Will The Citizenship By Investment Programs Become Useless?

Something is going on in the world of citizenship by investment. And it ain’t good.

Some insiders are calling it a “crisis.”

The news started coming through about 10 days ago…

From the U.K.’s Daily Mail:

“[Home Secretary] Suella Braverman has closed a loophole allowing people who potentially pose a risk to U.K. security entering the country via the backdoor.

“The Home Secretary made the intervention amid concerns people from hostile states were effectively circumnavigating U.K. border controls by buying citizenship status of tiny, traditionally low-risk nations.

“So-called citizenship by investment schemes run by a handful of countries—including some in the Commonwealth—allow people to invest money in order to gain citizenship.”

Braverman’s statement singled out two citizenship-by-investment programs (CIPs), in Vanuatu and Dominica. She said: “Careful consideration of Dominica’s and Vanuatu’s operation of a citizenship by investment scheme has shown clear and evident abuse of the scheme, including the granting of citizenship to individuals known to pose a risk to the U.K.”

If you are a wealthy Chinese, Russian, or Middle Eastern individual, investing money and getting a passport from a British Commonwealth country like Dominica or Vanuatu, can be a kind of “golden ticket”—granting you visa-free access to countries you may never have had such access to before.

The Dominican government had been trying to relieve the U.K.’s concerns—by taking away some of the CIP passports it had recently issued. Too little, too late.

Dominica had in fact issued passports to certain Middle Easterners who had previously been denied access to the U.K. The fact that they’d been denied a U.K. visa wasn’t declared on the CIP applications these individuals submitted.

The U.K. action on Vanuatu follows a recent similar action by the EU. In early 2022, the European Union withdrew visa-free access to the Schengen Zone (27 countries) for Vanuatu passport holders, following allegations of improper vetting and the selling of passports to dodgy people.

An article in the Guardian newspaper began with the provocative lines: “What links an Italian broker accused of extorting the Vatican, South African brothers accused of absconding with bitcoin worth more than $3bn from their investors, and a disgraced Turkish banking mogul who served time for harboring his nephew after a murder? They all recently became citizens of Vanuatu.”

And so the U.K. has now declared that all Vanuatu citizens cannot enter their country without going through the visa application process…

Since the EU’s decision last year, the percentage share of revenue the Vanuatu government gets from its CIP has halved—indicating dwindling interest in the program without visa-free Schengen access… the hits are likely to keep coming after the U.K. decision…

Hot on the heels of the U.K.’s decision—particularly in relation to Dominica—there were rumors that the EU is now set to deny visa-free access to all the Caribbean nations running citizenship-by-investment programs…

You may recall that last month I interviewed the head of St. Kitts and Nevis’ Citizenship by Investment Unit, Michael Martin. He was very eager to point out that they run a clean program…

“We made some changes again last year which will ensure that the program continues to remain stable, that it’s a program that is well respected around the world and that it maintains the integrity that people have become accustomed to in our program,” he told me.

He added: “Due diligence is very important to us. And so we have contracted with due diligence providers who are really top of the line in that business to ensure that we do not allow into the program any of what I call the bad actors. When you carry our passport, you are in effect representing our country. And if you abuse that passport, you are abusing the country.”

At the time St. Kitts and Nevis were promoting a reduction in one of their CIP options from US$150,000 to US$125,000 for individual investors. That discount was initially due to run until June 31, 2023, but was then extended to Jan. 31, 2024.

But now, just a few weeks later, the EU has demanded that CIP nations have a minimum investment threshold of US$200,000 to preserve their visa-free access to the EU—and St. Kitts has complied.

The Citizenship by Investment Unit issued a statement: “The new changes, further to those made in December 2022, are aimed at safeguarding the nation’s integrity, making the Program sustainable and preserving the privileged status of being a citizen of St Kitts and Nevis. … Contributions start from US$250,000 for one applicant only and increase as a spouse or dependents are added.”

St. Kitts clearly wants to keep its hard-won reputation for running a clean and respected program, and avoid being tarred with the same brush as Vanuatu and Dominica.

About nine years ago, there were similar accusations swirling around the St. Kitts and Nevis program as those now facing Vanuatu.

At the time, we covered in my Simon Letter service the “growing list of questionable individuals who have purchased passports from the tiny Caribbean nation,” which included the son of the president of Equatorial Guinea, who faced corruption charges in America and France; the governor of a Nigerian state, who stood accused of organizing secret killings; as well as three individuals at the center of a U.S. Treasury Department investigation for evading U.S. sanctions against Iran.

The St. Kitts program has been very eager to clean up its act since then… and I’m sure every CIP jurisdiction wants to avoid the financial impact Vanuatu has seen since being denied visa-free Schengen access.

That’s the thing. When governments like those in the EU and U.K. decide to crack down on nations with CIPs, even perfectly clean and good programs can get caught in the mix.

There are those who believe—including some at the upper echelons in Brussels and Whitehall—that citizenship by investment is by definition bad (“buying access” to a country), and that all programs should be stopped.

But that is never going to happen…

As long as countries and governments are in search of money, they will offer access to investors willing to invest.

From time to time, different programs get suspended and investigated and bad actors are rooted out… just like any other government service, CIPs are open to corruption or pure sloppiness and sometimes that happens.

But it’s a mistake to think that all programs are all bad all the time… far from it.

Indeed, the U.S. government itself recently acknowledged that CIPs were a legitimate means for Caribbean governments to seek to attract capital to their nations.

The real story here—as I often say—is that the world of investment migration is always changing.

The rules of the game change all the time. St. Kitts and Nevis is a good example… a month ago, individual investors thought they had until January 2024 to donate US$125,000 and get a passport.

The news changes… and suddenly the rules change.

It can be hard to keep up with it. Or to know which programs to trust. But that’s why you’ve got me.

Stay diversified,

Lief Simon
Editor, Offshore Living Letter