The European Parliament voted last month to phase out residence and citizenship by investment (CBI) programs in the EU, a move the industry says would cause severe economic damage.

European Lawmakers said EU countries should stop marketing citizenship to wealthy foreigners. Currently 20 out of 28 EU states run these programs.

The vote by MEPs comes after a report by the European Parliament’s committee on financial crime and tax evasion and reserved particular criticism for CBI programs run by Cyprus and Malta.

“A good first step to combat intra-EU money laundering would be to get rid of the so-called ‘golden visa’ which are a gateway for money laundering and organised crime,” said Markus Ferber, head of the conservative group in the parliament’s economic committee.

Lawmakers also called for stricter rules and supervision to counter money laundering and urged the creation of an EU wide financial police.

The report raises concerns that applicants for citizenship by investment schemes often do not have to spend any time in the territory where their investment is made, and even if they are supposed to, it’s not something that is checked up on.

The parliamentary committee also raises the potentially more important objections that these European schemes risk the security of the European Union, carry the potential for tax evasion and money laundering and devalue both EU and national citizenships.  

Ban May Cause Economic Damage

However, the industry warned that any move to halt residency and citizenship schemes would wreak economic havoc and have a detrimental economic effect on several of the smaller states in the EU.

Instead of a blanket ban, industry standards should be raised as the socioeconomic benefits of CBI programs can outweigh the negative potential for abuse.

A report released by the international tax advisory firm Ernst & Young (EY) at the end of last month found that tax residency is not the same as citizenship and that CBI programs do not pose a risk to tax collection.

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