The recent investigation into Henley & Partners has highlighted how some citizenship‑by‑investment (CBI) schemes operate in practice, raising questions about compliance, residency requirements, and the future of “golden passport” programs in Europe.
How citizenship‑by‑investment works
- Governments sell residency or citizenship in exchange for a financial contribution, typically a donation of several hundred thousand euros plus processing fees.
- The applicant must usually meet a minimum residency period, but the enforcement of that requirement varies widely.
- Programs exist in many EU states—including Malta, Cyprus, Portugal, Spain, Italy, and Hungary—and in non‑EU jurisdictions such as Turkey and Malaysia.
The Henley & Partners scandal
Henley & Partners, one of a handful of firms that design and market CBI programs for governments, was the focus of an investigative report that uncovered discrepancies between the official rules for Malta’s program and its actual implementation. Key findings included:
- Residency loopholes: Applicants were granted Maltese citizenship without satisfying the stipulated period of physical presence.
- High‑profile beneficiaries: The ex‑wife of Russian oligarch Roman Abramovich and several of her relatives obtained citizenship despite not meeting residency requirements.
- Overpriced services: The firm’s fees were significantly higher than comparable providers, raising concerns about profiteering.
EU reaction and possible regulatory tightening
The scandal has intensified scrutiny from EU institutions, which have long argued that “EU values are not for sale.” Potential outcomes include:
- Stricter residency enforcement for existing programs.
- Reduced or eliminated CBI offerings in jurisdictions that face political pressure, as seen with Cyprus, which terminated its citizenship‑by‑investment scheme in November 2020.
- Greater transparency requirements for both governments and service providers.
Recent program changes and unofficial pathways
- Cyprus: The official CBI program was closed, but informal arrangements may still exist for high‑net‑worth individuals.
- Austria: A de‑facto “exception” route to citizenship has been rumored but never formalized; any future use is likely to become more difficult under increased oversight.
- Bulgaria: A former “easy” pathway to citizenship was available several years ago, offering a low‑cost entry point that many missed.
Why the market still matters
Despite criticism, CBI programs can provide long‑term benefits:
- Multi‑generational mobility: A single investment can secure citizenship for the applicant and their descendants, potentially lasting 50‑100 years.
- Tax and residency flexibility: Holding a second passport can facilitate travel, business, and tax planning, especially when other options (e.g., Malaysian second‑home visas) become unavailable.
- Asset diversification: Citizenship can be viewed as an asset comparable to property or investments, offering a hedge against geopolitical risk.
Practical considerations for prospective investors
- Verify residency compliance: Ensure the program’s residency clause is enforceable and that you can meet any physical‑presence requirements.
- Assess program stability: Look for signs of political or regulatory risk—recent closures (Cyprus) and EU pressure suggest some programs may be short‑lived.
- Compare total costs: Beyond the headline donation (e.g., €750 k for Malta), factor in legal fees, due‑diligence expenses, and ongoing obligations such as annual taxes or minimum stay periods.
- Consider alternative routes: Real estate purchases in Portugal, Spain, or Italy can lead to “golden visa” residency, which may be less vulnerable to sudden policy shifts than direct citizenship schemes.
Broader implications
The scandal mirrors earlier reputational damage from the Panama Papers, where a single law‑firm scandal tarnished an entire jurisdiction’s standing in the global financial system. Similarly, negative publicity around CBI programs can deter banks, accountants, and other service providers from working with clients from those jurisdictions, limiting the practical benefits of the passports they sell.
In summary, while citizenship‑by‑investment remains a viable tool for wealth‑preserving mobility, investors should act quickly when opportunities arise, conduct thorough due‑diligence, and stay alert to evolving regulatory landscapes.
