within its exclusive competence and having due regard for international law, to lay down the conditions under which its nationality may be acquired and lost.” (para.44).

The Advocate General observed that Malta does not contest that it offers naturalisation to persons in exchange for pre-determined payments, subject to their meeting certain requirements, confirming at the hearing that, in exchange for payment of a specific financial contribution, a single year’s legal residence in Malta suffices for the purposes of naturalisation (para.41). The Commission, on the other hand, confirmed in its oral submissions that its single complaint is based upon the purported existence of a requirement under EU law – and, to a lesser extent, under international law – that, in order to preserve the integrity of EU citizenship, there must be a ‘genuine link’ between a Member State and its nationals (confirming that its action is dependent on the validity of that premise) (para.41).

The Advocate General went on to say that, as stated in previous case law (the AG’s opinion in Prefet du Gers; C-673/20, EU:C:2022:129, point 22) the Member States could always have decided to bestow upon the EU the power to determine who may become an EU citizen, but a decision was taken not to do so. Therefore, unless a Member State is acting in a manner contrary to EU law or international law, the EU cannot intervene in citizenship matters, since this is strictly a matter of national sovereignty:

“As I indicated in my Opinion in Préfet du Gers, (38) the Member States could have decided to pool their competences and to confer on the European Union the power to determine who may become an EU citizen. They have chosen not to do so.” (para. 44)

Furthermore, the Advocate General goes on to state that Declaration No 2 (annexed to the final act of the Treaty on the European Union) makes clear that the acquisition of Member State nationality automatically results in the acquisition of EU citizenship, which all other Member States are bound to recognise, “…wherever in the Treaty establishing the European Community reference is made to nationals of the Member States, the question whether an individual possesses the nationality of a Member State shall be settled solely by reference to the national law of the Member State concerned…” (para.45).

The opinion further clarifies that:

“In a spirit of mutual respect and trust, Member States have unconditionally agreed to abide by the decisions of other Member States as to whether an individual possesses the nationality of a Member State, and therefore, EU citizenship, irrespective of the particular relationship between that person and that Member State. Article 9 TEU, Article 20(1) TFEU and Declaration No 2 do not permit the EU institutions, or other Member States, to introduce any conditions for the recognition of the nationality of another Member State.” (para.47).

According to the Advocate General, despite the existence of EU nationality:

“This does not, in any way, detract from the fact that the Member States have decided that it is for them alone to determine who is entitled to be one of their nationals and, as a consequence, who is an EU citizen. The ‘single polity’ that results from the creation of EU citizenship therefore does not impose obligations on the Member States with regard to the terms and conditions upon which they confer nationality.” (Para. 46)

This view aligns completely with Malta’s argument that legislation with respect to citizenship, and the acquisition and loss thereof, is a matter of national autonomy.

Existing case-law

The Advocate General also notes that there is existing CJEU case law (Micheletti; C-369/90; EU:C:1992:295; and Zhu and Chen; C-200/02, EU:C:2004:639) whereby the Court had ruled that “it is impermissible for the legislation of a Member State to restrict the effects of the grant of the nationality of another Member State by imposing any additional condition for the recognition of that nationality” (para.48).

Micheletti:

According to Micheletti, with a view to the exercise of the fundamental freedoms provided for in the EC Treaty, it is not permissible for Member States’ legislation to restrict the effects of the grant of the nationality of another Member State by imposing any additional condition for the recognition of that nationality.

In this judgment the Court did not review the Italian rules on naturalisation in the light of EU law but rather the compatibility with EU law of Spanish rules that purported to restrict the effect of Italian law in Spain.

Zhu and Chen:

Although Micheletti predates the establishment of EU citizenship, it was restated amongst others in Zhu and Chen. This judgment established that the EU (together with its institutions and other Member States), “must, in principle, abide  by all other Member States rules on the conditions for the acquisition and the loss of nationality”, as deemed fit by other Member States. The corollary of this is that Member States are not required to have a shared concept of what constitutes nationality and, accordingly, the rules on the grant of citizenship can indeed diverge (para.48).

In this case the Court did examine the abuse of law or misuse of rights in the context of the acquisition of EU citizenship and rejected the UK government’s claim that a TCN should be prevented from relying on EU law (in particular the right of EU citizens to move and reside freely in any MS) where that person had arranged matters in such a manner as to ensure that their child acquired the nationality of a MS and, thus, EU citizenship and the rights derived therefrom.

Tjebbes:

In this judgment – which is one of the main ones that the Commission relies upon in support of its arguments – while a MS may legitimately consider nationality to be an expression of a genuine link with the MS, and, as a result, prescribe that the absence (or loss) thereof will result in the loss of nationality, this can only be done in accordance with the principle of proportionality with respect to the consequences of that loss from the EU viewpoint. This, the AG argued, does not translate into an obligation on MS to require a genuine link.

However, the Advocate General rightly observed that this notwithstanding, these rules and laws must, in turn, not breach EU law: “The exercise of a Member State’s sovereign prerogative to grant or to withdraw citizenship is not unlimited and both EU and international law may, in principle, constrain its exercise.” (para.49). However he found absolutely no such breach on Malta’s part and, therefore, no legal basis for the Commission’s action.

Definitely a key aspect of the AG’s opinion is the part where he agrees with Malta’s assertion that the review of the withdrawal of member state nationality should not be subject to the same EU rules as the acquisition thereof, considering that deprivation carries the grave consequence of possible statelessness (para.52). Deprivation of citizenship also results in the individual losing EU citizenship and all associated rights, and for this reason Malta argued that while deprivation of EU citizenship should be considered carefully and be strictly regulated, by contrast the acquisition of citizenship actually expands (rather than diminishes) a citizen’s rights and obligations.

Advocate General on Genuine Links

Specifically on the point of genuine links, according to the AG, while it is entirely in the hands of specific Member States, if they require proof of a genuine link, according to their own nationality laws, “EU law does not define, much less require, the existence of such a link in order to acquire or to retain that nationality.” (para.55). The Advocate General does confirm that international law does make reference to the requirement of “genuine link”, as was the case in the Nottebohm judgement, whereby the International Court of Justice held that a State would have the right – the prerogative – to refuse to recognise nationality granted by another State, in certain circumstances where there is the absence of a genuine link between an individual and his or her national state. However this is not to say that Malta is obliged to require genuine links.  Indeed, at no point in the judgement, does the ICJ require that States must have a “genuine link” with their nationals.

It is also important to note that the ICJ did not define the concept of “genuine link”, or mandate that States can grant nationality only if “genuine link” exists. In fact, the ICJ asserts that “it is for every sovereign State, to settle by its own legislation the rules relating to the acquisition of its nationality…” (para.56). Therefore, the ICJ also follows Malta’s argument, that the matter of granting of citizenship lies solely in the jurisdiction of that State.

Advocate General Collins goes on to confirm that EU law follows ICJ law, since neither have imposed the necessity of a “genuine link” between an individual and his or her national State. The matter of the granting (or revoking) of nationality is strictly governed by national law, all the while paying due regard to international rules (for example with regards to the UN Conventions on Statelessness).

“There is no significant divergence between EU law and international law on the question as to whether a genuine link must exist between an individual and the State of which he or she is a national, since neither imposes such a requirement. The conditions for the grant of nationality are a matter of national law…” (para. 57).

Member States have a duty under EU law to recognise nationality granted by other Member States, without questioning the sovereignty of each Member State:

“There is … no logical basis for the contention that because Member States are obliged to recognise nationality granted by other Member States, their nationality laws must contain a particular rule, let alone one that requires a ‘genuine link’ as a condition for possessing that nationality.

A duty under EU law to recognise nationality granted by other Member States is a mutual recognition of, and respect for, the sovereignity of each Member State – not a means to undermine the exclusive comptences that the Member States enjoy in this domain. To find otherwise would upset the carefully crafted balance between national and EU citizenship in the Treaties and constitute a wholly unlawful erosion of Member States’ competence in a highly sensitive field which they have clearly decided to retain under their exclusive control.” (Para. 57)

According to Advocate General Collins:

“The ICJ ruling is limited to allowing States to withhold recognition of nationality granted in the absence of such genuine link… It does not oblige States to require that such a link exists either between them and their own nationals or between other States and their nationals.” (para.56).

It is also relevant that the AG also does not suggest that Malta does not require genuine links as part of the framework – quite the opposite, he actually comments that Malta has successfully disproved the Commission’s contention that Malta grants citizenship without genuine links.

The opinion concludes with the Advocate General’s opinion that:

“It follows that, in my view, the Commission has failed to prove that, in order to lawfully grant national citizenship, Article 20 TFEU requires the existence of a ‘genuine link’ or a ‘prior genuine link’ between a Member State and an individual other than that which a Member State’s domestic law may require” (para.58),

and he advises that the Court dismisses the European Commission’s action with costs against the Commission.

F.    What does this mean for pending applications? The doctrine of legitimate expectation

While the Advocate General’s opinion strongly supports Malta’s arguments, his opinion is not binding on the Court and the final decision ultimately lies in the hands of the Court of Justice of the European Union. It is the role of the Advocate General, in complete independence, to propose to the Court a legal solution to the cases that they are responsible for, and this opinion is Advocate General Collins’ proposed legal solution to the infringement proceedings brought by the Commission against Malta in respect of the latter’s Citizenship by Investment framework.

While the last word rests with the honourable Court, it would be remiss not to spare a few words on the possible impact that a negative decision by the Court would have on the many applications that are presently still pending. While the Commission is seeking a decision by the Court that the Maltese framework is invalid – unlawful also –  the doctrine of legitimate expectation immediately springs to mind here because these applicants have submitted an application on the basis of a law which would have been valid up to the point in time that the application was submitted by them – in some cases they may even have reached the stage where their formal citizenship application has been approved and they would have even paid the exceptional investment to the Government of Malta. While not an absolute principle under EU law, the doctrine of legitimate expectation is well established in the jurisprudence of the CJEU and it would seem exceedingly unjust towards the multitude of applicants with pending applications to suddenly shut the proverbial door in their faces.

G.    Conclusion

The judges have now commenced deliberations, and the final judgement is to be expected at a later date. Various sources were envisaging that a decision was possible at the end of 2024 or early 2025, but a more realistic timeline is possibly towards the end of Q1 2025 and the immigration and citizenship by investment world, both within and outside the EU, is eagerly awaiting this outcome.

Malta hopes that, as the last EU CBI framework still in existence, by having chosen to set the bar so high when it comes to screening the probity of applicants under the Maltese framework, it will continue to serve as the quality benchmark for all frameworks. Malta never promised a quick citizenship, or a simple process, but it always reassured applicants that at the end of thorough scrutiny, successful applicants will join a very exclusive and limited class of HNWIs who are increasingly integrating themselves further into Maltese society and appreciating the various offerings that Malta has.

[1] The office of the Advocate General was introduced in the Treaty of Rome enabling the AG to offer legal advice to the court on cases being tried, without however taking part in the decision-making process of the Court. Indeed, although AG’s are members of the Court of Justice of the EU, appointed under the same procedures as judges and enjoy the same privileges (immunity), and who cannot be removed before the end of their 6-year term. The opinion of an AG is sought in all cases to be tried by the CJEU unless the Court decides that there is no new point of law (which is clearly not the case here). The AG’s opinion is not binding on the Court with the final decision ultimately lieing in the hands of the CHEU.  However, in the absence of dissenting opinion, they play an important role and are referred to in subsequent cases.

[2] These are:

• the right to move and reside freely within the territory of the Member States;
• the right to vote and to stand as candidates in elections to the European Parliament and in municipal elections in their Member State of residence, under the same conditions as nationals of that State;
• the right to enjoy, in the territory of a third country in which the Member State of which they are nationals is no represented, the protection of the diplomatic and consular activities authorities of any Member State on the same conditions as the nationals of that State;
• the right to petition the European Parliament, to apply to the European Ombudsman, and to address the institutions and advisory bodies of the Union in any of the Treaty languages and to obtain a reply in the same language.