Citizenship by investment programs are becoming popular both in the eastern Caribbean, where a second passport often brings tax perks for investors, and in Europe, where the citizenship of a small island nation like Malta can open the gates to fortress Europe.
Even larger countries like the U.K. are offering incentives and golden visas to attract wealthy individuals to become residents and spend some of their wealth in their newly found home country.
But just as in London, where Russian oligarchs might bring a questionable past with them, the origins of investors in Caribbean cash for passport programs can be quite murky.
Last year the U.S. Financial Crimes Enforcement Network (FINCEN) warned in an advisory of individuals abusing the programs and obtaining passports of St. Kitts and Nevis to engage in illicit activity or to circumvent international sanctions against them. At the same time, Canada imposed visa requirements for St. Kitts and Nevis passport holders.
In April of his year, the International Monetary Fund sounded similar warning bells. Acknowledging that the programs represent a significant windfall for small island economies like Dominica, Antigua & Barbuda or Anguilla, Adrienne Cheasty, deputy director of the Western Hemisphere Department at the IMF, cautioned that “it is very important that the programs be managed very impeccably.”
The countries should pay careful attention to the programs and treat the revenue they generate as a one-off windfall, which may disappear just as quickly.
“For example, if Canada or the European Union felt the programs were not being managed well, they could disappear,” Cheasty said in reference to criticism of St. Kitts and Nevis’s regime by Canada and the U.K. Any tightening of visa requirements for passport holders of a scheme country could quickly end the attractiveness of the investment programs.
The St. Kitts and Nevis program offers citizenship to individuals who invest at least $400,000 in designated real estate or contribute $250,000 to the St. Kitts and Nevis Sugar Industry Diversification Foundation. Despite these relatively small investments, the citizenship by investment programs can have a significant impact on small economies.
In St. Kitts, the economy grew by 7 percent in 2014, largely due to the strong inflows from citizenship by investment receipts, the IMF said.
Investment inflows are not limited to the required investments of the programs. In Antigua and Barbuda, YIDA Investment Group, a Chinese conglomerate, signed a deal to develop a $740 million mixed use -resort. The “Singulari” project would develop land formerly owned by Ponzi schemer Allen Stanford and surrounding areas with five five-star hotels, 1,300 residential units, a casino and conference center, a 27-hole golf course and a marina, as well as commercial, retail and sports facilities.
Billionaire Yida Zhang, the company’s chairman, responded frankly when asked by BRIC magazine why he invested in Antigua and Barbuda. “They are doing a citizenship by investment program,” he said, before praising the natural beauty of the islands and pointing out that Antigua and Barbuda is a Commonwealth nation that offers a multitude of business opportunities.
On YIDA International’s website, the advantages of the program are outlined as a direct, fast route to a passport, allowing for dual nationality. Applicants can be accompanied by their parents, but there is no need to reside in Antigua. Passport holders are exempt from visa requirements in 130 countries, and for the applicant’s children, it is a more convenient way to study or find employment in other countries.
The country’s opposition leader, Baldwin Spencer, criticized the program, saying it is “courting danger,” in reference to the negative publicity that the St. Kitts investment-for-passport schemes attracted for allowing Iranian nationals to circumvent sanctions. Instead of repealing the program, Antigua’s government tweaked it to make it “more competitive, as they put it,” and thereby make it less transparent, Spencer told the Caribbean Media Corporation.
According to Spencer, the amendments have the effect that there is no proper reporting mechanism and no disclosure of information about who receives a passport under the program, in contrast to the normal naturalization process in which new citizenship grants are published in the newspaper.
In December 2014, the country’s prime minister, Gaston Brown, said 150 new citizenships had been granted under the citizenship by investment program. Hailing the aggressive approach by his government since being elected in June, he said $50 million had been pumped into the economy because of the program. The goal is to attract $10 million a month via new citizenship grants.
Most programs also apply a processing fee of up to $50,000 per applicant.
The “aggressive” approach by the Brown government includes a partnership with a residential property developer in the United Arab Emirates. Anyone who purchases a villa in the Ajham Uptown project in the UAE is offered Antigua and Barbuda citizenship for a $200,000 payment to the National Development Fund. Passports are issued within three months, provided an investor passes the due diligence standards of the citizenship by investment program unit.
Other Caribbean countries have followed the lure of the cash. Montserrat and Turks and Caicos have residency by investment programs which enable the new resident, after naturalization, to apply for British Overseas Territory Citizen passports. Anguilla is mulling similar legislation.
The programs have many critics. Laura Johnston from the Edmond J. Safra Center for Ethics at Harvard University argues in a paper that “Citizenship by investment policies amount to institutional corruption because they threaten to destroy the value of national citizenship and corrode public trust in citizenship in a way that naturalization on other bases does not.”
Others fear the programs could create different classes of citizens, distinguishing the different paths to citizenship, effectively discriminating against citizens who are not wealthy.
Anguillan lawyer Carlyle Rogers, who manages the Stafford Group of Companies, says economic citizenship and residency programs can benefit offshore financial centers, but only if they lead to establishment of a substantive presence in the economy.
Programs that simply offer passports for sale without the requirement to reside in the country will come under greater scrutiny by developed countries and are likely to be attacked by organizations such as the OECD.
While a residency requirement could “make them less attractive to the wealthy Chinese, Russians and Middle Easterner who are the major beneficiaries of these programs, the residency requirement will lend more credibility to the programs and increase transparency,” Rogers wrote in the Cayman Financial Review.
The need for passport holders to reside in their host country for at least a minimum time period each year also requires that the citizens of the host countries be welcoming to the new economic citizens and understand that demographic changes will come as a result, he notes.