These questions are vital to any fair assessment of the world of CIPs. For while it is not breaking news that such programmes are controversial, they can also have benefits. Further, given the profit many CIP programmes have generated for local governments in the region, many nations would rue the lost profits were their CIP programmes cancelled. The key issue is, at what cost do CIP programmes come to a nation’s business community, and national life as a whole? For Caribbean nations, identifying the virtues and potential issues for reform are essential to the future of CIP programmes.
As discussed in a previous article (From Westphalia to the West Indies) on November 4, the concept of citizenship is fluid. The strength of each nation’s passport can also be fluid. While essentially every nation will seek to offer some form of consular support to a citizen abroad in trouble, the strength of that support can vary.
The influence and resources of a nation like the US, France or Japan means holding one of their passports can dramatically raise your odds of obtaining practical help in a crisis. Or at least be the difference between getting sent home or put in a jail. This is not only due to the diplomatic and economic power of these nations, but also simple logistics.
Many of the world’s smallest countries don’t maintain official embassies and consulates in nations around the world, instead often relying on a friendly nation for diplomatic support. For example, a citizen from Malta travelling in a remote part of the world may be directed by the Maltese Ministry for Foreign Affairs to visit the Italian embassy in the event of a crisis. From there a diplomatic solution could be sought through appropriate channels.
Can I get in?
Beyond issues of diplomatic crisis, certain passports can simply make travelling easier. It’s not news that many nations in the Middle East hold some strained relations with their neighbours. In some instances, this has seen an outright ban imposed on travellers looking to enter nation A if travelling under a passport from nation B. The politics of these bans are complex, but the impact on business is clear.
So, whether an applicant is from a Middle East nation or elsewhere, a passport acquired via a Caribbean nation offers the potential to circumvent a ban. A passport from this region can also provide greater freedom and peace of mind to its owner than is available in their native nation.
Though President Xi may herald China’s ruling Communist Party as the key driver of China’s economy, Chinese citizens are presently the biggest national market for CIP programmes.
With over 100,000 Chinese spending in excess of US$24 billion on CIPs in the past 10 years, it’s clear that many affluent Chinese hold concerns about the long-term security of their wealth in China. So, too, potentially their personal safety in a Xi-led China, by many measures growing more authoritarian year by year.
What does it mean for the Caribbean on A local level?
These factors have shown the attraction of the Caribbean and CIPs generally to global citizens. The two key questions now are: What it is about CIPs that entice Caribbean governments to create them? What issues exist that need to be addressed surrounding them?
The first question sees some slight variation between regional nations but there is a common trend throughout. As a whole, the Caribbean region draws significant revenue from the tourism and finance industries. As recent months have painfully shown across many nations, tourism is not immune from the initial impact, or economic aftershocks, of a natural disaster.
Similarly, while Caribbean banks may market themselves as secure and discreet institutions, they are less secure in this status than they were just a year or two ago. After revelations of the Panama Papers in 2015, and the Paradise Papers in November of this year, on December 5 the European Union published a ‘blacklist’ of 17 nations it held to be tax havens. True, this list has been labelled a paper tiger by critics but it’s far better that a country is absent from the list than on it.
Caribbean nations that were named included Saint Lucia, Barbados, Grenada and Trinidad & Tobago. Brussels says they hold outdated or unacceptable tax policies. The list was released in an effort to ‘name and shame’ these nations, and pressure for financial reforms that would align with global standards, specifically around tax minimisation.
To be clear, tax minimisation is legal in many nations, and there is no suggestion any party involved in it has broken the law. Nonetheless, while it may be legal, tax minimisation is certainly unpopular among the masses. It is also unpalatable to many governments around the world, facing pressure from their voting public to address a global economy that at present holds the greatest rich-poor gap since the Gilded Age of the early 1900s. It is no surprise, with the vulnerability of the tourism industry, and the increasing pressure on local banks, that many Caribbean governments are seeking new avenues for growth.
The CIP industry in the Caribbean
CIPs offer a Caribbean government the chance to build on existing industry, and expand anew. Regional governments can create a CIP that complements the tourism and finance industries, while also helping expansion in new areas. The benefits of expansion can be huge for nations otherwise embattled in economic growth by their small population and small geographical size.
Growing a large logistics industry may not be possible for a small regional nation with a small port but having a logistics company CEO pursue a CIP could provide many benefits to the nation: from investment in local maritime infrastructure, to the reassignment of jobs in administration and HR locally, and even the diplomatic ‘soft power’ a nation can use in promoting a magnate’s residence and business operations, to draw other investors to the country.
The benefits of a CIP Beyond business alone, CIPs offer some benefits that might therwise not be apparent.
Many nations have an asylum seeker or refugee programme that will accept residents on a humanitarian basis. Then, after a time, these residents can seek a path to citizenship.
While this process is always an option, for some it will not be a suitable one. Via a CIP, an applicant can pursue a path to citizenship immediately. This could potentially offer a quicker and more seamless process, as well as protection. While protection should be provided to an asylum seeker regardless, the rise of CIPs opens up a new path beyond the traditional route.
Dominica’s cost of US$100,000 for citizenship is not small change but, for someone fleeing a political crisis or another conflict at home that may not qualify them quickly – or at all – for asylum, this option could literally be a life-saving alternative.
Yet, despite the many positive aspects of a CIP, the issues surrounding it can easily outweigh the positives.
What are the chief issues with a CIP?
There are three major issues that are common across all CIP programmes.
The first is the risk of a ‘race to the bottom’. As CIPs grow more popular – especially in a region like the Caribbean where many governments in small nations are enticed by the significant capital a CIP brings – there is the risk of huge competition.
As it is in business, generally competition among nations is a good thing, encouraging innovation and growth among nations.
But even though they resemble them in some aspects, governments are ultimately not businesses. If governments end up competing for who offers the greatest perks in a CIP at the lowest cost, that could quickly become a dangerous issue.
The second issue follows on from this.
As our world becomes more globalised, it is a reality that the tools of conflict and espionage have become more overt. We have seen this in recent times, as many nations around the world wrestle with foreign donation scandals, foreign government-backed fake news, and high-level hacking of vital institutions of government. It is with some irony, then, that many democracies are seeking to shore up their borders in one way, while making it easier than ever for a resident of a foreign power to quickly become a citizen.
While anyone who is a person of good character would surely not be unwelcome if they seek to build a new life in a Caribbean nation, the risk is real of a foreign power using the CIP programme to quickly invest substantial money into a local nation to exert undue influence on its politics.
This is where the third factor comes in: the expectation that the CIP industry does in practice what it is supposed to do in theory. Every reasonable person recognises that what is a rule on paper is not always applied rigidly in practice. Nonetheless, the risk to a whole nation is significant if a local CIP industry is not precise and prudent with its CIP programme but, instead, uses it as a rubber stamp for anyone with the capital to invest, no questions asked.
These are the three major issues in play within the Caribbean at large when it comes to CIPs.
In our next piece on this issue we’ll look at the industry in-depth and how each Caribbean nation’s CIP programme compares, for better and worse.