Words: Hugh Morshead, Group Director, Henley & Partners
The investment migration industry is growing at a faster rate than ever before. Each year, thousands of wealthy individuals apply for citizenship and residence in foreign countries, and by the end of 2017, there were over 30 active and successful programs in existence, with a total of 80 programs available worldwide. The range and breadth of programs constantly expanding, with residence and citizenship options now available in most of the major world regions, including the Caribbean, North America, Europe, Southeast Asia, Oceania, and even, most recently, Central Asia.
Citizenship-by-investment has grown into a roughly USD 3 billion industry, while residence-by-investment – slightly more difficult to approximate – most likely encompasses tens of billions of dollars. Rather than mysterious, rarefied topics off-limits to ordinary citizens, as was largely the case in the industryís early years, citizenship- and residence-by-investment are slowly becoming household names. But for those still new to the industry, what exactly do these terms mean? What is investment migration all about, and why should you care?
A brief history of investment migration
In its most basic form, citizenship-by-investment denotes the process whereby qualified, vetted candidates are granted full citizenship in exchange for their substantial economic contribution to the passport-issuing state. Residence-by-investment denotes a similar process, but candidates in this case are granted temporary residence, which can be extended to permanent residence or, in some cases, citizenship.
The history of the citizenship and residence industry can be divided into three distinct ëwavesí. The first wave, which marked the industryís haphazard inception, stretched from the mid-1980s to the mid-1990s. In 1984, St. Kitts and Nevis launched the first citizenship-by-investment program in the world. Four years later, the Republic of Ireland created a controversial naturalization program, which was terminated the following decade. Dominica launched its Economic Citizenship Program in 1993, becoming the second Caribbean nation to enter the investment migration space. In the residence space, Canada introduced its Federal Immigrant Investor Program in 1986, and the US opened its now-famous EB-5 visa program to investors in 1990. The UK and New Zealand followed suit in the mid- and late 1990s, respectively.
The second wave, spanning the late 1990s to the mid-2000s, can best be described as a ëcooling periodí. In 2001, Grenada closed its citizenship-by-investment program amid heightened security concerns following 9/11. No new citizenship programs were launched worldwide during this period. Activity in the competing residence-by-investment space experienced a comparable slow-down, with both the US and Canada experiencing the lowest inflow of investors since their programsí inception.
The ëboom periodí of the past ten years or so has seen the industry regenerating itself. The European island of Cyprus legalized citizenship-by-investment and began developing a program in 2011. In the two years that followed, both Antigua and Barbuda and Grenada in the Caribbean launched citizenship programs. In 2014, EU member state Malta introduced its Individual Investor Program, which is the only program of its kind that is recognized by the European Commission. In terms of residence options, 2012 saw the introduction of five new programs: Singaporeís Global Investor Programme, Australiaís Significant Investor Visa, and residence-by-investment programs in Portugal, Hungary, and Ireland. Greece and Spain added their own residence programs in 2013.
While Canada closed its residence program in 2014, the Quebec program remains active and highly popular. Also in 2014, the US and the UK reported a record number of investors, with the uptick fueled mainly by growing interest from the Chinese market. In 2015, Malta added a residence program (the Malta Residence and Visa Program) to its investment migration offering.
Risk-hedging for discerning citizens
What is driving the increased demand for alternative residence and citizenship in recent years? The contributing factors are wide-ranging. In the unpredictable times in which we live, acquiring a second or even a third residence or nationality is seen as an astute move - a sort of wholesale insurance policy that provides the comfort of a ëplan Bí for individuals and families, hedging them to a great extent against the risks associated with an uncertain future.
Another major pull-factor is, of course, the prospect of expanded global mobility. The need for greater visa-free access to key business and lifestyle regions has grown in tandem with the rapid globalization of the world economy, and being able to travel easily and extensively is now less a luxury than a basic requirement for modern businesspeople. Investment migration enables wealthy individuals to transcend the constraints imposed on them by their passport and country of origin, tapping into financial, career, and educational opportunities on a global scale.
Citizenship-by-investment in particular also eliminates a great deal of the inconvenience and waiting time surrounding visa applications and passport renewal or replacement processes. Perhaps most importantly, an additional passport can quite literally save a personís life in times of political unrest, civil war, and terrorism, or in other delicate political situations.
Most residence programs offer a clear and defined route to citizenship, but residence in regions such as the EU is in and of itself a life-altering privilege. EU residents can travel freely within and across member states and can access all the professional, healthcare, educational, and housing benefits available to citizens in a particular country.
Crucially, investment migration is not a one-way transaction. Those who are overly critical of the industry tend to focus exclusively on the benefits to private clients: they are concerned by what they perceive to be the undue ëmarketizationí of citizenship, and they are distressed by issues of tax evasion and money laundering. While the former concern is rooted in an increasingly old-fashioned attachment to arbitrary determiners of nationality such as birthplace and marriage, the latter concern is usually overstated: due diligence mechanisms within the industry are incredibly rigorous and strict, with hundreds of exceptionally qualified and upstanding individuals vetted and accepted into programs each year, but the rare, highly publicized exceptions to this norm tend to cloud public perception.
More pointedly, industry skeptics typically disregard the transformational effects that inflows from residence and citizenship programs can have on receiving economies, which become more competitive and internationally relevant as a result. Foreign direct investment brings in capital to both the public sector - in the form of government donations, tax payments, or treasury bond investments - and the private sector - in the form of investments in businesses, start-ups, or real estate. The economic benefits are cumulative: receiving states tend to experience rapid growth in the real estate sector, accompanied by growth in the construction industry and among local businesses, plus increased liquidity in the commercial banking system and job creation. There are also various intangible benefits tied to granting citizenship to people from other countries, who bring diversity, scarce skills, and rich global networks.
Given the growth and developmental potential of citizenship and residence programs, it is hardly surprising that the number of states offering or exploring investment migration is on the rise. Qualifying investors can now become citizens of Antigua and Barbuda, Cyprus, Grenada, Malta, and St. Lucia, to name just a few options, or obtain residence in countries such as Australia, Canada, Portugal, Singapore, Thailand, the UK, and the US. There are still many countries where it makes sense to start new programs, so the industry looks set to continue to thrive and diversify.
As the number of available programs expands year-on-year, potential clients are confronted with a wealth of options. Europe is highly desirable owing to its solid social and legal infrastructure and excellent security; however, it is more expensive to acquire citizenship in Europe than in the Caribbean, for example. The Caribbean offers an appealing - and more economical - alternative, with all Caribbean program-countries offering visa-free access to Europeís Schengen Area. Generally speaking, those who are predominantly seeking enhanced travel freedom opt for the Caribbean programs, while those with longer-term, security-based aspirations look towards Europe.
The two key destinations for citizenship in Europe are Malta and Cyprus due to their combination of regulatory accessibility and cost and the reasonable demands that they place on applicants. For residence, the Portugal program is extremely popular. In the Caribbean, Grenada offers attractive and unique benefits, including visa-free access to China.
Asia is also developing a strong suite of programs: the Thailand Elite Residence Program allows qualified foreigners to live in Thailand for up to 20 years, depending on the residence option chosen, while both Singapore and Hong Kong offer appealing residence alternatives for businesspeople looking for a base in some of the most advanced societies in the world.
In navigating these various choices, the first port of call should be an established, reputable advisory firm, even if this means paying a little extra for the assurance of accurate advice and sound guidance. The consultation process should include an in-depth exploration of the most suitable option available, based on the individualís or familyís specific circumstances and requirements. The firm should also assist the client through each stage of what is usually a rather complex and protracted application procedure.
Dr. James Canton, CEO and Chairman of the Institute for Global Futures, has earned the titles ëDigital Guruí and ëDr. Futureí from CNN and Yahoo, respectively, for his insights into the major trends that are shaping the 21st century. Canton stresses that to achieve the state he calls ëfuture-readinessí, countries need to build ëpredictive awarenessí - but he is equally convinced that trend-watching, analysis, and hedging against loss and adversity are not in and of themselves enough. Rather, leaders need to be proactive in building systems that will ensure their continued viability in what is poised to be an ëextreme futureí.
As far as investment migration is concerned, a strong culture of self-regulation and due diligence is essential to the industryís continued success. A very important first step in this direction was the formation of the Investment Migration Council (IMC) in 2015. The IMC has two main mandates: on the one hand, establishing and maintaining professional standards and codes of conduct within the industry, and on the other hand, improving public understanding of the intricate processes and systems involved in citizenship and residence programs.
Given the importance of stringent applicant screening, programs with thorough due diligence processes that allow adequate time for the government to process applications should be viewed in a positive light. Although the path to citizenship or residence is generally slightly longer in such cases, following a meticulous process guarantees the integrity, sustainability, and therefore longevity of the program (as well as the reputation of the passport or residence permit itself).
Malta has the strictest due diligence mechanisms in the world for its citizenship and residence programs and has in many ways set the standard in this regard. In a recent interview with the Investment Migration Insider, Peter S. Vincent, General Counsel for Thomson Reuters, said, ìIf weíre looking for a model, not just for the European Union but for the entire world, I would look to a country like Malta.î
But innovation and adaptiveness are equally necessary for the industryís survival. Already, there are countries that are challenging customary program parameters and considering payment via non-traditional currencies, including cryptocurrencies. St. Lucia in the Caribbean, for example, is now accepting foreign currencies such as euro and yen and is contemplating adding Bitcoin to the equation. Around the world, governments and intermediaries are digitizing traditionally paper-based processes, and clients are now able to ëtravelí to potential investment destinations and ëexploreí potential property options without having to leave the comfort of their own homes.
The current challenge for the industry, then, is to build future-readiness while carving out its place within the global community as a beacon of innovation, collaboration, professionalism, and responsible investing. The more proactive stakeholders are in leveraging technology to streamline application processes - all the while keeping strict legal and regulatory mechanisms in place - the more sustainable and prosperous the industry as a whole will be. It is an exciting time in investment migration history.