Every country has a comparative advantage, the ability to produce some sort of good or service and produce it well. The United States, for example, has a thriving airplane industry, France is known for its cheese, and Saudi Arabia is a major oil producer. Some countries, however, have found more unusual niches. In the case of some, especially smaller island nations such as Dominica, that comparative advantage appears to be purchasing citizenship.
The number of “Economic Citizenship Programs” (ECPs or Citizenship by Investment Programs) worldwide has surged in recent years. Such programs allow wealthy individuals to legally obtain citizenship and a passport in return for a large contribution to a national development fund or a sizable real estate investment in that country. What’s more, many of these programs don’t require individuals to relinquish their existing citizenship, and instead allow them to hold multiple citizenships simultaneously. The concept of the ECP is not new; St. Kitts and Nevis’ program dates back to 1984, and Dominica introduced its Citizenship by Investment program in 1993. Today, between 30 and 40 countries have such programs, offering either immediate citizenship in exchange for an investment or a faster track to obtain citizenship for those who make a large investment in that country.
Worldwide, several thousand individuals spend around $2 billion per year to obtain citizenship and passports through ECPs. The market for citizenship is growing, with most investors coming from China, Russia or the Middle East, places where political circumstances at home make international travel difficult. ECPs tend to target wealthy individuals from developing countries who may have the means to travel internationally, but lack a passport that will enable them to do so. A wealthy executive from the Middle East, for example, will likely be able to travel to many more countries visa-free with a Caribbean passport than he would be able to with a passport issued by a country such as Iraq. For wealthy individuals from poor or otherwise unstable countries who love to travel, going through the process to buy a second passport, while often time-consuming and expensive, is entirely worth it.
Particularly for those countries that are smaller and less affluent, ECPs generate large revenue streams with little hassle. Frequently, when a national government needs money, it will resort to either raising taxes, cutting spending, or issuing sovereign debt. Raising taxes and cutting spending can be politically unpopular, especially during a recession. Sovereign debt, while a popular option, does require governments to pay interest to investors, thus introducing a financial obligation. Legally selling passports, however, imposes no additional costs on the taxpayer base and does not require a national government to pay back investors. Instead, a national government can capitalize on the appeal of citizenship and use these earnings to finance other debts, development programs, and disaster recovery programs. (Disaster recovery programs are especially important for hurricane-prone Caribbean nations).
Take the case of Dominica’s Citizenship by Investment Program, one of the world’s most lenient ECPs, allowing individuals to receive almost immediate citizenship and a passport in exchange for either a $100,000 donation to the country’s Economic Diversification Fund or a $200,000 investment in a government-approved real estate development project. It only requires that the investor hold on to the property for at least three years. Furthermore, Dominica’s program has no residency requirement whatsoever. In other words, it is possible to become a citizen of Dominica with no intention of ever going there.
Dominica’s Citizenship by Investment Program has had remarkable success, with the tiny island nation selling around 2,000 passports per year. Dominica is not an affluent country — its GDP per capita was $7,144 in 2016 — and its main industries, namely tourism, agriculture, and light manufacturing, are not especially lucrative. Recruiting foreign investment through citizenship, therefore, allows Dominica to capitalize on its status as a small country with a benign presence on the world stage. Dominican citizenship is especially attractive to wealthy individuals from unstable regions of the world, as Dominican passport holders can travel to over 120 countries without a visa. Furthermore, the Dominican government has gone to great lengths to make the island a business-friendly place. In Dominica, there are no capital gains, inheritance, foreign income, or wealth taxes, and qualifying entities can be exempted from import duties.
One of the oldest ECPs, that of St. Kitts and Nevis, began as a means to cope with the withdrawal of European sugar subsidies, which destroyed the local economy. Today, anyone interested in obtaining citizenship from the tiny nation of 55,000 can do so either by contributing $250,000 to St. Kitts and Nevis’ Sugar Diversification Industry Fund, which is tasked with diversifying the sugar-dominated economy, or by investing $400,000 in a government-approved real estate project. So far, St. Kitts and Nevis has sold over 10,000 passports for at least $250,000 each, and earnings from its program now account for around 25 percent of its GDP. These inflows have also benefited St. Kitts and Nevis’ real estate, tourism, and construction industries.
Small Caribbean nations are not the only countries to have citizenship by investment programs. Approximately half of European Union member states have immigrant investor programs, and those who buy in benefit from the freedom of mobility throughout the EU under the Schengen Agreement. Typically, these programs cost more than programs in the Caribbean and have stricter residency requirements, but those who do buy in are able to live and work anywhere in the EU. Even the United States has an immigrant investor route: the EB-5 (Employment-Based Fifth Preference Immigrant Investor) visa program reserves around 10,000 visas per year for immigrants who invest at least $1 million to create or preserve jobs in the United States (or $500,000, if the investment is made in a high-unemployment or rural area). A qualifying immigrant investor, plus a spouse and children, then receive 2-year conditional green cards that can potentially be converted into permanent resident status, and eventually, citizenship.
ECPs, however, have come under criticism, and have been exploited for purposes of criminal activity. Italian businessman Francesco Corallo, for example, managed to purchase a Dominican diplomatic passport despite being on Interpol’s most-wanted list for tax evasion and bribing politicians. When confronted, Corallo tried to claim diplomatic immunity by saying that he was Dominica’s permanent representative to the UN’s Food and Agriculture Organization (his claim failed to sway the authorities, however, and he is now being held in St. Maarten). Similarly, St. Kitts and Nevis’ program has drawn criticism from around the world for its lax controls, and in November 2014, Canada revoked St. Kitts and Nevis citizens’ visa-free travel privileges, thus diminishing the power of the St. Kitts and Nevis passport. The United States’ program has also drawn criticism and has been accused of “selling American citizenship” as opposed to merely attracting foreign investment. Furthermore, it is very difficult to measure the impact that immigrant investors have had on the American economy, leading many to question the EB-5 program’s effectiveness and efficiency.
ECPs provide an innovative way for countries to raise revenue without having to raise taxes or take on more sovereign debt, often providing revenue for development projects, and sometimes disaster recovery that would not have been available otherwise. Yet the success of these programs relies on a solid design that promotes the efficient use of investor funds and that prevents criminals from exploiting the system. If designed well, these programs are a lifeline; if not, they can become pipelines for international crime.