Brussels on Tuesday launched legal action against Cyprus and Malta over their controversial golden passport schemes for wealthy investors, saying they were illegal and undermined EU citizenship.
The European Commission has written to the two countries, which both joined the EU in 2004, to demand explanations, warning that the schemes increased the risks of money laundering, tax evasion and corruption.
EU passports are highly prized as they give their owners the right to travel, live and work freely in all 27 members of the bloc, a right the commission said must be protected.
The effects of investor citizenship schemes are neither limited to the member states operating them, nor are they neutral with regard to other member states and the EU as a whole, the commission said in a statement.
The commission considers that the granting of EU citizenship for pre-determined payments or investments without any genuine link with the member states concerned, undermines the essence of EU citizenship.
The two countries have two months to respond to the commission's formal notice of action, after which further measures may be taken.
Cyprus has already said it will halt its scheme next month after an investigation by the broadcaster Al-Jazeera reported that dozens of those who applied were under criminal investigation, international sanctions or even serving prison sentences.
Commission spokesman Christian Wigand said the EU was concerned by calls for Cyprus to reintroduce a similar program, and by the fact Malta has given notice that it intends to extend its scheme.
What is important is going forward is that no member state is operating schemes that essentially result in selling in EU citizenship, Wigand told reporters.
Cyprus began offering citizenship in exchange for substantial investment in 2007 but stepped up the scheme in 2013, while Malta has been selling citizenship since 2014.
Investors could acquire a Cypriot passport in exchange for an investment of €2.5 million (US$3 million), netting some €7 billion for Nicosia's coffers over the years.
Malta last month arrested former Prime Minister Joseph Muscat's chief of staff as part of a probe into alleged kickbacks connected to its own golden passport scheme.
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