Citizenship by Investment Programmes: A Niche for Smaller Caribbean IFCs Only?

By Carlyle Rogers, Managing Director, Stafford Corporate Services Ltd (01/01/2015)

As Caribbean IFCs continue to struggle to survive in an increasingly hostile global economic climate, brought on not only by the economic collapse of 2008, but also by relentless attacks by the OECD, G8, G20, EU, FATF, the left-wing press and NGOs such as Oxfam, Christian Aid and Transparency International, amongst others, against their mere existence, more and more attention is being paid to Citizenship by Investment (CBI) programmes also known as economic citizenship or second passport programmes.

For over thirty years now, smaller Caribbean IFCs such as St Kitts/Nevis, Grenada, Dominica and Antigua/Barbuda have been offering CBI programmes following the advent of political independence. While there have been problems with some of these programmes which have caused them to be suspended in some cases and reorganized in others, they have been, in the main, very successful in contributing to the economic development of some of these jurisdictions. 

Despite the recent issues with the Canadian and US governments, the St Kitts/Nevis programme has been a tremendous success and has become the poster-child for CBI programmes in the region with international credibility which has been recognised both by the IMF and Eastern Caribbean Central Bank (ECCB). In fact, recent statements from both institutions attest to this and St Kitts/Nevis has maintained for 2013 and 2014, the highest GDP growth rate within the ECCB region. 

In a statement issued on the 26th September 2014 by the IMF in a press release titled “St Kitts and Nevis: Ninth and Final Review Under the Stand-By Arrangement, Request for Waiver of Nonobservance of Performance Criterion, and Proposal for Post-Program Monitoring-Staff Report”, the IMF noted amongst other things that “Growth [in St Kitts/Nevis] is expected to continue at a relatively rapid pace, following a stronger- than-expected recovery of nearly four per cent in 2013, after a four-year contraction. This reflects rapid expansion in construction related to large Citizenship-by-Investment inflows…”  The statement continued: “With ongoing implementation of prudent fiscal management, the authorities are on track to reduce debt to 60 per cent of GDP by 2020.”

For anyone familiar with the situation in the Caribbean regarding the region’s high level of public sector debt and especially the peculiar case of St Kitts/Nevis which had a debt to GDP ratio of 159.3 per cent at the end of 2010, this is a remarkable turn of events in a short space of time.  It is no exaggeration to say then that the CBI programme which St Kitts/Nevis has implemented has literally been one of the engines of its economic growth and has played a major role in its recovery.

Its success has caused jurisdictions like Grenada and Antigua and Barbuda which both had earlier programmes before they were suspended, to reintroduce them within new legislative frameworks.  Antigua and Barbuda’s programme was reintroduced in October 2013 while Grenada’s programme was launched again in November 2013.  St Lucia also expressed in March 2014, a desire to explore the concept and even non-independent IFCs like the Turks and Caicos Islands, Montserrat, Bermuda and Anguilla, which are all UK Overseas Territories, are looking at implementing similar schemes or have already done so. 

In these situations however, economic residency is being offered which will eventually lead to citizenship and which, unlike those of the aforementioned jurisdictions, will require lengthy periods of on-island living in order to be granted UK citizenship under the British Nationality Act 1981. Montserrat has had a programme now for several years, while Turks and Caicos recently implemented legislation to facilitate its own. In Anguilla, the financial services industry has made a proposal to government to carve out a regime using the jurisdiction’s Immigration and Passport legislation but no formal decision has been taken.

Not all smaller Caribbean IFCs have embraced the concept however.  St Vincent and the Grenadines’ Prime Minister, Ralph Gonsalves, has been one of the few voices criticizing the programmes.  He has been quoted by the Caribbean Media Corporation, in August 2014 stating: “I maintain that the highest office in the land is that of citizen. What binds us together is the bonds of citizenship, community of spirit with one another and the accepted forms of citizenship, to me, are appropriate to our circumstances...For me, citizenship is not a commodity for sale, and the passport, which is a manifestation of the citizenship, what I call the outward sign of the inward grace of citizenship, is also not for sale.”

The Prime Minister’s contentions are similar to those of Laura Johnston from the Edmond J. Safra Center for Ethics of Harvard University, who argues that these programmes, amongst other things, facilitate institutional corruption, damage public trust in citizenship, corrode the institution of citizenship and break the link between residency/attachment to a state and the grant of citizenship.  Similarly, Mr. David Jessop of the Caribbean Council, based in London, recently pointed out that Caribbean countries should be careful in adopting these schemes because of increased scrutiny which they are undergoing by the US, Canada and EU, and reputation risks which will follow.

However, I now address the issue as to whether or not these programmes are niche to the smaller IFCs.  While it is correct that St Kitts/Nevis was the first of the smaller IFCs to adopt a CBI programme back in 1984, given the extent of the global economic crisis and continuing high level of public debt within the region, it is likely that the larger IFCs such as Barbados, Belize, the Bahamas and even non IFC countries like Jamaica and Trinidad, may at some point, see the wisdom of creating such a programme. The Dominican Republic, a much larger Caribbean country of over nine million people and which is not an IFC has had a second passport scheme for many years now, so it is not outside the realm of possibility that the larger Anglophone islands will follow suit.  Belize currently has a retirement programme but that does not grant citizenship but it obviously gives residency so that qualified persons can take advantage of it.

In the entire debate surrounding this issue, it is easy to forget that these programmes are not organic to the region.  Of course, the regional CBI programmes are different in specific ways such as the length of time that it takes to secure the passport, the residency requirements or lack thereof in some cases and the specific economic commitments that the recipient of the passport must make than their international counterparts.

The US and UK have similar programmes with varying requirements. The US E5 Immigrant Visa, UK’s Tier 1 and Tier 2 Business Visas would be analogous to the CBI programmes and thus criticisms of Caribbean programmes from these jurisdictions or the comments stated above should be taken with some degree of scepticism and indeed critical analysis.  These have been long established but the recent economic downturn has resulted in other developed countries like Spain, Greece and Portugal creating schemes to attract investors in order to deal with their problems especially in the housing and real estate markets. Smaller first-world jurisdictions like Malta and Cyprus have also joined the trend along with newer EU countries like Bulgaria and Hungary. 

Given this trend and the success of the programme in St Kitts and Nevis, I would argue that the CBI concept will no longer be a niche for the smaller Caribbean IFCs only, if ever they were, but that the larger IFCs and even the non-IFC Caribbean jurisdictions, both of which I mentioned above, may get in on the act. 

The arguments in favour of this approach are obvious especially if the programmes are patterned off of those which already exist or more creative and beneficial features are added.  Linking them to real estate developments appears to be the most successful and acceptable approach. It fuels the construction industry which is an economic driver in most Caribbean countries employing thousands of workers and gives the purchasers of the real estate an asset which they can sell later on if they so desire depending on the terms of the scheme.

The Caribbean debt crisis does not appear to be getting any better and despite increasing standards of living, the region is not developing fast enough. It is still crippled by high public sector wage bills and low levels of productivity both in the public and private sectors.  This is made worse by exogenous shocks of high oil prices, food import bills, bureaucracy, multiple layers of government, high barriers to trade, over dependence and reliance on a fickle North American tourism driven product and perennial natural disasters.

Lending sources both from the private sector through the sale of treasury bills and other government debt instruments and borrowings from the IMF, World Bank and other bodies are becoming more stringent in their conditions to facilitate loans to Caribbean governments. With credit ratings falling, such as Moody’s downgrading of the sovereign ratings of amongst others, Jamaica, the Bahamas, Barbados, Belize and St Vincent and the Grenadines, in 2013, and growth in most of the region in terms of GDP anaemic on average or contracting, the point may soon be reached whereby looking at all options for economic growth becomes the norm.

It is my contention and it has been for some time now, that the Anglophone Caribbean is at a crossroads and that it is now, decision or crunch-time.  Now over 50 years after political independence started, despite there still being a few Overseas Territories, the region is no longer of any major worth to the former colonial powers and must carve out new and innovative ways of doing things if it is to survive. 

The region cannot continue to have its cake and eat it too and changing this mindset requires a relentless focus on the development of an educated but more importantly, entrepreneurial and innovative, disciplined and productive workforce and a willingness to be ready to interact with the outside world on its terms and not the region’s own. 

Some academics argue that the region should interact more with the developing powers such as China, India and Brazil. I see nothing wrong with greater interaction in terms of trade but these academics and commentators speak in terms of seeking developmental aid and loans.  The evidence is clear that when it comes to the Chinese, they will be no less rapacious than the former colonial powers in terms of seeking benefit to advance their long term economic and strategic political goals and that this approach may just replace European colonialism with a Chinese version.

Others argue that the better model is to see highly skilled and increasingly mobile High Net-Worth Individuals as potential clients and to create incentives to attract them to one’s shores to assist with the development of one’s country. Indeed, the current design of these CBI programmes does not facilitate that but it is my belief that this is because the politicians and the region’s people are not ready to accept the inevitable truth that alone, the region does not have the capacity to develop itself because while there may be increasing levels of educated persons, there is not enough people with capital to marry the two. Unfortunately, this situation is exacerbated annually when educated persons migrate to the US and elsewhere.

CBI programmes may thus have to be changed in due course to allow for actual residency and the establishment of physical presence and creation of economic activity on-island which exists in some of the residency programmes in the Overseas Territories but are not a hallmark of St Kitts and Nevis’ version.

These programmes seem only destined to grow as the region as a whole continues to struggle to survive and thus, I don’t see them as a niche for smaller IFCs or even IFCs in general but as a tool that many countries which are facing economic challenges will seek to employ more regularly as time goes by.

About the Author:

Carlyle K Rogers is a barrister-at-law in Anguilla who practices in the areas of corporate and financial services law. He is also admitted in the BVI and New Zealand. He presently owns and manages the Stafford Group of Companies in Anguilla, a provider of trust, corporate, fund and other financial services to international clients.

Previously he held the position of Deputy Director of the Anguilla Financial Services Commission, formerly the Financial Services Department of the Ministry of Finance, from 1999–2006 where he was responsible for assisting in regulating the financial services industry.

Mr Rogers is also well known for publishing and presenting many papers concerning the Financial Services industry in Anguilla and in general.