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CBI Index 2022 cover image
By Nick Kochan and Yuri Bender

A fast-changing regulatory backdrop has seen the levels of compliance and due diligence in countries offering citizenship by investment schemes strengthened

European countries marketing ‘citizenship by investment’ (CBI) programmes — which offer  citizenship and passports in return  for investments into tourism or infrastructure — are finding themselves under growing scrutiny. 

Russia’s invasion of Ukraine has proved a key turning point in a complex international ecosystem, which has already been improving due diligence and oversight procedures to minimise reputational damage to host countries.

One example has been Bulgaria’s announcement of a decision to withdraw its golden visa scheme in February this year, following international suspicion of a programme patronised by Russian investors. The operation of this scheme has previously undermined Bulgarian efforts to join the EU’s borderless Schengen club. 

Further reading 

A guide to global citizenship: The 2022 CBI Index

Sourced from research commissioned by CS Global Partners

Similarly, the UK’s decision to curtail its popular Investment Visa programme was linked to London’s imposition of sanctions against Russia. Some practitioners, however, believe that European developments are the result of a knee-jerk rather than considered reaction.

“We are working hard to find alternative schemes for investors,” says John Errington, a leading London-based immigration lawyer at Errington Immigration Services, commenting on the UK’s stance. “This decision was definitely unwelcome and taken hastily.” 

EU scrutiny

EU institutions, long critical of CBI programmes, have piled further pressure on member states to wind down their schemes after the Russian invasion. On March 28, 2022, the European Commission called on the economic bloc’s constituents “to immediately repeal any existing investor citizenship schemes and to ensure strong checks are in place to address the risks posed by investor residence schemes”.

Furthermore, member states, according to the EU, should assess whether citizenship granted under a ‘golden passport’ scheme to Russian or Belarusian nationals on an EU sanctions list, drawn up in response to the war in Ukraine, should be withdrawn.

Smaller participating countries in other regions have benefited from these developments. “People can get the St Kitts citizenship quickly. They regard it as an insurance policy against political turmoil at home,” says Mr Errington.

Along with other states in the region, the Caribbean dual-island nation of St Kitts and Nevis is becoming a more popular residential centre for political and economic migrants. The Covid pandemic and the war in Europe – both hugely disruptive events to societies – have encouraged more and more Europeans and North Ame ricans to consider a quieter life on the tropical islands.

Mr Errington is not convinced that all his clients are ready for such a dramatic change of pace and scenery. “When people enquire about a visa from one of the Caribbean islands, I always ask if they can see themselves living there for most of the year. Many want to have an office in London and a British school for their children,” he says.

New approach

Not only are investors spending more time researching the lifestyle choices associated with their target jurisdictions, they also need to make sure their favoured countries can issue reputable passports, offering good access to a variety of destinations. 

Observations by law enforcement agencies about the level of scrutiny of sources of funds in some jurisdictions have compounded the political factors opposing the programmes. 

Some in the UK’s law enforcement community have shared their concerns about the policing of investor citizenship schemes. The schemes are “a total nightmare”, according to Richard Gould, a former senior officer at the UK’s Serious Fraud Office, although he adds that due diligence is improving.

“I am not sure any jurisdictions really do the research about origin of wealth [as opposed to source of wealth],” he says.  “I have heard horror stories about some visas being granted after the investment sum was borrowed from a third party.” 

CBI schemes from several leading Caribbean jurisdictions have, in the past, caused  considerable reputational damage to their host nations, believes Phil Mason, a former senior civil servant at the UK’s Department for International Development.

“The schemes have been criticised for accepting people potentially implicated in money laundering, especially former Chinese and Russian nationals,” he says. “They also effectively give the holder access to visa-free travel across the region which injects a multiplier effect of taint beyond their own shores. Antigua gave the status to Alan Stanford, the cricket fraudster which ended up them getting on the Financial Action Task Force blacklist for a while,” adds Mr Mason. “My biggest concern was how easily due diligence on the recipients fell apart.” 

Stronger standards

But most observers agree that internal levels of compliance in those countries still offering CBI have been strengthened, against a fast-changing regulatory backdrop. “Thankfully most jurisdictions are now either running the schemes down or implementing some reasonable due diligence,” adds Mr Gould.

Others associated with crime-fighting agencies agree that entry requirements are tightening.

“I think it is getting harder to qualify for these programmes,” says Jonathan Benton, a consultant at asset tracing and enhanced due diligence provider Intelligent Sanctuary, who formerly worked for the UK National Crime Agency’s
anti-corruption unit. “Previously it used to be quite easy as you didn’t even have to put £1m down, you’d just have to say you’ll invest in a property scheme.”  

Practitioners also say the type of applicants is changing, with legitimate Western small business owners now exceeding controversial, politically-connected tycoons originating from developing countries.

“Things have changed dramatically and our business just got two new dimensions,” says Christian Kaelin, chairman of investment migration specialists Henley & Partners, referring to a changing pattern of applications following the Covid pandemic and Russia waging war in Ukraine.

“The war in Europe has made people think: where do I go if it really escalates?” he asks, adding that increasing political volatility in previously politically liberal Western countries is also boosting demand for CBI applications.

“Twenty years ago, I talked to people about alternative residence or citizenship and it was a difficult conversation,” he recalls. “Today, most countries around the world are not as stable as they were previously. Now even the US and UK have unstable political systems and socio-economic tensions.”

Applicants from developing countries such as Russia and China, plus Middle Eastern and Asian nations no longer form the majority of the client base, he says. “US citizens are now our single largest client group. The war and the pandemic have shown people they need access rights. Two decades previously, they would have laughed at Caribbean citizenship. Now everything has changed.” These changes include the ability of investment migrants to move freely around he Caricom bloc of nations, which he likens to a Caribbean EU.

Wealthy investors in CBI, says Mr Kaelin, are also increasingly keen to help poor countries hit by either economic or natural disasters such as tropical storms. This trend reflects a younger generation of business people, more interested in philanthropy and impact investment.

“The only lifeline for Caribbean states during the pandemic, when the cruise ships stopped visiting, was CBI,” he says. “The only thing that kept things alive in the East Caribbean was these schemes allowing people to contribute to economies and the social environment.  

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