What is the real motivation of the EU, UK and US in trying to dictate other countries on using citizenship or residence as an economic tool?

June 2024 marked both the implementation of a multi-jurisdictional Caribbean price increase and a hearing by the EU on Malta’s accelerated naturalisation programme. Journalists, lobbying entities, and politicians in the EU, UK and US argue that CBI programmes are being exploited by individuals involved in criminal activities, money laundering, terrorism, or spying (aka ‘scoundrels’).

They state with certainty that these scoundrels will use the acquired citizenship as a means to evade law enforcement, gain access to sensitive information, or engage in money laundering or hiding proceeds of crime.

As readers of The Citizen know, there are a number of entirely legitimate reasons why someone would be interested in obtaining a second citizenship and passport through investment (CBI). These motives might include seeking a better travel document or executing a US expatriation or non-residence in other countries' tax plans. Other common motives are to ensure mobility during pandemics or should their current passport be cancelled by home country authorities because they decided to move abroad or for political reasons.

Over the last few years, the UK and the EU have used their ‘tool of scoundrels’ reasoning to either cancel visa-free travel or to impose new criteria on Caribbean CBI programmes to maintain their current visa-free travel privileges. However, when examined, their stated objections lack any merit. To prove my point, one need only look at the logical decision-making process of a typical scoundrel.

Scoundrels know that all the Caribbean CBI programmes require thorough background checks and due diligence to ensure the country weeds out any individual with a questionable background. Furthermore, this due diligence process adds several months to the process of acquiring a CBI, resulting in total processing times in excess of six months or more. Finally, once all the costs are calculated, a Caribbean CBI now generally costs in excess of US$250K.

Knowing that they are well aware of these realities, let us look at the options available to a scoundrel who is interested in acquiring a second passport.

Option one: Purchase a Caribbean CBI: Pass a detailed due diligence; cost in excess of US$250K and wait a minimum of six months plus for a travel document which does not allow them to live in Europe or North America.

Option two: Purchase a fake first-world (e.g. EU, UK, US, Aus, NZ) passport which has been put into that country’s registry: No due diligence; cost approximately US$7,500; processing time approximately ten working days to secure a travel document that has extensive visa-free travel and the ability to live in Europe or North America.

Option three: Purchase a stolen first-world passport: No due diligence; cost approximately US$13,500; processing time approximately ten working days to acquire a travel document with extensive visa-free travel and the ability to live in Europe or North America.

Option four: Purchase fake lineage documentation to support a claim for a real citizenship/ passport in a first-world country: No due diligence; cost approximately US$5,000; processing time of 12 to 24 months (depending on the country) to acquire a travel document that has extensive visa-free travel and the ability to live in Europe or North America.

For scoundrels, it is abundantly clear that purchasing a Caribbean CBI will never be a consideration. This is especially true for money launderers opening accounts. They would need to use their new passport to go through a bank KYC/AML review that is FATCA and CRS compliant. Their Caribbean CBI passport will always have their original country of birth, which will result in the financial institution automatically asking for additional documentation to pass their due diligence process.

For those who correctly point out that scoundrels have previously sought and received CBIs, I would note the following:

• Some jurisdictions did poor due diligence and are being rightly criticised.

• Some scoundrels got their CBI before there were any criminal charges or red flags that would have turned up in a due diligence check.

• Due diligence checks have significantly improved over the last few years.

So, if use by scoundrels is not a viable reason for opposition by the foreign governments to Caribbean CBIs, what is the real motivation? Some have theorised that this hostility is a remnant of colonialism. There may be some truth in this, but this argument is somewhat undermined by the EU's opposition to residence by investment programmes in non-colonised EU countries like Portugal, Greece, Italy and Spain.

For scoundrels, it is abundantly clear that purchasing a Caribbean CBI will never be a consideration.

My own theory is that politicians are emotionally repulsed by the idea that another nation would exercise its sovereign right to attract foreign direct investment through CBI. If I am correct, then ultimately, there is nothing, short of closing their CBI programmes, that will appease these foreign politicians. Until that goal is reached, they will hold the sword of Damocles over the heads of those countries which operate a CBI programme by threatening to withdraw visa-free travel.

Given this reality, what is the future of Caribbean CBI programmes? It is worth acknowledging that those who acquire Caribbean CBIs for the legitimate reasons outlined previously are, by definition, wealthy enough to easily secure UK, US or Schengen visas. Therefore, the real question of the future of the programmes rests with the local voters.

As voters head to the polls in any election, their vote for Politician A (who supports CBI) or Politician B (who wants to abolish it) will depend on that voter's perception of whether the benefits of CBI to them (vs developers or the government), outweighs the hassles they now face in getting visas.

It is worth understanding that with prior visa-free travel, voters could simply book a ticket at the last minute. If visa-free travel is withdrawn, they would need to plan their trip well in advance, book an appointment, travel to another island to apply (as there is probably not an embassy/consulate on their small island) and pay a fee to apply. In addition, they will not be able to book their flight or know they can travel until they have the required visa in hand.

Smart politicians will do everything in their power to show the value of the direct foreign investment of CBI to their voters. At the same time, they will go to extraordinary lengths to try and make the acquisition of UK and Schengen visas as easy as possible. This might include having their government pay to regularly fly in foreign officials for visa appointments.

Those politicians who put in the effort to win over voters on the value to their island of a CBI programme will continue to benefit from the significant revenue their programme generates. Those who do not may see their programmes killed by the politicians who replace them. The surviving ones will then have less competition.

* Opinion article written by David Lesperance, one of the world’s leading international tax and immigration advisors and a published author in the field. David is the Managing Director of Lesperance and Associates.