Introduced as a route to financial security and global status, the initiatives of a number of Caribbean island nations offering nationality to high-net-worth individuals in exchange for investment have proven to be an enormously successful growth strategy. These citizenship by investment (CBI) programmes are helping many of the region’s small economies, still recovering from the financial crisis and heavily reliant on tourism, to diversify their revenue bases. In 2015, Caribbean countries sold about 2000 passports through CBI programmes, a rise of 100% over a five-year period, according to Fortune magazine.

This is a win-win: governments achieve increased FDI and investors acquire passports that give them greater market access and ease of travel, not to mention the right to live in some of the safest and most scenic spots on earth. But amid the success stories, questions remain about transparency, meaning that host governments are having to intensify their background checks and due-diligence efforts in order to avoid evading sanctions or admitting criminals into the country.

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Applications up

Many countries around the world offer CBI, from the US and the UK to Cyprus and Australia. Citizenship applications for these programmes are the most frequent in Europe, which receives 56% of all applications, followed by the Caribbean with 25% and North America with 14%, according to a report by financial advisory specialist Arton Capital.

Grenada, Saint Kitts and Nevis, Dominica, Antigua and Barbuda and most recently Saint Lucia offer such programmes, and each had witnessed a rise in applicant numbers. Second citizenship of one of these island nations affords visa-free travel to up to 132 countries, including Europe’s Schengen Area. Arton Capital’s report includes “greater stability and security, tax efficiency, ease of travel, a higher standard of living, increased options for children’s education and investment opportunities” among the incentives for investors.  

“From a business perspective, the Caribbean is very well positioned,” says Micha-Rose Emmett, group managing director at CS Global Partners, a law and investment firm specialising in CBI opportunities. “It’s a bridge between North America and South America, with a number of unilateral and bilateral trade agreements with the US and Europe. It opens a new door for opportunity.”

Citizenship of Grenada, for example, brings with it the US E2 visa for investors. Further benefits of a base in the Caribbean often include no taxes on capital gains, income, inheritance or real estate. “Additionally, the legal system in these countries is based on UK common law, and in many islands, Queen Elizabeth II remains the head of state, which our clients like,” says Ms Emmett.

For their part, Caribbean countries in turn reap tremendous financial benefits from the programmes. Saint Kitts and Nevis prime minister Timothy Harris recently announced that he expected revenue from CBI to provide 33% of the country’s annual GDP. Saint Kitts and Nevis – whose programme, launched in 1984, is the oldest in the Caribbean – has so far granted a total of 10,777 citizenships to foreign nationals. The granting of each passport is contingent upon either a charity donation to the country’s Sugar Industry Diversification Fund – set up to counter the economic downturn and diversify away from dying industries – of between $250,000 and $450,000, or investment into a real estate development project worth at least $400,000.

A stake in the future

Host countries are seeing FDI growth from these programmes in real estate and tourism in particular. “New citizens will invest in pre-approved projects such as condos, hotels, shares, commercial real estate and so on,” says Ms Emmett. “This programme has facilitated FDI into the region and significant infrastructure growth. It’s a wonderful case of how using a right – citizenship – can help attract FDI. The individual then continues to contribute to the country because they now have a stake in it.” Governments aim to attract high-quality hotel brands and create jobs in construction and hospitality, Ms Emmett continues, adding: “Beyond that they are looking at renewable energy options, agriculture and aquaculture.” 

Citizenship costs for other islands start as low as $100,000, which is the required contribution to Dominica’s Government Fund. The country’s programme began in 1993 and so far has given nationality to more than 5000 foreign applicants. For Grenada, whose programme began in 2014, investors can choose between a $250,000 investment into an approved real estate project or a non-refundable donation of $200,000 to the Island Transformation Fund. All of these details come from the countries’ respective citizenship by investment websites, where detailed information on the procedures is readily available.  

“The popularity of the Caribbean region is thanks to the lower barriers to entry offered by countries such as Antigua and Dominica, where fast-track programmes are available, and the fact that physical residency requirements, where existent, are very low,” says the Arton Capital report. Dominica’s CBI website states: “The Commonwealth of Dominica does not impose any residence requirement on its citizens. This offers splendid opportunities for flexible and ‘mobile’ people.” In Grenada and Saint Kitts and Nevis, a citizenship applicant is not required to take an oath or maintain physical presence to retain nationality; indeed, an applicant does not even have to show up for the application process.   

Eastern exodus

But who exactly applies for these second citizenships? There is certainly no shortage of ultra-high-net-worth (UNHW) individuals – defined as being worth of at least $30m – says the Arton Capital report, which puts the global UHNW population at a record high of about 200,000 individuals with a collective wealth of $28,000bn. The report says: “The average net worth of someone who applies for a second citizenship is above $205m, 47% above the global average for UHNW individuals of $139m.”

The majority of second citizenship applicants – just under 60% – hail from the Middle East, and comprise the bulk of those flocking to the Caribbean’s balmy shores. Countries that struggle with asset security – Syria, Lebanon and Egypt, for example – are big source markets for these programmes. “Citizenship trends tend to be affected by things such as the Arab Spring, where suddenly people need to seek security elsewhere,” says Ms Emmett. “We see the market affected more by regional political instability. We offer the option whereby if something happens, you can protect your family and have somewhere to go.” The greatest number of applicants come from the Middle East, China, the US and Russia, says Ms Emmett.  

Transparency issues

This trend inevitably raises questions of transparency and legality, and in recent years these programmes have come under heightened scrutiny. In 2014, it was revealed that a number of Iranian and Syrian nationals with Saint Kitts and Nevis passports were evading sanctions and trying to enter Canada, resulting in Canada’s imposition of visa restrictions on all 55,000 Saint Kitts and Nevis citizens.

“In addition, the US Treasury Department noted that an Iranian holding a Saint Kitts and Nevis passport was contracted by the regime in Tehran to convert Iranian funds denominated in non-Iranian local currency into US dollars for the use of the regime, in violation of sanctions,” Canadian government officials reported.

Saint Kitts and Nevis prime minister Mr Harris has acknowledged the mishandling of the CBI programme by his predecessor’s administration, promising to commit to higher standards. “We must have a common high standard of due diligence across the Caribbean… and improvements to the CBI programme will continue into 2016,” he said in January. Since then, Caribbean countries have doubled their due-diligence efforts, drawing on external support and expertise to conduct thorough background checks and ensure adherence to international standards.

As more and more wealth is created in Asia, while a growing number of UHNW individuals are seeking to secure their assets elsewhere, CBI programmes should enjoy continued popularity, especially given the Caribbean’s relatively low barriers to entry compared with Europe. This, coupled with increased political instability in many areas of the world, should ensure that the pursuit of global citizenship – for those who can afford it – will only continue to intensify.