Regulation

The Big Debate: Citizenship by Investment


By (01/12/2014)

We asked leading commentators from across the international finance industry – opponents and proponents alike the same question – Are Citizenship by Investment Programs a legitimate means for governments to increase revenue?

 

To respond to any of the comments made in The Big Debate email editor@ifcreview.com

 

Naturalizing for nothing but money is fair, but without fixing a price.

 

By Raul Magni-Berton, professor of political science, University of Grenoble

 

 

Everywhere in the world, access to citizenship is restricted by specific conditions.  And selecting the appropriate conditions for access is essential for two reasons: first they will have a considerable influence on the future citizenry of the concerned countries; second, they indicate what it means to be a citizen. Conditions such as residence, clean criminal record, language, familiarity with culture and institutions are widespread, and reveal that citizens are expected to have fair interaction with natives and a commitment to better know them.

 

Income is also a very common condition for acquiring citizenship. In several countries financial sustainability is one of the conditions for naturalization. Moreover, some countries use investment programs to ensure permanent residence for investors. Residence, in turn, allows them to become citizens after a few years.

 

In contrast, citizenship-by-investment programs do not boil down to naturalizing for money, but rather to naturalizing for nothing but money.

 

Two questions are raised here: first, can we really regard as a citizen someone who just invests her money in a country? Second, apart from increasing a country’s revenue, would this program engender severe negative externalities?

 

Let me start with the first question, which reflects what being a citizen means. In my view, in line with Renan’s classic claim, people deserve to be naturalized if they commit themselves to linking their destiny to that of the other citizens of a country. However they do it, this commitment is sufficient to acquire a moral claim to become a citizen.

 

Should capital investment be viewed as such a commitment? It depends.  When people invest all of their wealth, this is clearly coherent with what is expected to be a citizen. In contrast, merely investing a negligible proportion of what they own is not enough, because, then, the destiny of other citizens does not really affect that of the investor.

 

I now turn to the second question. Citizenship-by-investment programs, like any other mechanism which associates a civil or political right with a price, may lead to creating a “right for the rich”. This is especially true in countries whose passports are not particularly sought-after. A new aristocracy could emerge which would not only have more wealth, but also more rights: they might travel Visa free to many other countries; easily obtain permanent residences; etc. This could increase inequalities and tensions around the world.

 

To conclude, citizenship-by-investment programs are potentially a legitimate means to acquire citizenship, but in their current form – that is based on a level of investment rather than the investment as a proportion of capital owned – they do not guarantee that future citizens will care about their new country. They also prevent less wealthy investors from undertaking their projects and lead to severe inequalities in civil and political rights in less prestigious countries.

 

Investor Citizenship: Tawdry but Legal

 

By Peter J Spiro, Temple University Law School, Philadelphia

 

There is something vaguely unseemly about states selling their citizenship. Heads of state become pitchmen. Membership becomes a kind of premium form of tourism. You can come enjoy our beautiful beaches, learn our interesting history, participate in our vibrant economy. For a special price, we can include permanent membership as part of the package.

 

Cash for passports, as it is tarred by those who oppose the practice. But however much selling citizenship may test our inherited conceptions of the state, there is nothing in international law to stop the practice. More states are likely to jump on the investor citizenship bandwagon.  Those who see investor citizenship as a threat to community solidarity will ramp up their opposition, but the trend is irreversible.

 

States have historically enjoyed complete discretion to decide whom they will accept as citizens. International law’s sole notable foray into the area occurred with the 1955 decision of the International Court of Justice in the Nottebohm case. There, the ICJ rejected Liechtenstein’s capacity to protect its citizen with whom it had no social connection against an expropriation undertaken by Guatemala, where the individual was habitually resident. The ICJ required a “genuine link” between a citizen and a state for international purposes.

 

The European Commission’s Justice Minister recently played the Nottebohm card against Malta’s investor citizen program, arguing that investors would have no “genuine link” to the country. The argument has superficial appeal. The problem: countries these days are issuing passports to many individuals on the basis of tenuous links. Nottebohm in any case did not restrict a country’s right to extend citizenship for its own purposes. A fig-leaf compromise required Malta to adopt a nominal one-year residency requirement before extending nationality, by way of establishing putative “genuine links”. It was a near-complete surrender on the EU’s part.

 

With Maltese citizenship comes Schengen Zone access. It is likely to be a popular program with those holding non-premium passports (Russians and Chinese, especially). Other countries are likely to follow suit. The move makes sense for states: they have a commodity that can generate significant revenues at almost no cost. We will likely witness the maturation of a citizenship market. As more states enter the market, there may be more price competition and product differentiation. Quality control will be an issue (accept disreputable investors, risk losing visa waiver status). Lawyers, accountants, and wealth advisors will become increasingly savvy in counselling ultra-high-net-worth clients on citizenship choices.

 

States and statesmen will thus bring citizenship down from its pedestal. Citizenship will start looking more like other forms of membership that can also be bought and sold.

 

Citizenship by Investment – A Legitimate Programme for Increasing Revenue

By Andrea Roberts Nicholas, Roberts & Co, Attorneys at Law

 

A Citizenship by Investment Programme is indeed a legitimate response by governments to the need to raise revenue through direct foreign investment. The Citizenship by Investment Programmes constitutes a creative and valid strategy to change the economic landscape. It is now a fact that many countries have Citizenship by Investment Programmes in one form or the other with different levels of qualification.

In Antigua and Barbuda, which is considered one of the most beautiful places in the world, tourism generated and continues to generate a substantial portion of the island’s income from target markets in Europe, US and Canada. Apart from the visa free travel to approximately 130 countries which the holders of the Antigua and Barbuda passport enjoy, the Citizenship by Investment Programme offers an incentive for direct investment in the country through the business and real estate investment options.   The link between tourism and the real estate investment option of Antigua’s Citizenship by Investment Programme in particular, lends a degree of legitimization to the Programme.

Further and specific to Antigua and Barbuda, the Government is able to closely monitor and utilize the revenue created from its Citizenship by Investment Programme as it is the authority responsible for processing all applications for Agent’s Licenses, and all applications for Citizenship by Investment by applicants and their families. The Government is further able to legitimize the program by controlling who qualifies for investor and entrepreneur programs, determining the necessary requirements of the applicants and selecting the types of investments to encouraged.

 

The sustainability of the Citizenship by Investment Programme lends to its legitimacy. This is so because of the increasing trend for investors to obtain second passports in order to diversify both their investment and citizenship options, to reduce real or perceived risk and to maintain their economic freedom. It is submitted that once the Government is careful in maintaining the country’s reputation, the Programme will keep its legitimacy and global appeal.

 

Citizenship-By-Investment schemes: Highlighting the Disparity between the Rich and Poor

 

By Roxana Barbulescu, University of Sheffield, Sociological Studies, Researcher

 

Mobility is a luxury good. The freedom to travel, buy properties and set business in the country of the passport and visa-free entry to almost all countries on the map, make the citizenship-by-investment attractive for the ultra-rich who can afford their the price tag.

 

Canada and several Caribbean small states run the oldest citizenship-by-investment schemes. Many European countries have introduced them in the last couple of years and other countries including Russia and Egypt are considering them. The countries introducing them seek to increase revenue by attracting investment (the scheme of St Kitts and Nevis allows bitcoin payments) and by attracting the investors themselves who would add to the local pool of talent and entrepreneurs.

 

To some extent, it can be argued that the schemes correct a flaw of international trade which thrives on the freedom of movement of capital across national borders but which is unmatched by a similar mobility regime for people. Neoliberal development models promote free movement for capital but often forgot that neither capital nor people travel alone. The growing number states introducing the schemes us an indication that states are aware of this discrepancy.

 

On the face of it, it seems that citizenship-by-investment are a win-win situation for both the states and for those buying it. But are such schemes also legitimate and just? I argue that the problem and the discontent that citizenship-by-investment generates is not rooted in the fact that citizenship – a concept dear to citizens and deeply linked with other important matters as democracy and identity -is for sale.

 

The problem with it is global inequality. Citizenship-by-investment schemes do not themselves produce injustice but they are unjust because they build on pre-existing large disparities in the world: If all countries were equal in living conditions would the scheme be objectionable?

 

If the answer is no, as I think it is, then the source of injustice is global inequality rather than policies that do not themselves produce injustice. Because staggering global inequalities exist, citizenship-by-investment schemes has very different consequences for the world’s ultra-rich and the less well-of: while the schemes carve out global mobility corridors through entangled states for the former, they confine to national borders the latter and in this way, nationalising poverty. It is this consequence that needs to be tackled in order to unlock the potential of those who want to migrate but cannot afford the price tag.

 

The past experiences of United States, Australia, Canada and Latin American countries are lessons on how poor migrants used mobility and succeeded to not only take themselves out of poverty but also to build more liberal societies and to reinvent their economies.

 

Economic Citizenship – Do Your Due Diligence

 

By Burke Files, President, FEE Inc, United States

 

Citizenship is a privilege granted by birth, heritage, or earned over time.  Economic citizenship is a privilege earned rapidly through investment of one’s savings. Citizenship earned over a period of time including a time in residency, typically three to five years, allows a country time to assess a candidate’s history and deeds before citizenship is conferred.  Economic citizenship does not have a long time frame for assessment.  Thus, a nation’s due diligence and background screening of candidates petitioning for economic citizenship is required to be aggressive and comprehensive.

 

What matters in the consideration of a candidate for citizenship? Everything matters.  A nation must review a candidate’s personal, educational, and commercial histories, the family members, the references, even how the application is filled out. Everything matters.

 

Experience tells all involved to be diligent. In the United States, according to an article in the American Management Association, one out of seven résumés have material errors and almost one in two résumés, according to GradHub, have credential overreach or falsehoods. Citizenship programs cannot accept the same sloppy backgrounds done on public company officers like Yahoo’s former CEO Scott Thompson who claimed a degree he did not possess.

 

A candidate’s family matters.  Even respected families may be populated with less than reputable or suspect members. Subtle issues that must be weighed arise when a candidate is a relative of: PEP, a SDN, a criminal, or a person on a sanctions list. Family ties are ties that bind, but how close and tight is a valid question to put to the candidate.  An economic citizenship program is, by its nature both domestically and internationally, a politically frail program that may not survive if citizenships are conferred upon dodgy applicants.

 

All economic citizenship programs should rest upon a foundation of many qualified professional services providers. A nation can only magnify the known political risk by concentrating the risk in a single service provider. If there is only one service provider and an unacceptable candidate slips through, the entire program becomes suspect as opposed to being just the error of one of a number of service providers.

 

Lies and inauthenticity through commission and by omission are a sure way for a candidate petitioning for citizenship in exchange for investment to be rejected.  The various nation’s ministries understand a candidate may have had business failures and litigation, or may not even possess a higher degree – it is part of life. The citizenship programs are looking for a candidate’s authenticity – not perfection. If an applicant cannot tell the truth why would any nation bother conferring citizenship?

 

The background checks and due diligence research, is part of the process to protect the integrity of the nation and of their citizenship by investment programs.  Banks and financial institutions worldwide are required to do their KYC.  Countries offering economic citizenship embrace Know Your Citizen.

 

Nations only confer citizenship to aggressively and thoroughly vetted applicants. Economic citizenship and the screening process is about authenticity and integrity and the defense of the nation’s reputation.