In the mid-2000s, the tiny Caribbean island of St. Kitts and Nevis was the third most indebted country in the world. Stifled by EU cuts to sugar subsidies that had propped up St Kitts’s sugar cane industry, its economy was stagnant. Some 30% of the population lived below the poverty line, exacerbating a gang problem that left the 50,000-person island with one of the world’s highest murder rates.

In 2006, everything changed. The government hired citizenship planning consultancy Henley & Partners to redesign and publicise a little-known citizenship-by-investment (CBI) program the country had run since 1984. It let wealthy foreigners trade cash (or a substantial property investment) for a St. Kitts passport.

Today, passports are the island’s biggest export. In one year alone, St. Kitts amassed $470million from passport sales, accounting for 25% of its GDP.

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To apply for citizenship under a CBI scheme, investors must make a cash donation, invest in government bonds, or purchase property. In return, they can gain visa-free access to coveted foreign markets, secure a tax haven, evade conflict in their own country, or, as is becoming increasingly common, simply add to a collection of passports, a new status symbol for the uber-rich.

Today, passport sales account for 25% of St Kitts's GDP

With St. Kitts as a model, the global passport trade has blossomed into a $2 billion-a-year industry. Some 30 to 40 countries now offer CBI or residence programs, and another 60 have provisions for one in law.

The industry works through intermediaries like Henley & Partners — consultancy firms that develop, broker and publicise “investment opportunities”. These middlemen work with high-net-worth individuals to prepare applications for citizenship, and earn a hefty commission in return.

Proponents of citizenship-by-investment argue that the strictures of statehood simply hold people back — the world shouldn’t be delineated by borders, why not allow people to live in any country they choose? Critics say that the passport industry is simply another way for the one-percent to buy their way through red tape, while governments deny stateless populations within their borders the most basic of rights.

Financial crisis

Many countries, including the UK, US and Canada — which instituted the first CBI program in the ‘80s — have long offered residence visas to foreigners. Richer countries, however, tend to offer residence rather than citizenship, although these programs can serve as a pathway to citizenship.

But the 2008 financial crisis jump-started the trend in other parts of the world. “Many governments were left with serious budget deficits and looked for fresh ways to attract foreign direct investment,” said Bruno L’Ecuyer, CEO of the Investment Migration Council, an organisation that aims to set professional standards for the citizenship industry.

Now, investors can pay a premium for passports from states including Malta, Cyprus, Austria, St Lucia and Bulgaria. Montenegro and Armenia are in the process of launching programs, and Moldova announced a tender for consultancies to design a passport program this month.

The majority of clients come from China, Russia, or the Middle East. These are the one-percenters who — although they may own a private jet — can’t fly to London or New York for a business trip without first applying and waiting for a visa. Thanks to the passport trade, they can now buy visa-free access to Western countries, allowing them unprecedented freedom of mobility.

The price tags range from $100,000 (Dominica) to $2.4 million (Cyprus). The more countries the passport permits visa-free entry to, the higher its price.

“If you want to find corruption in this business, where you’ll find it is Malta"

Proponents point out that CBI programs offer struggling economies a multimillion-dollar resource out of thin air, providing a much-needed lifeline for some countries. Antigua and Barbuda’s CBI program, which brought in $500 million over 2014-2017, helped the country pay for social security, cancer treatments and a new state-of-the-art hospital.

“CBI programs, when working according to best practice, are contributing significantly to the GDPs of nations around the world, particularly in the Caribbean,” said Micha Emmett, the CEO of CS Global Partners, a legal firm that helps clients invest in citizenship. “Enabling these countries to receive direct foreign investment to improve very basic outcomes – such as achieving the SDGs – is what we must do as citizens of the world.”

But many CBI programs are designed with lenient or non-existent residency policies — meaning that investors may never set foot in the countries their passports come from.

“It has broken this very long-held notion that you can’t buy citizenship, or you shouldn’t. Now it’s just another product,” said Atossa Araxia Abrahamian, author of The Cosmopolites: The Coming of Age of the Global Citizen, which examines the global citizenship trade.

The St. Kitts program, which has sold more than 10,000 passports, costs investors a contribution of $150,000 (a special post-2017 hurricane season price, to be made to the country’s relief fund) or a $400,000 real estate investment. New citizens, who gain visa-free entry to 141 countries, are not required to enter the country.

The program has sparked a construction boom in St. Kitts, as new passport-holders commission condo after condo to satisfy investment requirements. Many of these beachfront properties stand empty, according to Abrahamian, leaving a well-heeled ghost town just a few miles from the slums where many native Kittitians still reside.

Abrahamian believes that the growth of CBI could have “massive consequences on democracy: people can just leave if they don’t feel like paying their taxes, and it really weakens the bonds within a community”.

But not everyone sees it this way. To the consultants selling passports, their job is to connect struggling economies with rich investors, who simply want to be afforded the same mobility as an American or Brit. Buying a second (or third, or tenth) passport secures that freedom.

“Wealthy people can buy bigger houses, better clothes, and they should be able to buy more passports,” said Nuri Katz, the founder of Apex Capital Partners, a consultancy focused on citizenship and real estate. Katz, a Canadian, holds six passports.

Corruption and criminality

When Malta, an island-state in the Mediterranean, announced it would begin selling citizenship four years ago, it turned the industry on its head. The Maltese passport, which sets investors back $985,000, unlocks visa-free travel to a record 173 countries and gives passport-holders the right to live and work throughout the European Union.

The program is also the industry’s most controversial: the European Parliament, NGOs and prominent journalists have raised concerns about it being exploited by unscrupulous individuals. In 2014, some 89% of Members of the European Parliament voted against the Malta program. Their primary concern is the program’s lack of transparency: the Maltese government refuses to publish the names of successful applicants.

“If you want to find corruption in this business, where you’ll find it is Malta,” said Katz. He believes that the Malta program is vulnerable to special interests because it’s run by a single company, rather than a consortium whose members must agree on rules and procedure. “We don’t work in any country that has such a connection," Katz said. "Such a thing would never happen in Canada or the US. It’s just wrong." Canada’s visa programs, for example, are run by a licensing board.

Malta's program is run by Henley & Partners. Based on its success with St Kitts, it won a contract with the government of Malta to design and market the Maltese passport program. Henley & Partners declined to comment for this article. There is no suggestion that Henley & Partners is itself involved in any corrupt or otherwise illegal activities.

But ever since Henley & Partners won the Maltese contract, it has been embroiled in controversy. One of the biggest criticisms of the program is of a clause that allows people with criminal records to buy a passport under the vague condition that “the application is still worthy of being considered for approval due to special circumstances”.

“The damage caused to Malta by the sale of citizenship is unquantifiable. Malta is not St. Kitts & Nevis"

This hits a sore spot in the industry: that unsavoury individuals will use these programs to get access to the country, and through it to other countries. Cyprus, for example, sold a passport to Bashar al-Assad’s cousin.

In 2014, then-European Commission vice president Viviane Reding gave a speech arguing that Malta’s program would allow corruption and criminals into the EU, while turning citizenship into a product to be sold. The Parliament recently announced it will investigate CBI on the grounds that the lack of transparency may threaten security.

It’s critical that governments perform “stringent background verification tests, so as to ensure the investors will not put the country’s reputation at risk,” said L’Ecuyer. He said “most countries” ensure due diligence is carried out, which involves checks on the applicant’s criminal background, sources of funds, family and associates, business ventures, and so on.

However, according to the OECD, these background checks are not rigorous enough: it warned this month that CBI programs “offer a backdoor to money launderers and tax evaders”.

However, as there is no authority that regulates the passport market, the EU has no power to shut down Malta’s program. In an attempt to win over detractors, Malta promised to ensure that investors should establish a “genuine connection” with the island. In more tangible terms, this means that they must reside in the country for 12 months prior to obtaining citizenship.

But many with a truly “genuine connection” to Maltese soil are still struggling for the same rights as these investors. In normal circumstances, Malta takes a “jus sanguinis” approach to citizenship, which means that at least one parent has to be a citizen of the country to confer citizenship to their children. This means that people without a Maltese parent who nonetheless were born in and spent their entire lives in Malta are denied the privileges and protections afforded to citizens.

Daphne Caruana Galizia, the Maltese investigative journalist murdered by a car bomb last year, was a staunch opponent of the program. On her blog, she wrote: “The damage caused to Malta by the sale of citizenship is unquantifiable. Malta is not St. Kitts & Nevis. It is interlocked with the rest of the EU.”

Her criticisms of the arrangement between the Maltese government and Henley & Partners — which, as of 2016, earned a 4% commission from the government for every passport sold — had the firm threatening to sue.

Now that Caruana is gone, the Maltese program remains shrouded in secrecy. Although the government revealed the breakdown of nationalities which have been awarded Maltese citizenship — at 33%, the majority of new passport-holders are Russian — there remains little public information on who applicants are, how they are selected and where funds from the program are going.

As of January 2018, Malta’s CBI program had brought in $721 million.

The commodification of citizenship

Regardless of whether the industry is subject to regulation, there remains a broad spectrum of ethical viewpoints on the commodification of citizenship. Proponents argue that who gets which nationality is already random, so who cares if a few people buy their way to better access?

Detractors like Abrahamian point out that traditionally, citizenship has meant more than a passport — it’s a civic tie that carries responsibilities as well as rights. Many investors will not live in the country their new passport comes from. They won’t be aligned with its culture and values, care about its politics or even pay taxes.

Regardless of the weight one gives citizenship, it’s certainly true that borders exist more for some than others. As wealthy “economic citizens” commission passports and visas, the countries they buy them from often deny their own stateless residents a path to citizenship.

In her book, Abrahamian writes that for these ultra-wealthy investors, citizenship has become superficial and transactional: with no sense of civic responsibility, multiple passport holders do not belong to any one country. Global citizenship, she argues, is a “a new form of statelessness”.

(Picture credit: Getty)

Jennifer Guay
jennifer.guay@apolitical.co