Caribbean Trade Law and Development

Category: Citizenship

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

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

    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

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

    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

    In defence of Caribbean Citizenship by Investment (CBI) Programmes

    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

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

    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.