Citizenship by Investment:
What Defines this Path to Citizenship and What Drives its Popularity
The measure of success for citizenship by investment is a combination of transparent legislation and an eye to due diligence.
Interest in second citizenship has never been higher. The demand for more than one citizenship is stirred by a growing sensitivity to globalisation, and piqued by daily headlines on Brexit, President Trump’s promises on immigration control, and scandals such as the plight of the Windrush generation. Simultaneously, supply is growing, with an increasing number of nations opening citizenship to applicants who can generate foreign direct investment.
Second citizenship can be obtained in a variety of ways, with some paths more commonly travelled than others. Common paths include birth within a nation’s recognised territory, descent, marriage, and long-term residence. Increasingly, however, individuals and families from around the world are looking at a more time-efficient path to guarantee their physical security, financial stability and a more global lifestyle. These desires can be achieved through citizenship by investment.
The path less trodden
Citizenship by investment (also known as ‘economic citizenship’) is, to some extent, an exclusive means of acquiring second citizenship. It is a legal process, entrenched in legislation, whereby an applicant is awarded citizenship in return for a significant investment into a nation’s economy. There are no more than a dozen countries around the world who have official government-led, legitimate programmes. At the same time, however, and in contrast to more typical ways of achieving second citizenship, it is also more open: allowing applicants to apply even if they do not necessarily have a previous connection to a nation, or a deep-set understanding of its culture and history. Rather, access to economic citizenship is contingent on the individual’s ability to provide the nation with a significant monetary contribution, driving growth and ensuring future prosperity. In practice, this means that most citizenship by investment countries do not impose residence or travel requirements, mandatory interviews, or language requirements. Importantly however, this does not mean that anyone can obtain citizenship – all applicants must show good moral standing and a clean criminal background.
A growing trend
First introduced by the Federation of St Kitts and Nevis in 1984, citizenship by investment (CBI) remained a hidden gem for decades but, as recession hit economies large and small, more and more nations turned to citizenship by investment as a solution to their economic troubles. CBI thus began to flourish, not merely in the Caribbean – where five nations have well-established programmes – but also across Europe, Asia, and Oceania.
Once the prerogative of small nations, in 2018 citizenship by investment programmes were also launched in more populated countries, evidencing a growing appetite for economic citizenship across a variety of nations. Why this appetite is growing among governments is clear: they receive significant contributions that they can channel to communities and projects in need. But the economic citizen has also a lot to look forward to: a new citizenship and the benefit of becoming a part of a nation whose development is being bolstered by an influx of investment. For this reason, the process is often described as a win-win: a win for the applicant (or eventual citizen), and a win for the country.
The investment an individual or family is required to make to the country is specified in the legislation of each CBI nation. One of the most affordable economic citizenship routes – Dominica’s Citizenship by Investment Programme – requires a main applicant to contribute a minimum of US$100,000. Price-points, however, vary widely depending on the nation, with European-based programmes typically seeking ten to twenty times more than those located elsewhere. Investment requirements have shifted a great deal in the past 12 months, as countries seek to find a sustainable balance between being competitive in an expanding market and presenting a programme of worth.
Other indicators, aside from investment thresholds, are also essential to differentiate programmes and their value. The CBI Index – a special report issued annually by the Financial Times subsidiary Professional Wealth Management magazine – ranks citizenship by investment programmes by utilising seven indicators:
- Due Diligence – the process of vetting an applicant and ensuring that they are bona fide and that their application is accurate.
- Ease of Processing – the efficiency of the application process, including but not limited to, how transparent, streamlined, and concise the process is for the applicant.
- Citizenship Timeline – the speed at which the application can be processed. St Kitts and Nevis, for example, offers an Accelerated Application Process (AAP), which guarantees applicants a turnaround time of 60 days or less (including the issuance of a passport), provided all other criteria are fulfilled.
- Mandatory Travel or Residence – whether an applicant is required to reside or travel to the country during or after the application process. This is relevant to the typical high net-worth, time-poor applicant.
- Minimum Investment Outlay – the affordability of the programme.
- Standard of Living – the way of life in the country including its legal systems, life expectancy, crime rates, and more.
- Freedom of Movement – the mobility that the citizenship affords by virtue of its visa-free and visa-on-arrival travel waivers.
The data evaluated for the CBI Index considers the most critical components of today’s citizenship by investment programmes, according to an applicant’s needs. The comprehensiveness of the research, demonstrating extensive use of quantitative and qualitative data, provides an unparalleled study of the citizenship by investment industry.
Those working within the industry should be able to steer applicants in the direction that best suits their needs. CBI programmes and the corresponding government departments do not accept applications directly from investors, and so depend on a trusted list of agents who are authorised to submit applications on their clients’ behalf. CS Global Partners works extensively within this network of agents and is a leader in providing accurate advice and guidance to applicants seeking a second citizenship. It is also officially mandated by a number of governments offering citizenship by investment.
Growing pains?
With the proliferation of citizenship programmes around the world, there is a danger that prospective applicants may fail to distinguish genuine programmes from illegitimate ones. Genuine programmes are always entrenched in the legislation of the nations that offer them, running from their constitutions, to their laws, and ultimately their regulations. Late last year, an illegitimate Guatemalan citizenship programme surfaced, purporting to offer clients a “new identity with a Latin name”. This was an example of exploitation in a niche, but expanding, market where awareness is still growing. It was also an attempt to prey on those who may currently hold nationality to countries of unstable governance and politics, and who were desperate to protect their identity. The industry is collectively responsible for distilling myths such as these, as well as reiterating that the programmes that do exist are rooted in law.
The due diligence factor
All industries, to some extent, are vulnerable to abuse. Happily, well-established citizenship by investment programmes, such of those of the Caribbean, have taken steps to significantly reduce this vulnerability. Those involved in the illegitimate Guatemalan programme, for example, could never claim to act for one of the Caribbean governments, as these governments publish lists of the agents that they work with on their official websites. To feature on these lists, agents must pass thorough checks, obtain a licence, and ensure that each of their clients are risk-free.
As with agents, due diligence is at the heart of the relationship between a citizenship by investment jurisdiction and its economic citizens. Indeed, the more a country performs checks on prospective economic citizens, the more it safeguards its current citizens – ultimately protecting its reputation and the attractiveness of any citizenship by investment programme it may choose to institute.
Dominica, Malta, and St Kitts and Nevis are considered the frontrunners in due diligence – something that was confirmed in the CBI Index, where they were each awarded full scores. With longevity on their side, Dominica and St Kitts and Nevis have had decades to refine their processes, developing a multi-tiered approach that sees applicants examined both in-house and by external due diligence agencies. Applicants understand that these countries are reaching out to persons of quality, and welcome steps to ensure that programmes will only be used by respectable persons who will not damage the reputation of the country they too have chosen for their second home.
This search for quality finds a strong proponent in the Commonwealth of Dominica, which has seen the effects of seeking out excellence among its applicants. Here, in addition to making a one-off contribution or purchasing real-estate, economic citizens offer their new nation a strong business network and gifted persons eager to work together to tackle global issues. Dominica refers to this as its Global Community, acknowledging the collective strength of its diaspora. The value of citizenship by investment to Dominica, therefore, is more than the sum of applicants’ investments; it includes the potential for additional contributions flowing from the talent, expertise, and goodwill of economic citizens, and, by doing so, highlights the importance of due diligence in selecting the ideal citizen.
Improvements are routinely occurring to ensure due diligence adapts to market growth and demand. St Kitts and Nevis, for example, added an new layer to its screening process last year, placing more responsibility on its agents to perform know-your-client checks. This was on top of agents’ existing responsibility to ensure that submission are complete and truthful. Completion means the inclusion of extensive due diligence documentation, such as police clearance records from an applicant’s country of citizenship and any country where the applicant lived for more than one year over the past ten years. St Kitts and Nevis is also among the most vociferous proponents of a shared system of best practices to be used by all Caribbean CBI nations, confirming the Federation’s role as an industry leader.
Many of these best practices are already in place in St Kitts and Nevis. Here, the Citizenship by Investment Unit that reviews applications can boast staff trained in anti-money laundering (AML) and counter-terrorist financing (CTF), as well as professional relationships with eminent international firms that review all aspects of an applicant’s life and business, ranging from family ties to source of funds. Only firms with the highest quality standards and reputation are used, and both online and on-the-ground checks are requested. They also typically hold expertise in obtaining information from specific countries and regions, depending on the origin of the application.
It is important to note that due diligence does not stop at the application. In many CBI nations, applicants who are later found guilty of providing misleading or incorrect information can have their citizenship revoked or their passport blocked. The legislation governing these provisions differs from jurisdiction to jurisdiction, but countries are overwhelmingly in favour of such strict controls on their economic citizens.
Global compliance
It is an exciting time to be in an industry shifting and expanding to meet the market. But with an increased number of countries and applicants poised to enter the investor immigration scene, comes the need to commit to robust legal frameworks and to find solutions to common issues. Collective action is, unsurprisingly, viewed by many as necessary to the sustainability of the industry.
Earlier this year, the Organisation for Economic Co-Operation and Development (OECD), a forum that aims to promote sound economic policies worldwide, released a consultation document entitled Preventing Abuse of Residence by Investment Schemes to Circumvent the CRS*. The document related to the suspected misuse of residence by investment and CBI programmes as a means of tax avoidance. The OECD invited stakeholders from the industry to comment and share their views to find mechanisms to mitigate potential abuse. Many citizenship by investment jurisdictions took the opportunity to come together to alleviate the OECD’s fears.
Indeed, almost all CBI jurisdictions sought to first clarify the important distinctions between residence and citizenship, as lack of clarity with respect to these two statuses was partly responsible for the OECD’s apprehensions. The key factors that separate citizenship and residence by investment programmes, in the context of the CRS, are as follows:
- Direct citizenship by investment programmes offer citizenship only. Programmes such as those in force in Dominica and St Kitts and Nevis do not provide a residence status, and no certificate of tax residence is issued to economic citizens upon receipt of citizenship.
- Persons cannot use citizenship to claim tax residence, because citizenship alone does not determine an individual’s residence status.
- Direct citizenship by investment programmes result in the issuance of a certificate of naturalisation only. Any application to request a passport, or other official documentation related to identity, must occur after the grant of citizenship, and is dealt with by a separate government department.
- An economic citizen’s place of birth is declared on his or her new passport. There is no attempt to conceal any information – thereby minimising the risk of aiding or abetting persons who intend to commit tax evasion or other forms of fraud.
- Residence by investment jurisdictions, instead, may provide certificates of residence or ID cards even if a resident does not actually demonstrate physical presence.
The OECD consultation document drew attention to the need to raise awareness of the legal distinctions that exist between residence and citizenship, and to the benefit of transparency and education. It also provided a platform for citizenship by investment nations to speak in a concerted voice, and to examine the issues that may be raised by external, international entities, as the industry continues to grow. Finally, it invited the question of what future considerations citizenship by investment nations may need to take into account.
Future requirements
Technology is certainly one important consideration. While technological innovation generally brings exciting developments and facilitates processes, it can also create some challenges. One example is cryptocurrency. For some time, it was rumoured that Vanuatu, an island-nation in Oceania with its own citizenship by investment programme, would accept cryptocurrency in lieu of US dollars. This was later discredited by the government. Yet the question of how cryptocurrency could affect CBI remains. How could a ‘citizenship coin’ adhere to the strict anti-money laundering policies that govern the most successful CBI programmes? How can blockchain systems be used to verify the source of funds when the identity remains anonymous by design? Will one cryptocurrency be used, and if so, which one? Or will multiple cryptocurrencies be accepted? And how will governments prepare for rapid cryptocurrency depreciation, if and when it occurs?
Currently, most programmes deal in the US dollar or euro, which implies a level of certainty for nations and applicants alike. Cryptocurrency may allow citizens of the world to more readily transfer funds, but the lack of regulation, mixed with the volatility of an uncertain currency, may leave nations open to criticism, and the ultimate depreciation of the value of their citizenship. Foreign investors from all corners of the globe have welcomed citizenship by investment as a route to stability and safety that is open to everyone, even when there is no pre-existing relationship with a country. In ever greater numbers, they have embraced it for its ability to deliver permanent rights and freedoms, beyond those that residence could ever provide. To remove the certainty of a strong citizenship may not be a risk worth taking, notwithstanding the potential attraction of cryptocurrency.
There is no end in sight to the growing popularity of citizenship by investment, but its survival is dependent on how well countries will be able to continue to offer programmes that are trusted and transparent. Continuing to move in the direction of greater due diligence is one means of doing this, as is ensuring that there is widespread understanding of the legislation that is at the core of citizenship by investment. Collaboration between nations and organisations will also be key. Finally, governments and agents alike must proactively engage others in platforms of discussion, such as the OECD’s consultation document, to ensure that the legitimacy and integrity of the industry is brought to light.
*The Common Reporting Standard (CRS) is a system of information exchange between nations that enables financial institutions such as banks to automatically share details of users to combat tax evasion. The CRS is part of the OECD’s framework, and was first approved for execution on request from the G20 Summit in 2014.
Micha-Rose Emmett
CEO
CS Global Partners
Telephone: +44 (0) 207 318 4343
Fax: +44 (0) 203 608 0368
Email: info@csglobalpartners.com
Micha provides intelligent citizenship solutions to investors seeking to diversify their business and lifestyle opportunities.
She specifically advises on the world’s leading CITIZENSHIP BY INVESTMENT (CBI) and INVESTOR IMMIGRATION programmes, including the most eminent CBI programmes in the Caribbean: those of the Federation of St Kitts and Nevis and the Commonwealth of Dominica.
CS Global Partners is an award-winning industry-leading legal consultancy firm specialising in citizenship and residence solutions. Its international team liaises between governments wishing to promote foreign investments in their countries, and individuals wanting to secure their future and become global citizens through intelligent economic citizenship.
