Category Archives: Citizenship by Investment

Golding Commission concerned about Caribbean Citizenship by Investment Programmes

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Alicia Nicholls

The CARICOM Review Commission, whose report was tabled in the Jamaica Parliament last week, has expressed concern about the administration of Citizenship by Investment programmes (CIPs) currently operated by five CARICOM Member States, and has called for the establishment of a CARICOM framework agreement on their operation.

CIPs were among the many diverse issues examined by the Commission whose mandate was to review Jamaica’s relations within CARICOM and CARIFORUM. CIPs are currently operated by five CARICOM Member States: namely, Antigua & Barbuda,  Dominica, Grenada, St. Kitts & Nevis and St. Lucia, and have been the subject of much scrutiny regionally and internationally.

Though recognising the economic importance of CIPs to these countries, the Commission, chaired by former Jamaica Prime Minister Bruce Golding, raised several issues with their current administration:

  • The programmes are driven more by short-term revenue benefits than long term investment gains
  • The lack of a minimum period of residency
  • The lack of a regional agreement on the operation of such programmes, especially given the national security and other implications for non-CIP operating CARICOM territories
  • While referrals to the CARICOM Implementing Agency for Crime and Security (IMPACS) are made, the State is not obligated to accept the advice of IMPACS
  • Concerns raised by third States (namely the US and Canada) about Caribbean CIPs and the fact that two CIP-operating Member States (St. Kitts & Nevis and Antigua & Barbuda) have already lost visa-free access to Canada due to these concerns
  • Cases of persons granted citizenship under these programmes who were later found to be less than savoury characters
  • The risks to the Community in light of ever more sophisticated trans-national crime
  • The alleged issuance of diplomatic passports to some new citizens
  • Varying due diligence procedures used by CIP-operating Member States

As such, one of the thirty-three recommendations made by the Commission in its Report is for the establishment of “an agreed framework with appropriate protocols and safeguards regarding the terms, conditions, qualifications and restrictions in relation to the operation of Citizenship by Investment programmes including prior consultations or sharing of information with other Member States”.

The full report of the Golding Commission may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is an international trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

 

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How can Caribbean CIPs survive increased global and regional competition and scrutiny?

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Alicia Nicholls

Citizenship by investment programmes (CIPs) operated by five Caribbean small island developing States have been receiving increased international competition and scrutiny, with some arguing that a veritable “race to the bottom” has begun. Indeed, these programmes face increased competition not just inter se, but globally as more countries worldwide are turning to citizenship or residency programmes for attracting much needed investment.

The CIP-operating countries in the Caribbean are currently St. Kitts & Nevis (the world’s longest running), Dominica, Grenada, Antigua & Barbuda and most recently, St. Lucia. As all five of these countries are part of the CARICOM Single Market and Economy (CSME), investors who obtain citizenship under one of these countries’ CIPs are also entitled to the freedom of movement privileges under the CSME, which has caused legitimate national security concern in some non-CIP operating CARICOM countries.

  1. Eliminate price as a factor

Although Caribbean CIPs are already the most affordable in the world, there are irrefutable signs of increased price competition among Caribbean CIPs.  In January of this year, St. Lucia amended its regulations to, inter alia, reduce the minimum qualifying investment to US$ 100,000 to the National Economic Fund. In the wake of the passage of Hurricane Irma, St. Kitts & Nevis added a lower cost option (US$150,000 plus applicable fees) in the form of the temporary hurricane relief investment option (until March 2018), whereby the invested funds would be earmarked for assisting hurricane-affected areas. This latter change was sharply criticised. Even more recently, Antigua & Barbuda cut the investment threshold for the National Development Fund by 50%.

Any semblance of price competition among Caribbean CIPs is problematic for several reasons.  Although the majority of persons seeking alternative citizenship do so for the ease of business and travel a good quality passport brings, lowering the minimum investment threshold makes Caribbean CIPs more accessible to those persons who may seek alternative citizenship for nefarious purposes. Even if the due diligence processes remain unchanged, a perceived price war could cause third States to either reimpose visa restrictions or apply more scrutiny to passport holders of those States  (or of other Caribbean States!), which diminishes the value and attractiveness of those CIP-countries’ passports. It lessens the perceived value of the citizenship offered by those countries which may actually be a turn-off to some High Net Worth Individuals who may be more attracted to exclusivity.

What this speaks to is the need for CIP-operating Caribbean countries to eliminate price as a factor of competition by harmonising their minimum investment threshold, a point I made in a paper I delivered on this topic earlier this year.

2. Increase due diligence cooperation

Cooperation among CIP-operating Caribbean countries should also extend to cooperation on issues of due diligence to ensure that an applicant who fails one country’s due diligence requirements is not accepted under another’s. Based on my research, it appears that there is some due diligence cooperation already occurring, but more can be done. Additional options could be to harmonise due diligence requirements and to formulate a harmonised list of excluded countries instead of national lists as currently obtains in some CIP-operating Caribbean countries.  This would also address some of the national security concerns of non-CIP operating Caribbean countries, and third States.

3. Improve transparency

Lack of transparency remains a major problem plaguing the perception of Caribbean CIPs. Antigua & Barbuda’s legislation makes it mandatory for a 6-month report to be published and this information is found online. However, generally speaking, there is little information made available about Caribbean CIPs’ operation, except for the economic data found in the IMF’s Article IV consultation reports. With few exceptions, officials are often very reluctant to share data on these programmes’ operation, whether out of fear of competition or negative publicity.

Failure to share information only adds to the shroud of secrecy plaguing the programmes and it also makes it difficult to analyse the socio-economic impacts of these programmes.

It would be useful if CIP-operating Member States would use the framework for information sharing as mentioned in the Strategic Plan for the Caribbean Community Plan 2015-2019 to share data on the operation of their programmes for transparency purposes, including their approval and disapproval rates.

4. Compete on quality

Competition among Caribbean CIPs should be on quality of service and product without compromising standards. Caribbean countries already have inherent natural advantages which are pull factors for HWNIs, such as their natural beauty, pleasant climates, stable democratic societies and quality of life. But these alone are not enough. What the latest World Bank Doing Business Report 2018 shows is that there are several indicators on which Caribbean countries, including CIP-operating countries, can improve their attractiveness as investment destinations by improving the ease of doing business. Jamaica, which does not offer a CIP, is a good example of a Caribbean country which has been making sound reforms in the quest for  ‘best in class’ status as an investment destination.

5. Good governance

Good governance is key to the long-term sustainability of Caribbean CIPs. This includes ensuring that due diligence standards are robust, as well as that transparency and efficiency remain paramount to the programmes’ administration. It also entails keeping the programmes free of political interference.

6. Residency Criterion?

Currently, all five Caribbean CIPs are direct citizenship programmes which means that there is no requirement on the investor to reside in the jurisdiction for a fixed period of time before citizenship is granted. The lack of a residence requirement is one of the unique selling points of Caribbean programmes, but it is also one of the reasons why some third States are increasingly critical of these programmes.

The addition of  a short residency requirement, similar to Malta’s 12-month requirement, could be a possible option for Caribbean CIPs as it would remove some of the transactional nature to the process.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

IMF Staff Recommend St Lucia CIP Revenues be used Primarily to Reduce Debt

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Alicia Nicholls

In the  Concluding Statement of their 2017 Article IV Mission to St. Lucia released February 6, 2017, International Monetary Fund (IMF) Staff recommended that revenues from the island’s Citizenship by Investment Programme (CIP)  be used primarily to reduce the island’s high public debt and that limits  be placed on the amount of CIP revenues used to finance high-priority expenditure. The recommendations were based on a country mission undertaken by IMF Staff during January 16-27, 2017 pursuant to Article IV of the IMF’s Articles of Agreement. The IMF’s Concluding Statement outlines the preliminary findings made by IMF Staff during their mission.

In their commentary on St. Lucia’s macroeconomic performance, IMF Staff noted that although tourism activity was weak,  unemployment continued to fall. The Staff highlighted the economic reforms programme currently in the process of being rolled out by the Government. The Staff expect positive but moderate short-term growth. However, they cautioned that the island’s high public debt, which currently stands at 82% of GDP, and its “delicate fiscal situation”, require prompt attention. They also made suggestions on how the fiscal package  announced could better achieve its targets.

St. Lucia’s CIP

In January 2016, St. Lucia became the fifth Caribbean country to offer a CIP as an alternative tool for attracting foreign direct investment (FDI), joining fellow Caribbean CIP countries: Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis. St. Lucia’s CIP offers four investment options: a monetary contribution to the National Economic Fund (NEF), a real estate investment, a Government bond investment or an Enterprise Project Investment, with qualifying investment amounts set for each type of investment. In an effort to add exclusivity to the programme, the number of applications which could be approved by the Board had been capped at 500.

This was the IMF Staff’s first Article IV country mission to St. Lucia since the CIP’s first full year in operation. In their 2017 Concluding Statement, the IMF staff noted that the island received “relatively few applications in 2016” and that “the [St Lucian] authorities expect that the recent easing in the requirements and lowering of the costs to qualify for this program will encourage an increase in revenues.”

Changes to St. Lucia’s CIP Regulations – 2017 

Effective January 1, 2017, an Amendment to the Citizenship by Investment Regulations No. 89 of 2015  introduced several sweeping changes to St. Lucia’s CIP in an effort to boost its competitiveness. This includes, inter alia, a reduction in the qualifying contributions required, making it the most affordable programme in the Caribbean and the removal of the 500-application cap. A summary of the regulatory changes may be found on CIP St. Lucia’s website here.

However, while the Government’s desire to make its CIP more competitive is understandable, some have legitimately argued that these changes may undermine the programme’s exclusivity and may lead to a “race to the bottom” in terms of competition on price and ease of accessibility among Caribbean CIPs. Indeed, with the number of CIPs in the Caribbean now at five and several other countries around the world also offering CIPs or some form of immigrant investor programme, Caribbean CIPs face stiff competition both inter se and abroad.

As such, as I have argued before, increased cooperation among Caribbean CIP countries will be needed to ensure that high standards are maintained and that countries do not undercut each other in terms of price and robustness of their programmes. There seems to be some support for the need for greater cooperation, as St. Lucia’s Prime Minister, Allen Chastanet, earlier this year called for a joint OECS approach to CIPs.

Moreover, while I strongly believe that CIPs can be legitimate tools for development once managed well through raising revenue, encouraging FDI, infrastructural development, job creation and attracting  High Net Worth Individuals (HNWIs), they should be used as an adjunct and not the main propeller for economic growth and development.

IMF Recommendations

In the Concluding Statement, the IMF Staff made several recommendations aimed at minimising St. Lucia’s risk of fiscal dependence on its CIP revenues, which can be volatile, and to reduce the impact of the global rise in interest rates. These recommendations included:

  • Using CIP revenues primarily to reduce the high debt.
  • Using a capped amount of CIP revenue for investment projects of primary importance
  • The importance of “transparency, appropriate governance, and careful due diligence” to reduce risks of sudden stops in CIP revenue inflows.

More detailed information will be known when the full Staff Report is produced and released at a later date.

The full IMF Staff Concluding Statement may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

In defence of Caribbean Citizenship by Investment (CBI) Programmes

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Alicia Nicholls

A  60 Minutes Special aired by American network, CBS, on January 1, 2017 has added fuel to the fiery debate on the legitimacy of Caribbean countries’ economic citizenship programmes. Whether intended or not, the segment entitled “Passports for Sale” cast a shadow of iniquity on the programmes which certain Caribbean countries, and to which an increasing number of countries are turning in order to stimulate their economies and attract much needed foreign investment.

Last year, St. Lucia joined four other Eastern Caribbean countries: Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis by offering a direct citizenship programme. Economic investor programmes fall into two broad types: residency programmes (which only offer investors the right to reside) and citizenship programmes (which confer citizenship, either directly or after a period of residency).

Caribbean CBI programmes fall into the category of direct economic citizenship programmes which entitle qualifying investors and their qualifying spouse and/or dependents (e.g: children or elderly parents) to citizenship of the host country upon making a qualifying investment under that particular programme. Depending on the programme, a qualifying investment could be a monetary contribution of at least a certain amount to a special fund, the purchase of real estate of a minimum value or the purchase of government bonds in some cases. Investors and their co-applicants must also pass stringent due diligence procedures and pay the prescribed fees.

The reporting on the Caribbean CBI programmes was reduced to simply the “sale of passports” without taking into account the rationale behind the operation of these programmes. CBI programmes are not only about raising revenue through foreign investment for cash-starved Caribbean countries, but have wider development goals. These include helping to improve infrastructure, creating jobs and  attracting investors who are the “best of the best”, that is, persons with know-how and skills and networks which could redound to the benefit of the host economy. It is for this reason that an increasing number of countries, including Western countries, have either implemented economic investor programmes or are thinking of doing so.

CBI programmes not limited to small states

Indeed, missing from the CBS segment was that economic investor programmes are not unique to small countries like those in the Caribbean or the EU small state of Malta whose programme has a one-year residency requirement. Economic investor programmes are offered by a growing number of countries around the world. For example, the United States has its EB-5 Immigrant-Investor Programme where eligible investors may obtain a green card once they “make the necessary investment in a commercial enterprise in the United States; and plan to create or preserve 10 permanent full-time jobs for qualified U.S. workers”. Several European countries offer Golden Visa programmes, while a number of Canadian provinces offer Provincial Entrepreneur Programs whereby qualifying investors can attain permanent residence once a qualifying investment is made.

As I argued in a recent article I wrote for Henley Partners’ Global Residence and Citizenship Review Q3 2016, once carefully managed, CBI programmes can be tools of development. A prime example is St. Kitts & Nevis, which at one point had been among the world’s most indebted countries, and has seen its economic fortunes turned around.

Focuses on missteps and not changes

The 60 Minutes Special focused almost exclusively on the missteps made under some of the CBI programmes, while comparatively little was said of the changes made to the programmes to increase the robustness of the due diligence processes. For instance, St. Kitts & Nevis undertook a revamp of its programme amidst concerns raised by the US and Canada.

The CBS 60 Minutes Special also harped on the fact that some unsavoury characters had managed to obtain passports through CBI programmes. This is regrettable, no doubt, but “shady”characters have managed to earn residency in western countries which have much greater due diligence capability than do small states. The CBS Special did not mention, for instance, that Caribbean CBI countries maintain a list of restricted nationalities. Nationals from Afghanistan, Iran and Syria are not eligible under St. Kitts & Nevis’ programme, as an illustration.

Moreover, when oligarchs from Russia and the Middle East set up homes in western countries, no one (and rightfully so) questions their intention. Yet, why is a nefarious light cast on a Russian or Middle Easterner who obtains citizenship via a Caribbean CBI programme? Why the double standard? Or better yet, why are Caribbean countries constantly being held to a higher standard? Or is it because Caribbean CBI programmes, just like our much maligned offshore financial services sectors, are one area in which Caribbean countries can actually go toe to toe with developed countries?

Growing demand for secondary passports

One of the biggest falsehoods about CBI programmes is that secondary passports are sought primarily by persons with nefarious intent or as the CBS Special put it “scoundrels, fugitives, tax cheats, and possibly much worse”. This is far from the case. The growing class of High Net Worth Individuals (HNWIs), which includes a growing number of persons from emerging economies, increasingly see second passports as an “insurance policy” against instability or economic uncertainty in their home countries. Moreover, simple things like travelling for business or taking one’s family on vacation can be burdensome if one comes from a country with limited visa-free access to other countries. A good quality passport, therefore, brings mobility benefits.

However, it is not only HNWIs from emerging economies which have sought secondary passports. Many, particularly those living abroad, are renouncing their American citizenship not because they necessarily want to dodge their tax duty, but because of the onerous and costly reporting requirements and the fact that American citizens may be liable to pay tax on income earned abroad to the Federal Government even if they have been resident in another country for years. Added to this, ever since the passage of the Foreign Account Tax Compliance Act of 2010 which requires foreign financial institutions to report to the US Inland Revenue Service on assets owned by US citizens, Americans have been renouncing their citizenship in record numbers.

The demand indicators for secondary citizenship are all trending in the right direction, which is yet another reason why countries are turning to economic investor programmes. The election of President-elect Donald Trump in the US led the Canadian Immigration Department’s website to crash on election night as Americans increased online enquiries about moving to Canada, while the UK’s impending withdrawal has spurred demand by UK nationals for second EU passports.

Additionally, investors who acquire citizenship under Caribbean CBI programmes do not only come from “questionable countries”. The St. Lucia Times reported in December that among the 38 citizenships which were granted in St. Lucia, “there were seven applicants from the Middle East, three from Russia, two from Asia, two from North Africa, two from South Africa, one from North America and one from Europe.”

Attractiveness of Caribbean passports

There is also the erroneous belief that Caribbean CBI programmes’ popularity stems from their  purported corruption or because of the perceived negligible due diligence.  Caribbean passports are attractive for a multiplicity of reasons. Holders of Caribbean passports enjoy visa-free access to a growing number of countries, which tick off the mobility box for investors. The high standard of living and political stability in the Caribbean appeals to those investors in search of a lifestyle change.

CBI Caribbean countries’ citizenship laws  recognise both citizenship by birth (jus soli) and citizenship by descent (jus sanguinis) meaning that investors can pass on their citizenship to their children (born after the investor’s acquisition of citizenship) whether they are born in the host country or not.Moreover, Caribbean countries allow for dual citizenship so they do not have to renounce their current nationality.

Another factor is that the lack of residency requirement reduces the time it takes to acquire citizenship than through naturalisation. There are other factors such as Caribbean countries’ access to international business hubs through frequent flights to international gateways, their tax-friendly climates and their network of tax treaties and investment treaties with third states.

Conclusion

For the above reasons I found the CBS 60 Minutes Special’s “Passports for Sale” segment to be extremely unbalanced. I also question why except for a nominal reference to Malta at the beginning, Caribbean CBI programmes were singled out and why so much attention was devoted to some of the mishaps but little was said of the steps taken to prevent a recurrence. An online petition by One people, One Caribbean has sought to set the record straight and also calls for the retraction of the segment.

That being said, I do believe that robust and honest debate on the functioning of Caribbean countries’ CBI programmes is an important exercise once it is objective and not skewed. For example, the lack of transparency on the number of citizenship approvals granted under CBI programmes and to whom is a problem I have mentioned before. Although some countries have started to release some of their statistics, more data should be released and in a more timely manner.

What is needed as well is greater cooperation among Caribbean CBI countries. Some critics of CBI programmes raise the legitimate fears that increased competition both among Caribbean CBI programmes and with extra-Caribbean CBI programmes may lead to a race to the bottom in order to remain competitive. Perhaps what needs to be done is harmonisation of Caribbean countries’ CBI due diligence requirements so that an investor who fails the due diligence requirements of one Caribbean programme cannot gain access to another’s. Another option could be to harmonise CBI countries’ restricted countries’ lists. I am under no illusion that this would be an easy task but it is perhaps worth considering.

There is some support for greater OECS collaboration on this issue. The Prime Minister of St. Lucia, Allen Chastanet, has called for an OECS approach to CBI programmes through an OECS initiative based at the OECS Secretariat. However, it should be noted that a pan-OECS initiative may be problematic as not all OECS countries are supportive of such programmes. Additionally, CBI programmes must be free of political influence and interference.

Cooperation with the wider Caribbean Community (CARICOM) is also needed. Non-CBI CARICOM countries have raised concerns about reputational and security implications for their own countries. Under the Revised Treaty of Chaguaramas, the broad definition of “Community National” means that an individual who attains citizenship of a CARICOM country would qualify as a community national and be entitled to those benefits.

As I argued before, CBI programmes are not a panacea. Continued monitoring and upgrading of the programmes is needed to ensure that they meet their objectives of contributing to national development, while also ensuring the strictest of due diligence standards.

Alicia Nicholls, B.Sc., M.Sc., LL.B., is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Citizenship by Investment receipts help power economic recovery in Eastern Caribbean Countries

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Alicia Nicholls

Receipts from citizenship by investment programmes (CIPs) continue to be a major contributor to economic recovery in the Eastern Caribbean Currency Union (ECCU). This is according to the International Monetary Fund’s latest Staff Report on the ECCU released this month (October 2016).

CIPs have been an important development tool in Eastern Caribbean countries. In January 2016 St. Lucia became the 5th ECCU country to institute a CIP. The other ECCU countries which run CIPs are St. Kitts & Nevis, Grenada, Dominica and Antigua & Barbuda.

According to the IMF, most ECCU governments continued to rely on CIP inflows to fund their budgets in 2015. CIP inflows were highest in St. Kitts and Nevis, which has the world’s longest running CIP. In that country, CIP revenues to the public sector were at 17.4 percent of GDP. The report also noted that inflows reached 7.9 percent of GDP in 2015 in Antigua and Barbuda and 3.6 percent in Dominica.

However, the IMF did mention several potential downsides to the sustainability of the CIPs, including the increased competition ECCU CIPs face not only amongst themselves but from other CIPs and residency programmes worldwide, including Malta’s. Other risks the IMF mentioned include rising global migration pressures, elevated security concerns and geopolitical tensions which may trigger adverse actions by the international community, including suspension of visa-free travel for citizens of CIP countries.

In order to improve the sustainability of the programmes, the IMF also encouraged authorities to “develop a strong, regionally accepted set of principles and guidelines for citizenship by investment programs in order to enhance their sustainability” The staff suggested that the authorities share due diligence information on clients to prevent citizenship shopping in cases where an application is rejected by one jurisdiction.

The IMF cited the need to improve the management of the programmes and cautioned against over-reliance on CPI revenues for funding recurrent budgetary operations. Mindful of the threat posed by natural disasters, the IMF posited that CIP countries save the bulk of the CPI revenues in a well-managed fund to address natural disaster shocks and to fund disaster resilient infrastructure.

Arguing that a comprehensive governance framework is crucial to mitigating increased risks facing CIPs, IMF also recommended more transparency by making data on the programmes public and subject to financial audits.

The full IMF Staff Report for the ECCU may be viewed here.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

Are Citizenship by Investment programmes sustainable?

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Alicia Nicholls

The International Monetary Fund (IMF) in its end of mission press release following its recently concluded Article IV Consultation mission in St. Kitts & Nevis highlighted that strong construction activity, driven in part by large real estate projects funded under the island’s Citizenship by Investment (CBI) programme, had contributed significantly to the island’s five percent economic growth in 2015. Although the Article IV report itself has not been made available, the end of mission press release noted as follows:

“The outlook for 2016 is positive, but remains dominated by developments in CBI inflows. Growth is expected to moderate to 3.5 percent in 2016 and 3 percent, on average, over the medium term, reflecting a tapering of construction activity associated with a potential slowdown in the pace of new CBI applications, given the increased competition from new CBI programs [emphases are this Author’s].”

Two main things are clear from this paragraph and indeed from the entire press release. Firstly, St. Kitts & Nevis’ CBI programme, which has been in existence since 1984 and was the first of its kind, has contributed significantly to the island’s recent macroeconomic performance at a time when some Caribbean countries are still seeing sluggish GDP growth. Secondly, the IMF has concerns about the sustainability of this  CBI-led growth. This is reflected in the lower GDP growth rate projected for 2016 and for the medium term. It raises the question of how sustainable a role can CBI programmes play in fostering growth and development in the host country.

Citizenship by investment programmes or jus pecuniae (economic citizenship) remain a controversial topic in the Caribbean. Despite this,  given the high level of indebtedness of many Caribbean countries, the need for economic diversification, the fickle nature of foreign direct investment inflows and limited access to concessional borrowing, Caribbean countries are increasingly considering their attractiveness. In January this year, St. Lucia recently joined four other Caribbean countries (Antigua & Barbuda, Dominica, Grenada and St. Kitts & Nevis) as the fifth Caribbean state currently operating a CBI programme. Each of these programmes differs in terms of fees, types of qualifying investment and admission and other qualification criteria.

If managed well, CBI programmes can be an important source of targeted foreign direct investment and other foreign exchange inflows. They can also be alternative means of financing infrastructure projects which might be otherwise unattractive to most private investors. As an example, the Government of Dominica recently announced that its West Bridge project under the Roseau Enhancement Project will be financed through its CBI programme. Without private sector-led involvement, such projects would require use of government’s tax coffers, borrowing or public-private partnerships. Construction activity pursuant to these projects, where provided for, contributes to economic activity and generates employment. High Net Worth Individuals (HNWIs) and their families  also bring with them expertise, contacts and know-how to the businesses which they establish. CBI programmes can to some extent contribute to poverty reduction by creating employment and creating infrastructure in rural communities.

Growing global demand for Second Passports

There is also no disputing that global demand for second passports is increasing. Contrary to popular belief, this demand is not fuelled in the main by nefarious purposes but by HNWIs either fleeing political or economic instability in their home countries or seeking the greater mobility a less restrictive passport could bring. Caribbean passports, for example, rank among some of the least restrictive passports outside those of metropolitan countries.

A growing and increasingly mobile Chinese, Russian, Middle Eastern and African HNW class, and continued instability in the Middle East, are two of the major developments to watch. Turning to this hemisphere, Fortune reports  that 2015 was the third straight year in which a record number of US citizens renounced their US citizenship. Besides the onerous reporting requirements under the Foreign Account Tax Compliance Act (FATCA), the main factor is that under US law,  American citizens or resident aliens living or travelling outside the  US are mandated to file taxes in the US in the same way as those resident in the US. Moreover, if media reports are to be believed, that number may jump depending on the outcome of the presidential election this fall! It is therefore no surprise that citizenship planning is a multibillion dollar global industry.

Sustainability issues

While it is unlikely that global demand for second passports will abate anytime soon, there are concerns about the sustainability of these programmes not just because of the inherent reputational risks to the host countries if applicants are not thoroughly vetted, the implications for loss of visa-free access with third states, but also the security implications in the context of the free movement of persons as envisioned under the CARICOM Single Market and Economy. For example, St. Kitts & Nevis had to revamp its programme after the US and Canada raised concerns. The latter revoked visa-free access  to Kittitian nationals. I have touched on these issues in previous articles so my main focus here is on issues of economic development.

Like all inflows, CBI  revenue inflows are not guaranteed and could leave a country in the lurch if there is a sudden drop in inflows due to competition from other CBI programmes globally. It is a concern that the IMF rightly raised  in its Article IV end of mission press release in regards to St. Kitts & Nevis. Even so, market and size constraints mean there is only so much real estate and tourism construction activity which can take place in a small country at once, and concerns have been raised that increased demand for luxury real estate could drive up the general price of real estate, making it unaffordable to ordinary persons.

The CBI programmes in the Caribbean are direct citizenship programmes, which means that once all fees are paid and due diligence requirements met, a qualifying investor is granted citizenship on the basis of a one-time qualifying investment and is not required to be resident in the country for any period of time prior to applying for citizenship or afterwards. A slight exception is that under Antigua & Barbuda’s CBI programme  an investor may lose citizenship if he fails to spend at least 5 days in Antigua & Barbuda during the period of five calendar years after having obtained citizenship. Five days out of a possible 1,826 days is hardly any time and only applies after citizenship is obtained.

This may be contrasted with residence-to-citizenship programmes, such as the US’ EB-5 programme, which require a period of residency before an investor may apply for citizenship. The lack of a residency requirement means there is no incentive for the investor to reside in the new country of citizenship or contribute through expenditure, tax paying or otherwise once he receives citizenship.

Some countries seek to address this by establishing a relationship with their new citizens. In this article on the Government of Dominica’s website, the Prime Minister of Dominica is reported to have visited and addressed several new citizens of Dominica in Europe, Asia, Dubai and the Arab Emirates and “impressed upon them the importance of their contributions for the development and modernization of [their] country.”

Another option could be to do like Malta did and introduce a one-year residency requirement. A drawback is that this would increase the waiting time for the potential investor, making such a programme less competitive.  While one could argue that this has not hurt Malta which is currently  ranked as the top global residency and citizenship programme on Henley & Partners’ Global Residence and Citizenship Programs 2016 report, I believe that its  visa-free access to 168 countries, including EU citizenship, offsets any negative fall-out from having a residency requirement.

Conclusion

To go to the heart of the question posed in this article,  CBI programmes have their benefits. The revenue  inflows and the economic activity generated make the macroeconomic fundamentals of a country look good. However, they should not be relied on exclusively as an engine of inclusive growth and sustainable development.

Careful planning is needed to ensure that investment under CBI programmes is steered towards targeted growth areas and sectors which can boost economic diversification and growth. To some extent we are already seeing this being done. CBI-funded projects in St. Kitts & Nevis are adding to the appeal of the island’s tourism product. St. Lucia is using its programme in order to develop its luxury tourism and real estate sectors. However, this should be done in a sustainable way in order to boost development and at the same time having a minimal adverse human and environmental impact.

The IMF has also made a very interesting suggestion in its above-mentioned press release that the categories for qualifying investments under the Citizenship by Investment regulations be broadened to include renewable energy, education and health. This merits consideration by policy makers. However, promoting investment in these sectors would require more marketing as their profitability for investors may not be immediately apparent.

The IMF also recommended the need for a prudent framework that “would help build resilience to a sudden stop in CBI inflows, and facilitate the accumulation of fiscal buffers necessary to address natural disaster shocks and absorb unforeseen financing needs if tax performance disappoints after a slowdown in CBI inflows”. The Fund also emphasised that a Growth and Resilience Fund using savings from the CBI programme should be established which could be used as a contingency buffer in the case of natural disasters.

Besides these very timely suggestions, it would be useful if Caribbean countries released more data about the operation of their programmes. For example, periodic impact assessments should be done on the operation of the programmes and made publicly available, highlighting their contributions, challenges and whether they have met their targets. Such an exercise would not only assist policy makers in their policy planning but also show the public that CBI programmes are not a cloak used by unsavoury characters to conceal their illegal activity but are a policy tool to assist in development. I would also add that countries should continuously evaluate and monitor, and where necessary, revise their due diligence frameworks, to ensure the integrity of their programmes.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

The rights of Citizenship by Investment beneficiaries as Community Nationals: What Implications for CARICOM Member States?

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Alicia Nicholls

Citizenship by Investment (CbI) programmes are utilised as a development strategy by five out of the fifteen countries comprising the Caribbean Community. This article explores the rights which CbI beneficiaries are entitled to as nationals of the Community under the Revised Treaty of Chaguaramas and considers the implications these rights  have for CARICOM member states. Particularly, it explores the tension between the right of CbI operating member states to determine their own citizenship policy versus the right of non-CbI member states to control the entry of perceived “undesirable persons” to their borders, particularly in light of the Caribbean Court of Justice’s ruling in Shanique Myrie v Barbados.

Citizenship by Investment (CbI)

CbI programmes offer qualifying investors (as well as their spouse and dependents once they meet certain criteria) citizenship in exchange for an investment in a qualifying activity, for instance, in real estate, a special fund or government bonds.  The programmes are aimed at high net worth individuals (HNWIs) with the expectation that they would lead to targeted foreign direct investment inflows to sectors considered to be of national importance (e.g: hospitality and luxury real estate), job creation and the sharing of expertise and skills. In a previous article I discussed the specifics of the programmes in each territory and the pros and cons of CbI programmes.

Although CbI programmes have existed in the Caribbean since the 1980s, CARICOM countries differ on the desirability of their usage as legitimate development strategies. At present only five of the fifteen CARICOM states currently offer CbI programmes: St. Kitts & Nevis, Grenada, Dominica, Antigua & Barbuda and most recently, St. Lucia. The Bahamas has been discussing the prospect of a CbI programme for some time. Belize scrapped its programme a few years ago, while Grenada had suspended its programme at one point and now operates its programme by invitation only. The current policy positions of the Governments of Barbados and St. Vincent and the Grenadines is that they will not be offering CbI programmes.

While it is the right of each member state to determine its own citizenship laws, the issue of granting citizenship on a purely economic basis becomes a regional one considering that CbI beneficiaries (the term I use to refer to persons who have successfully obtained citizenship under a member state’s CbI programme) would be considered ‘Community Nationals’ for the purposes of the Revised Treaty of Chaguaramas and would be entitled to all the rights and benefits such nationals enjoy under the Revised Treaty, including the right to travel to, live and work in another member state, subject to exceptions.

The CbI beneficiary as a ‘Community National’

In regards to a natural person, Article 32(5) of the Revised Treaty of Chaguaramas defines a Community “national” as:

(a) a person shall be regarded as a national of a Member State if such person –

(i) is a citizen of that State;

(ii) has a connection with that State of a kind which entitles him to be regarded as belonging to or, if it be so expressed, as being a native or resident of the State for the purposes of the laws thereof relating to immigration; or

A literal interpretation of this clause provides that any natural person, including one who attains citizenship of a CARICOM member state pursuant to its CbI legislation and regulations, is a national of that State and henceforth considered a Community “national” for the purposes of Article 32(5) of the Revised Treaty of Chaguaramas.

Rights enjoyed by Community nationals

These rights are fundamentally economic in nature and can be divided between what I term general (non-discrimination and Most Favoured Nation) and specific rights (right of establishment, free movement of persons, services and capital). These rights are not absolute and are thus subject to exceptions.

  • Non-Discrimination and MFN: Article 7 of the Revised Treaty of Chaguaramas prohibits member states from discriminating based only on the grounds of nationality within the scope of the application of the Revised Treaty except where provided for in the Treaty (Article 7). The Most Favoured Nation clause (Article 8) prohibits Member States from according to other Member States treatment less favourable treatment than they accord to a third Member State or third States. It should be noted that in Shanique Myrie v Barbados, the Caribbean Court of Justice noted that the right to MFN treatment “is a right that enures to Member States and, so far as applicable, to their nationals”.
  • Rights of establishment and to work – The right of establishment includes the right to engage in “non-wage earning activities” which are defined by Article 32(2) of the Revisted Treaty as “activities undertaken by self-employed persons”, as well as the right to create and manage economic enterprises as defined under the Revised Treaty. The following categories of Community nationals have the right to seek employment in the jurisdiction of another member state (a) University graduates; (b) media workers; (c) sportspersons; (d) artistes; and (e) musicians, recognised as such by the competent authorities of the receiving Member States. The Certificate of Recognition of CARICOM Skills Qualification assists in this.
  • Capital – Member states are prohibited from introducing any new restrictions on the movement of capital by businesses and individuals. However, as many CARICOM states currently operate currency controls, this still very much remains highly restrictive.
  • Freedom of services – Member States are prohibited from introducing any new restrictions on the provision of services by nationals in the Community through the four modes of services supply: cross-border, consumption abroad, commercial presence and via temporary presence of a natural party in the territory of a Member State.
  • Rights accruing under treaties with third states – This is not covered in the Revised Treaty. However, as Community nationals, CbI beneficiaries have the right to make use of any double taxation agreements, bilateral investment treaties and any other treaties of which their member State is a party, as well as any such agreements of which CARICOM is a party, including the EC-CARIFORUM Economic Partnership Agreement.

Freedom of movement is a cornerstone of the Caribbean Community and is one of the areas in which Member States have made the least progress in their implementation of reforms and commitments. It entails the right of entry, as well as the right to live and work in another member state.  It should be noted that the Bahamas has not signed on to this aspect.

Right of Entry

Community nationals enjoy the right of entry to any member state and to stay therein for a period of up to six months, subject to exceptions. This stems from a decision taken by the Heads of Government at the Twenty-Eighth Heads of Government Meeting in Barbados in July 2007 where they agreed that

-: “all Community nationals should receive a definite entry of six months upon arrival in a Member State in order to enhance their sense that they belong to, and can move in the Caribbean Community, subject to the rights of Member States to refuse undesirable persons’ entry and to prevent persons from becoming a charge on public funds.”

A key issue arises in regards to the right of CbI states to determine their own citizenship laws versus the right of other Member States to limit their risk exposure by denying entry to any such persons whom they perceive as “undesirable persons”, particularly persons from “high-risk” countries. This balancing of rights is of greater currency in light of the escalation of global terrorism threats, rising crime and concerns about money laundering.

Critics of CbI programmes argue that the non-CbI Member states are at the mercy of the robustness of the due diligence checks and vetting process of CbI states to ensure that “undesirable persons” are not granted citizenship. They also argue that the free movement of persons and capital within the Community provides fertile ground for money launderers, terrorists and organised crime participants to carry out such threatening activities across the Region, with concomitant security and reputational implications for the Community as a whole vis-a-vis third States e.g: in regards to visa waivers.

While these concerns have legitimacy and it is imperative on CbI countries to manage their programmes to the highest possible standard, security concerns apply not just under citizenship granted under a CbI programme but also to citizenship obtained under regular naturalisation laws. It also should be noted that those Community nationals believed to be fighting with ISIS are natural born Community nationals.

However, the fear of “undesirable persons” obtaining citizenship under its CbI programme and the reputational threats to its own programme are likely the motivation behind St. Kitts & Nevis’ suspension of the eligibility of Syrian nationals to benefit under its programme.

Under Community Law, to what extent can a CARICOM State deny the right of entry to a Community national based solely on his or her previous or original country of origin?

The ‘Myrie Effect’

Community law and the limits it imposes on the Member States must take precedence over national legislation, in any event at the Community level. It follows from the above that a refusal on the basis of “undesirability” may be based on national law and on Community law, with the proviso that where national law does not conform with the parameters laid down by Community law, it will be the latter that ultimately must prevail.

(paragraph 69 of the CCJ Judgment in Myrie v Barbados)

The tension between CbI programmes and the rights of States to deny entry to persons perceived to be threats is heightened in light of the CCJ’s ruling in Shanique Myrie v Barbados which interprets several points of laws relating to the right of entry and the denial of the right and which some critics have unfortunately viewed as curtailing a member state’s public policy right to deny entry to “undesirables”.

The CCJ in its original jurisdiction applies and interprets the Revised Treaty of Chaguaramas.In brief, the landmark Myrie case involved a claim brought by a young Jamaican woman, Miss Shanique Myrie, against Barbados after she claimed she was discriminated against by being denied entry, and being allegedly subjected to bad treatment by Barbadian immigration authorities. For all the controversy which surrounded it, it is a pivotal case in Community Law.

Firstly, the case established a precedent wherein a natural person (Miss Myrie) was granted leave to bring a claim against a member state before the CCJ’s original jurisdiction. Therefore, it is possible that a CbI beneficiary can be granted leave to bring a claim against a member state if he/she feels her rights under Community Law were violated.

Secondly, the Court gave a definitive statement on the law relating to the right of entry and under what circumstances a State may successfully invoke any of the exceptions under Articles 225 and 226. At paragraph 65 of its judgement, the Court found that by virtue of the Heads of Government decision previously referenced all Community nationals have the right to be granted definite entry for a period of six months upon arrival in a member state “without harassment or the imposition of impediments”.

Thirdly, the Court clarified the law on Articles 225 and 226 of the Revised Treaty which provide exceptions to any of the fundamental rights. The Court noted that as exceptions to a fundamental right any exception must be narrowly and strictly interpreted and the burden of proof rests on the member state that seeks to invoke the ground for refusing entry. As the Court stated at paragraph at 83 of the judgment, “Given the above characteristics of the right of entry it would only be in exceptional situations that entry into Member States will be denied to Community nationals.”

Fourthly, the Court at paragraph 70 defined “Undesirable persons” within the meaning of the 2007 Conference Decision as “those Community nationals who actually pose or can reasonably be expected to pose such a threat”. For the purposes of the case, the Court was not called on to determine or define what would constitute “a threat affecting one of the fundamental interests of society”. However, it held obiter that:

in the area of public morals, national security and safety, a reasonable test for assessing such a threat is that, as a starting point, it must be shown that the visitor poses a threat to do something prohibited by national law. In practice that threshold will of course be much higher as it also requires that the threat be genuine, present and sufficiently serious.

Fifthly, the Court held at paragraph 83 that a State which is refusing entry must give the reasons for refusal promptly and in writing and must inform the person denied that he or she has a right to challenge the decision and must allow the refused national the opportunity to consult an attorney or a consular official of their country or a family member. Member States are also required at the national level to provide “an effective and accessible appeal or review procedure with adequate safeguards to protect the rights of the person denied entry”.

This does not mean, however, that a State’s immigration authorities’ hands are completely tied and that if there is clear evidence or suspicion that a national is a clear threat, entry cannot denied. It however prohibits the arbitrary denial of entry to Community nationals, including on the basis of their original citizenship.

While there are fears about CbI programmes and whether they will attract “undesirable persons”, it should be noted that there has to date not been any known case of any individual who has been granted citizenship under a Caribbean CbI programme who has been involved in a major organised crime or other illicit activity.

Because of the lack of publicised data on the operation of the CbI programmes in the region, it is difficult to know for sure how the programmes are operating and which nationalities have been the most active. However, recently released data for Antigua shows that Chinese nationals, followed distantly by Syria, Libya and Italy have been the main beneficiaries. This highlights the fact that the majority of the persons who apply under these CbI programmes are HNWIs who come from countries with restricted passports and are seeking hassle-free travel for business or leisure, or are seeking to escape conflict-ridden countries. Due to confidentiality, it is unknown whether persons who have been denied approval into one member country’s programme have subsequently had their applications approved in others.

According to the data provided by the Prime Minister, many of the applicants who have been successful under the Antigua CbI programme are also from metropolitan countries like the US, Italy and Germany. CbI programmes can be complementary to regional integration by fostering intra-regional investment and tourism. It is not unusual for foreign nationals who have established a business in one member state to eventually conduct business, either directly or indirectly, in others. Additionally, HNWIs tend to be highly mobile, travelling for business and with their families for leisure, and therefore could be a target market for high end tourism and yachting.

The EU Experience and Malta

A similar tension between the right of a State to control its citizenship laws versus the Community interest played out in the European Union in relation to Malta’s introduction of its Individual Investor Programme by amending its Citizenship Act in 2013. Malta is a small island state of the EU with a population of under half a million and not dissimilar in geographic size to many of the small islands of CARICOM.

Maltese citizenship not only entitles successful CbI applicants to all the rights of natural-born Maltese but also EU rights, such as the right to reside and work in other EU states and the right to visa-free travel within the Schengen area. The EU raised opposition to Malta’s programme, including by adopting a resolution in January 2014 which argued that Malta’s programme put EU citizenship for sale. After engaging in negotiations with the EU Commission, Malta added a residency condition which provided that any applicant is required to prove that they had been residing in Malta for at least twelve months immediately preceding the issuing of the certificate of naturalisation.

Conclusion

CbI programmes have co-existed in the Caribbean Community since the 1980s. What is clear is that as community nationals, CbI nationals are entitled to the same rights as all other Community nationals, including the right of entry into other member states.

There are however potentials for conflict if there is lack of confidence by member states in the due diligence processes of CbI member states. It would appear from the Community law examined that no member state  may arbitrarily deny entry to the national of another member state, including based on his or her previous or dual citizenship, and where entry is denied, must follow the procedure laid out by the Revised Treaty for denial of entry and the denied national is entitled to appeal.

Member states must be assured of the robustness of the screening and due diligence process of CbI states. In light of increasing threats in regards to crime, terrorism and money laundering and the security and reputational risks which any lapse may cause for non-CbI states in the context of free movement of labour, CbI states have an increased duty to ensure their programmes are highly managed and regulated. In this regard, it would be useful if CbI countries would use the framework for information sharing as mentioned in the Community Stategic Plan to share data on the operation of their programmes for transparency purposes, including their approval and disapproval rates.

There are also options such as the addition of a residency requirement in order to establish a “genuine” link between the CbI beneficiary and the member state/Community and the exemption from eligibility of nationals from certain “risky” countries. Without doubt, the constant monitoring and review of due diligence and screening procedures is essential.

Alicia Nicholls, B.Sc., M.Sc., LL.B. is a trade and development consultant with a keen interest in sustainable development, international law and trade. You can also read more of her commentaries and follow her on Twitter @LicyLaw.

 

 

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