Tag Archives: Economic citizenship

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.

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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.

St Lucia’s Citizenship by Investment programme officially opens for business

Alicia Nicholls

As of January 1st of this year, St. Lucia’s Citizenship by Investment programme is officially open and taking applications by interested investors. Late last year, Prime Minister, The Hon. Dr. Kenny Anthony formally launched the programme at the Global Citizen Forum held in Monaco. St. Lucia joins St. Kitts & Nevis, Grenada, Antigua & Barbuda and Dominica to become the fifth Caribbean State to offer a citizenship by investment programme.

A citizenship by investment programme (CbI) offers 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, investment in real estate, a special fund or government bonds. In a world of dwindling access to financial resources, a growing number of States internationally are currently offering some form of citizenship by investment programme as a way to raise much needed finance, including for development objectives.

This phenomenon is not limited to developing countries. Several metropolitan countries such as the US and its EB-5 Immigrant Investor Programme, offer some form of citizenship by investment scheme. Other States offer residency by investment programmes, which grant the qualifying investor certain residency benefits. A Caribbean example is Barbados’ Special Entry and Reside Permit (SERP), while Spain’s Golden Visa is an international example.

The market for second passports is growing and is an attractive option for high net worth individuals (HNWIs), particularly business persons who come from countries  whose passports are subject to visa restrictions, making it difficult to travel to, and conduct business in major markets unimpeded. For HNWIs from those few countries like the US where personal income tax is levied based on nationality as opposed to residency,  renouncing one’s citizenship and obtaining citizenship of another State through a CbI programme is also increasingly seen an attractive option.

Some quick facts about St. Lucia’s programme

Basic Eligibility Requirements

  • Age Limit: Under the Citizenship by Investment Act No. 14 of 2015, a person who is 18 years or over may apply for citizenship of St. Lucia.
  • Dependents: Qualifying dependents include a spouse and a child and/or parent of the applicant or of his/her spouse once the child or parent meets certain criteria provided for in the Act.
  • Net worth: The applicant must have financial resources of at least US 3,000,000

In addition to these basic requirements, the applicant must fill out an application form, accompanied by the requisite information, documentation and fees and is subjected to due diligence checks.

All of this will be explained by the Authorised Agent. Authorised agents are licensed by the St. Lucia Financial Services Regulatory Authority and are authorised to act on the applicant’s behalf  in relation to the application for citizenship by investment.

Qualifying Investments: On approval of the application, the potential investor will be required to make the qualifying investment proposed in his or her application. Under Schedule 2 of the Citizenship by Investment Regulations Statutory Instrument No. 89 qualifying investments are:

  • Investment in the St. Lucia National Development Fund, with the level of minimum investment required depending on whether the applicant is applying alone, with a spouse and/or with dependents. For an applicant applying alone, the minimum threshold is US$ 200,000.
  • Investment in an approved real estate project. The minimum threshold is US$300,000.
  • Investment in an approved enterprise project. The minimum investment required depends on whether it is one or more than one applicant investing. For an applicant applying alone, the minimum investment is US$ 3,500,000 (plus no less than 3 permanent jobs).
  • Investment by purchasing Investment by purchase of non interest bearing Government bonds (5 years holding bond). For an applicant applying alone, the minimum threshold is US$ 500,000.

Benefits of St. Lucia Citizenship

  • St. Lucia allows for dual citizenship which means the investor is not forced to renounce his or her citizenship of another State.
  • The Citizenship by Investment Board is only allowed to grant a maximum of 500 applications annually which adds an element of exclusivity.
  • A St. Lucia passport allows for visa-free travel to over 90 countries, including the Schengen Area (26 European countries), as well as visa-free travel within the Caribbean Community (CARICOM) and the  other rights of which CARICOM nationals benefit under the Revised Treaty of Chaguaramas.

For further information on St. Lucia’s Citizenship by Investment programme, please contact the St. Lucia Citizenship by Investment Unit.

For a general overview of CbI programmes across the Caribbean, please feel free to read my earlier article: Economic Citizenship by Investment Programmes in the Eastern Caribbean: A Brief Look.

DISCLAIMER: Please note that the information presented in this Article is for general information only and is not intended to be, nor should it be construed as, investment or legal advice. The Author is in no way affiliated with the St. Lucia Citizenship by Investment programme or any of the relevant authorities. The information is taken from sources deemed to be accurate at the time of publication and the Author of this article accepts no liability or responsibility for any errors which may be contained herein or any actions suffered as a result of reliance on the information presented.

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.