How to Become A Citizen of the World

 In AML Surveillance, BSA, Customer Due Diligence, Uncategorized

Many of us grew up fans of the timeless board game Monopoly, a game that gave many operating professionally within the financial realm today their first taste of basic economics growing up as a child, and for some where the value of the dollar was instilled in our minds for the first time, regardless of whether the currency was real or not. Monopoly centered on three distinct aspects: strategy, patience, and luck; each of which play an important role in the ultimate success of both large and small scale entities on a daily basis. Through this simple game we learned how making reasonable investments into properties and infrastructure could reap us significant rewards over time, allow us to gain an advantage over our counterparts, or simply increase the amount of fun we had throughout the gaming experience. While success in the game in no way translates into real-life success in finance, real estate, or any other of the world’s largest markets per say, there is one budding industry that has drawn comparisons to the basic premise of the board game, and one that has evolved into big business for the respective economies of numerous countries across the globe.

Generally unbeknownst to the lower tiers of society is the realm of citizenship by investment programs (CIP’s), a process that quietly began over 30 years ago. In this program, wealthy citizens (generally those with multi-million dollar net worth’s) make what most would consider a sizeable donation to a country’s economy in order to gain access to an additional passport from said country, one that likely carries far more capabilities than their current option. Thus a viable alternative for those birthed into less coveted passports has emerged, with CIP’s granting historic new freedoms to upper-class citizens across the globe, a process that the rich have ushered in with open arms. Rather than trying to attain residence permits that require continuous renewals and updates, individuals and families have begun to dish out money for citizenship in locations they frequently visit and/or in which they own properties. While certain requirements such as criminal and financial evaluations are needed in order to ensure legitimate sources of funds, etc. on behalf of the applicant, and the process to obtain residency being lengthy depending on the location (specifically in the United States), the result is often rather fruitful for those who choose to stay the course, as evidenced by the estimated “5,000 people each year acquiring citizenship abroad through CIPs” (Springer, 2018). Furthermore, the BusinessTech article “Here’s how much it will cost you to buy citizenship in some of the world’s top countries” cited in BSA News Now on March 13th, 2018, continues, stating accumulated data obtained from global surveys shows “that 34% of ultra high-net-worth individuals already hold a second passport and 29% are planning to purchase one, while 21% are considering emigrating permanently” (BusinessTech, 2018).

CIP’s are expanding rapidly across the globe as a means to attract direct foreign investment, specifically in lesser-developed countries or those with fewer resources who are looking to collect funds by any legal means possible. In order to compete for foreign dollars, smaller markets such as those in the Caribbean have begun to significantly slash the level of investment needed to obtain citizenship in their countries, and have even reportedly started to “link citizenship to one-off contributions to hurricane relief or economic development funds” (BusinessTech, 2018). The prices these citizens are paying vary greatly, with the largest minimum capital requirement being $9.6 million USD in Austria. The most miniscule cost of citizenship is found in Malaysia, which ranges from only $40K-$70K in U.S. dollars. The U.S. comes in between $0.5-1.0 million USD.

Well-developed countries such as the United States and United Kingdom have been quick to jump in on the action, with these two world powers currently sitting at 3rd on the list of most desirable passports in the world according to consultancy firm Henley & Partners, who publish an annual Visa Restrictions Index detailing pertinent passport and travel information. Germany holds the title of world’s best passport according to the Index, allowing its citizens to travel to 177 countries and territories found around the world without a visa. In stark contrast is Afghanistan, whose passport does not allow much freedom to travel – a common theme for Middle Eastern countries in 2018. Afghani citizens can only travel to 24 countries without a visa. Thus countries limited by a lack of travel freedom and their inhabitants have subsequently become the driving force behind the market. In her article written on the rise of CIP’s,CNN writer Kate Springer quotes Nuri Katz, the founder of international financial advisory firm Apex Capital Partners who says “All nationalities are eligible for the investor immigration program in the US — most applicants are from China, but many are from Iran, Nigeria, Russia, Mexico and Egypt” (Springer, 2018).

Nevertheless, the CIP industry is now worth an estimated $2 billion annually, and while the success of this business appears to have the potential to last, cynics and skeptics have pointed to a list of concerns that accompany the practice, specifically those involving financial crime. Concern is growing that these passports may begin to be used for criminal purposes, and that “the acquisition of a new nationality may be a vehicle to avoid FATCA (Foreign Account Tax Compliance Act), the CRS and various other international efforts to stem tax evasion” the article reads. “Furthermore, there is the fear of terrorists being found to have travelled on a new passport before committing an atrocity. It is not hard to imagine how this could lead to governments being reluctant to accept ‘purchased’ passports, restricting their use or denying access to those who bear them” (BusinessTech, 2018). So while the demand for the market is evident, there are clearly several legitimate concerns that will need to be addressed moving forward in order to ensure the continued prosperity of this practice in the future.

 

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