Security vs investment: The future of investor citizenship schemes

The European Union's recent announcement to establish new criteria that could lead to the withdrawal of visa-free travel agreements has sparked discussions globally. This move, perceived as the EU's most assertive measure yet, targets countries that provide investor citizenship programmes, commonly known as 'golden passport' schemes. These programmes allow individuals to acquire citizenship through investment or donation, raising concerns of the EU about security.

In response to the EU's stringent stance, leaders from the nations offering investment schemes have voiced their criticisms, but have not come out openly in public. Meanwhile, some of these countries are attempting to enhance their regulatory frameworks to comply with the guidelines set forth by the EU, the UK, and the US.

In a move to standardise international practices, the US convened a roundtable meeting in February 2023 with Caribbean nations that offer investment schemes, urging them to adhere to six principles to uphold global standards.

Over the past two years, the golden passport schemes have come under intense scrutiny by the UK and the EU, both of which have repeatedly expressed concerns regarding the potential risks associated with these programmes. This scrutiny has led to tangible consequences, as demonstrated when both the UK and the EU revoked visa-free travel access for Vanuatu, an Oceanic nation, on 19 July 2023 and 12 October 2022, respectively.

Similarly, the UK withdrew visa-free access for citizens of Dominica on 19 July 2023. Reports stated that St Lucia's visa-free agreement is also being closely examined by the UK, indicating a potential suspension in the near future.

According to the CIU of St Kitts and Nevis, the unit is actively engaging with international experts to revise their practices, aiming to align more closely with global standards and enhanced transparency.

Despite numerous calls for change on the low investment threshold, other islands and countries have not changed their minimum investment requirements. Antigua and Barbuda, Dominica, and St Lucia have set a minimum investment outlay of only US $100,000, while Grenada requires $150,000. However, St Kitts and Nevis remains the only nation that has increased its contribution requirement to $250,000 for a single applicant.

The EU has expanded its criteria for suspending visa-free agreements by adding three additional grounds. These new criteria include the misalignment of a visa-free third country with the EU’s visa policy, the operation of an investor citizenship scheme, and concerns related to hybrid threats and deficiencies in document security legislation or procedures.

Several Caribbean nations have asserted that they implement rigorous due diligence processes to ensure that only individuals of high repute are granted citizenship. Michael Martin, head of the CIU, has previously stated that they employ third-party global leaders to conduct thorough background checks on applicants.

"This approach is intended to maintain the integrity of citizenship by investment programme, demonstrating a commitment to upholding high standards and mitigating risks associated with potential misuse of the programme," said Martin.

Industry experts maintain that countries which have taken early action on investment programs are likely to avoid potential suspensions of visa-free agreements with the EU or the UK.

Such measures not only enhance the credibility of their investment programs but also build trust with international partners, reducing the likelihood of facing restrictive actions like visa agreement suspensions.

The EU statement made on 13 March 2024 added, "Citizenship is granted without any genuine link to the third country concerned, in exchange for pre-determined payments or investments." The CIU of St Kitts and Nevis has reportedly begun consultations with experts to ensure that individuals granted citizenship have a genuine connection with the federation. However, other Citizenship by Investment Units have remained silent on this issue.

It is important to recognise that simply modifying the application process for new citizenship seekers is not sufficient to comply with the EU's guidelines. Jurisdictions offering investor citizenship schemes must also take steps to verify and ensure that there is a genuine link between the country and individuals who have already obtained citizenship through these programmes.

This means that thorough assessment and potential re-evaluation of existing citizenships may be necessary to demonstrate a substantive connection beyond financial transactions.

— Scott Johnson is a financial expert at AT & Associates.

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