What does citizenship-by-investment controversy mean for the way HNWs live, work and play?

The citizenship-by-investment industry is booming – but recent controversies have sparked unprecedented scrutiny. John Arlidge reports

On paper Sir Tim Clark, the veteran boss of Emirates airline, and Michel Salgado, the Spanish ex-footballer who now runs a soccer academy in Dubai, have little in common. But it is a particular piece of paper that unites them: both are among a new breed of citizen of the Middle East.

After years of jealously guarding citizenship for petro-dollar rich locals, fast-growing Gulf states are beginning to offer passports to expats for the first time.

The U-turn reverses ‘the deal’ that foreigners used to accept when they moved to the region: no matter how long they spend there and how much they contribute, they would never enjoy residency rights or citizenship.

Why the shifting sands? Small nations with big dreams have recognised that the globalisation of business is fuelling demand for the globalisation of citizenship.

Wealthy people will pay or invest handsomely for passports that make it easy to run their worldwide businesses – and to hedge their lifestyles in the same way they hedge their investment portfolios.

Thirteen countries now treat passports as a new global asset class, selling them legally on the open market as if they were government bonds.

They are Antigua & Barbuda, Dominica, Grenada, St Kitts & Nevis, St Lucia, Cyprus, Malta, Moldova, Montenegro, Vanuatu, Austria, Jordan and Turkey. Costs range from a hefty $9 million (Austria), through $2.6 million (Cyprus) and $720,000 (Malta), to $100,000 (Antigua & Barbuda, Dominica and St Lucia).

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Fees are paid either directly or as investments in local businesses or property. Some countries also require applicants to spend a certain number of days a year in their new home.

The rulers of the UAE are starting to use passports to reward successful people who already work in the country, such as Clark and Tony Douglas, the boss of Abu Dhabi airline Etihad. ‘We want people to call the UAE home,’ says Mohammed Ali Al Shorafa Al Hammadi, chair of the UAE capital’s department of economic development.

Direct passport sales are a $3 billion-a-year business worldwide, according to London-based Henley & Partners, the global leader in arranging citizenship-by-investment. Its chairman, Dr Christian Kälin, says uncertainties created by Brexit and, until recently, Donald Trump’s administration were boosting demand.

Then came the pandemic: ‘People think, “Look, this pandemic could come back. We need the guarantee that, if it does, we can go to a safe place and that we will be admitted.”’ During lockdown, borders were not closed to returning nationals and legal residents. Demand for new nationalities is up by 50 per cent year-on-year, Kälin says.

But the industry is under a cloud.

Leaked documents recently published in the Guardian revealed that super-rich Russians, Chinese and Saudis have secured passports via a Maltese cash-for-passports scheme that required them to spend less than three weeks in the country.

This enabled some customers, for an outlay of more than €1 million under the scheme, to successfully claim they had a ‘genuine link’ to Malta while spending a short time holidaying there. Several media outlets have also uncovered corruption connected to Cyprus’s citizenship scheme, meanwhile.

Obtaining an EU passport is extremely valuable because it grants access to 27 EU member states and four other countries. Elsewhere, Canada abandoned visa-free travel with St Kitts & Nevis, amid fears that at least one Iranian had used its scheme to obtain a passport to evade sanctions imposed over Tehran’s nuclear programme.

Dominica was found to be selling passports to applicants who had changed their name by deed poll – attractive for anyone with something to hide.

The Antiguan government is trying to cancel the passports of three successful applicants who lied on their application form, claiming they were not subject to any forthcoming criminal investigation, the Antiguan authorities say.

Oliver Bullough, author of Moneyland: Why Thieves and Crooks Now Rule the World & How to Take It Back, warns more scandals will follow. ‘Governments can be scrupulous about who they give passports to, but that means they are turning away free money, and that is something no one’s very good at,’ he says.

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The Maltese and Cypriot governments have dismissed investigations into their citizenship schemes as outdated and insist the due diligence on applications has improved.

Cyprus’s authorities have launched a process to strip nationality from 26 people because of ‘mistakes’ in the process.

Kälin insists that ‘significantly less than 1 per cent of all applications over a period of many years have later been called into question or been found to have been potentially misused.’

But those in the business say the attacks on the fast-growing sector signal a worrying trend. ‘There is a concerted political assault on the whole idea of citizenship-by-investment,’ says one executive.

Although matters of nationality are controlled by sovereign states, the executive points out that ‘there’s all sorts of things that a body like the EU can do to exert pressure on sovereign states, especially the poorer ones, which could affect the industry’. What will the effect of the negative publicity be?

There is likely to be tighter regulation, but the bigger players welcome this – even though it will mean they will have to hire more lawyers and compliance officers.

‘It will weed out the less scrupulous players who tarnish the whole business,’ says Kälin. Greater scrutiny and regulation are, however, unlikely to affect the future growth of the business since, as another executive puts it, ‘It’s one of those rare sectors where there is both high demand and high supply.’

The economic damage caused by the pandemic increases the incentive for smaller nations to continue with the trade. In Antigua, citizenship-by-investment represents 15 per cent of government revenue and 20 per cent of all foreign investment.

On the demand side, more rich people are being minted each day and most are likely to take the view of Jim Rogers, co-founder of the Quantum Fund with George Soros.

‘We’re not going to have a very simple and stable world in the next 20 to 30 years, so you need to be able to be mobile,’ he says. He and his family have secured passports from the US, where he was born, and two other countries:

‘Everybody should have a “plan B” to diversify their living possibilities.’