Citizenship for Sale – IMF F&D
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Bibliographic details
- Authors: FRANCISCA FERNANDO, JONATHAN PAMPOLINA, ROBIN SYKES
- Published: June 1, 2021
Overview and context
- Programs offer passports in return for investment and carry financial integrity risks that must be managed.
- Renewed interest during the COVID-19 pandemic increased demand for second passports, including from high-net-worth individuals in advanced economies; some countries offered discounts.
- Price tags for a second citizenship typically range from $100,000 to $2.5 million.
- Countries that have offered such programs include Antigua and Barbuda, Cyprus, Grenada, Jordan, Malta, St Kitts and Nevis, and Vanuatu.
- Firms providing these services reported increasing demand amid the pandemic.
- Golden passport programs have generated large inflows with significant economic and fiscal impact (see IMF Working Paper No. 20/8); examples include Caribbean revenue and responses to natural disasters (for example, revenue partly offset tax declines after Hurricane Maria hit Dominica).
Program mechanics
- Definition: Golden passport programs allow individuals and their families to buy new citizenship through targeted investments or contributions.
- Investments and contributions:
- Direct monetary contributions.
- Purchase of government debt instruments (for example, investment in government stocks, bonds, securities).
- Investment in specific sectors (for example, real estate, construction).
- Establishment of businesses.
- Qualifying amounts typically range from $100,000 to $2.5 million (excluding fees) and have various financing terms (for example, up-front payments, installments, bank loans).
- Administration:
- Typically overseen by a government agency.
- May rely on third parties to market the program, facilitate application submissions, and carry out due diligence.
- Some programs have statutory quotas that limit the number of applications.
- Application process:
- Usually requires some background checks (for example, criminal background checks, vetting by third parties), though requirements differ.
- Processing can take from 30 days to more than a year; many offer fast-track options in exchange for higher contribution amounts.
- Sovereignty: Ultimately the bestowal of citizenship is a government’s sovereign decision.
Risks and negative externalities
- Documented abuses include enabling corruption, money laundering, tax evasion, and other crimes.
- New citizenship can disguise a higher risk profile:
- Criminals and terrorists may shop for safe havens from law enforcement or extradition.
- Alternative identities may grant access to financial products or enable evasion of sanctions and watch lists.
- Secondary citizenship may conceal bank accounts that would otherwise require declaration under international tax rules or be sought in jurisdictions without tax information exchange.
- Cross-border spillovers:
- Organized crime members can use new passports to move freely and establish illegal enterprises.
- The European Commission launched legal proceedings against Cyprus and Malta for offering golden passports to people without a “genuine link” to the bloc, citing threats to the integrity of EU citizenship and free movement.
- Corruption and domestic distortions:
- Programs can lead to corruption and rent-seeking; public officials may accept bribes or pocket fees without proper oversight.
- Sector-linked programs can cause overdependence and economic imbalances, e.g., foreign money driving up local property prices and creating real estate bubbles.
- Reputation and financial stability:
- Other governments may implement countermeasures, such as enhanced checking of regular passport holders from program countries, or label countries as high risk (for example, OECD list of high-risk programs suspected of allowing hiding of taxable assets abroad).
- Foreign banks can react to negative risk perceptions, pressuring correspondent banking relationships, with far-reaching implications for financial stability.
IMF engagement and evaluation
- The IMF is working with members on policy advice to balance risks and benefits and avoid long-term negative economic impacts.
- The IMF has advised members on financial integrity risks in Article IV consultations for: Comoros, Cyprus, Dominica, Grenada, Malta, St. Kitts and Nevis, and St. Lucia.
- Key evaluative questions for countries:
- Are application, monitoring, and revocation procedures robust?
- How effective are mutual legal assistance, tax information exchange, and anti-money-laundering and counter-terrorism-financing frameworks?
- Are risk assessments ongoing to respond to changes in the environment?
Policy recommendations and safeguards
- Conduct comprehensive risk–benefit assessments before launching or continuing programs:
- Assess costs and benefits, including capacity to manage financial integrity risks.
- Ensure ongoing risk assessments to adapt to environmental changes.
- Ensure robust vetting of applicants:
- Government agencies or third parties should carry out rigorous background checks on an ongoing basis, including checks with applicants’ home authorities and consultation of databases of sanctioned and politically exposed persons.
- Agents handling applications must exercise appropriate due diligence, establish legitimacy of sources of wealth and income, and report suspicious activity.
- Applicants should not be admitted without thorough vetting.
- All sectors and agents involved should be supervised for compliance with anti-money-laundering and counter-terrorism-financing requirements.
- Consider enhanced transparency and oversight:
- Publish names of successful applicants to aid banks and businesses in due diligence and to support authorities’ investigations.
- Ensure that passports and citizenship documents indicate that these are golden passports.
- Consider periodic public audits to ensure proceeds are used for intended purposes.
- Consider regional coordination:
- A coordinated approach among countries with golden passport programs can discourage criminals from shopping around and prevent a race to the bottom.
- Information sharing, standardizing best practices, and enhancing transparency of granting and revocation processes can strengthen safeguards.
- Pooling resources can reduce costs and establish consistent regional due diligence, monitoring, and enforcement practices.
Conclusion
- Golden passports grant all privileges of a country’s citizenship, and the decision to grant citizenship is sovereign.
- Citizenship and its attendant benefits should be zealously safeguarded given financial and reputational risks when granted unwisely.
- Countries should carefully weigh whether the costs of giving noncitizens a second passport outweigh the benefits; in some cases, they may not.
Source: F&D Magazine — "Citizenship for Sale", FRANCISCA FERNANDO; JONATHAN PAMPOLINA; ROBIN SYKES; June 2021.
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