In an IMI-exclusive interview, IMC-boss Bruno L’ecuyer explains how infringement procedures work, how common they are, and what they will mean for Malta and Cyprus.
Many are asking about the precise nature of so-called infringement procedures. What are they really, and what is their purpose?
L’ecuyer: The European Union (EU) is based on treaties and legislation endorsed by the 27 Member States. In turn, they must abide by the commonly agreed rules.
In case of breach of EU law, infringement procedures are the procedure by which the European Court of Justice (ECJ) can prosecute a contravening Member State. The ECJ, any Member State (against another Member State), or the European Commission can initiate such proceedings.
In practice, the European Commission is responsible for most infringement proceedings. As the guardian of the treaties and the executive branch of European legislation, the European Commission has the duty to monitor and investigate how and whether the Member States abide by EU rules.
The Commission can start the procedure based on its investigation or the complaints and petitions from the public (including NGOs, trade bodies, and businesses).
There are four types of infringements:
- Failure to notify: a Member State does not notify the Commission in time about the transposition of EU law into national law;
- Non-compliance: A Member State’s legislation does not comply with an EU Directive
- Infringement: A Member State’s legislation is not in line with the requirements of the Treaties, the (directly applicable) EU regulations or decisions.
- Incorrect application: a Member State does not apply correctly (or not at all) the EU law.
Crucially, the procedure is divided into two phases, pre-litigation and litigation. The pre-litigation phase opens a formal communication channel between the Commission and a national government. The aim is to reach consensus and find a timely solution. Thus, the Commission sends a letter of formal notice to the Member State with a deadline for a reply (usually two months). If the answer is not satisfactory, the Commission sends a reasoned opinion requiring the Member State to comply within a timeframe.
In case the Member State fails to comply when the deadline elapses, the litigation starts. The Commission files a petition against a Member State before the ECJ, who will then provide its legal opinion.
How have infringement procedures been used in the past, and to what effect?
L’ecuyer: Infringement procedures are common in the EU. Since 2015, the European Commission initiated an average of 777 new proceedings per year.
There is no policy realm or Member State that is immune to infringement procedures. In areas where the EU has more exclusive competence, such as environmental protection or the single market, the Commission tends to initiate more infringement proceedings.
If one looks at the distribution of cases per Member State, the size of the Member State (big or small) does not matter. Yet, it seems that Nordic countries tend to be subject to fewer infringement proceedings.
Infringement procedures are effective in getting national governments to comply with EU law. In 2019, out of the 797 new infringement cases, 60% were resolved within two months (481). 316 cases gave way to a reasoned opinion and only 31 to litigation before the ECJ (5%).
To what degree is the outcome of such procedures binding?
L’ecuyer: Infringement procedures are legally binding and are based on the Treaty of the Functioning of the EU (Article 258 TFEU). Therefore, each EU country subscribed to this article and agreed to the superiority of the ECJ over the national courts, to become an EU Member State.
If, during the litigation phase, a Member State does not comply with the Court’s ruling, the Commission may refer the country to the Court for a second time. In this case, the Commission may also propose the Court to impose a financial penalty on the Member State. The Court could agree with the Commission and, depending on the type of infringement, the penalties could even be lump-sum per day for a specified period. In fact, in 2010 the Commission published a communication about the methodology of calculating the penalty payments.
In the vast majority of the cases, the Court rules in favour of the Commission. In 2019, for instance, ECJ issued twenty-five judgements with only two in favour of a Member State.
Nevertheless, the infringement cases are very complex legal proceedings. And as such, the Court considers some proceedings for many years (e.g. at the end of 2019, there were still 1,564 open cases). A public register of all active infringement cases is available on the Europa Portal.
What happens next in the case of Malta and Cyprus?
L’ecuyer: On 20 October, the European Commission sent a letter of formal notice to the governments of Malta and Cyprus. It thus started the pre-litigation phase of an infringement procedure. The Commission argues that each country’s citizenship by investment (CBI) programmes are incompatible with the treaties of the European Union.
Both Member States will have until 20 December (two months) to reply to the Commission. Based on their responses, the Commission will decide on whether to issue a reasoned opinion, i.e. a clear outline of the actions that the national governments need to take.
Both Member States announced that they would phase out or close down the CBI programmes. Malta had already planned the termination of the Individual Investor Programme (IIP) since it had reached the limit of 1,800 beneficiaries. Cyprus announced its decision to stop receiving new claims until it had addressed recent misconducts. While both governments will sovereignly decide on the best way forward, closing down the CBI programmes in their current form could end the infringement case proceedings.
What role, if any, will the IMC play in this process?
L’ecuyer: Infringement proceedings are an exclusive legal matter between the Commission and a national government. They concern breaches in national legislation or governance. The professionals that the IMC represent are not concerned by this case.
Meanwhile, initiating an infringement procedure against the Member States regarding their CBI programmes is a clear sign that investment migration (IM) is under threat in the European Union.
Up to now, the Commission has been looking at IM only through the lenses of the threat to the rule of law. Meanwhile, investment migration remains a vital lever for sovereign nations to raise debt-free capital, attract talented individuals, and deliver benefits to society as a whole. The Commission departments responsible for financial stability and macroeconomic equilibrium have not yet considered the contribution of investment migration.
To preserve the merits of investment migration, national governments and industry stakeholders should coordinate further and speak with one voice. The IMC has been active in Brussels for approximately two years now. Today, the whole IM value chain needs to step up its efforts and form a strong alliance with ambitious public affairs and outreach strategy. The IMC could play a central role in guiding such a coordinated effort.
Christian Henrik Nesheim is the founder and editor of Investment Migration Insider, the #1 magazine – online or offline – for residency and citizenship by investment. He is an internationally recognized expert, speaker, documentary producer, and writer on the subject of investment migration, whose work is cited in the Economist, Bloomberg, Fortune, Forbes, Newsweek, and Business Insider. Norwegian by birth, Christian has spent the last 14 years in the United States, China, and Spain.