Preventing Criminality in CIPs

2019 is the 25th anniversary year of St Kitts and Nevis’ Citizenship by Investment Programme (CIP). This anniversary may be cheered each year by financial beancounters inside the nation’s government, but it also remains a controversial date — one that kicked off a new era in which the traditional protections and limitations on citizenship where drastically lowered.

Since then many nations in the Caribbean and globally have introduced their own CIPs. Most recently, a number of new developments surrounding CIPs has altered the dynamics of the industry once more, with fresh concerns surrounding some national CIPs, and doubts raised about the long-term viability of them.

So what does the 25th anniversary of St Kitts and Nevis’ CIP tell us about the progression of the industry? And how may the latest developments impact CIPs locally and around the world? Let’s look now in-depth.

EU Off and On in Enforcement

Though the Caribbean may be the epicentre of the world’s most well known CIPs, it is arguably in Europe that the greatest controversy surrounding them is unfolding at present. Recent months have seen rising tensions between the European Union and member states like Malta and Bulgaria. 

Yet while an EU report in January called for tough crackdowns, since then it’s emerged that the public version of the document released thereafter reportedly stepped back from some of its stronger recommendations, such as the barring of CIP applications for individuals currently on a UN or EU sanctions list. 

Undoubtedly many in the Caribbean will feel there is a certain hypocrisy out of Brussels, given its prior approach to the ‘naming and shaming’ of global havens, which notably excluded known EU havens while listing others further afield. Nonetheless, any clamp down in EU CIPs can have flow-on effects for the Caribbean, especially in an era when a number of other nations have tightened emigration rules, or signified their intent to do so.

The St Kitts and Nevis Experience

St Kitts and Nevis has pioneered the CIP model, and also experienced multiple scandals since its inception. In 2014 the nation recalled its passports issues over the previous two years, following pressure internationally surrounding the apparent abuse of the CIP by those seeking to commit financial crimes. Canadian authorities were so concerned about this risk that they announced in November 2014 that they would require St Kitts and Nevis passport holders to acquire a visa before they entered the nation due to Ottawa’s concerns about the CIP.

Then, during late 2018, it was reported that extensive fraud had been perpetuated in the CIP, with a Dubai-headquartered firm allegedly selling St Kitts and Nevis passports far below the government directed price of $200,000 for real estate investment.For many nations with newer CIPs, the experience of St Kitts and Nevis remains a ‘canary in the coal mine’.

While these nations have surely learned from the experiences of the first nation to offer CIPs, recent years have seen new challenges arise for state security as the digital arena grows, and the ability to penetrate traditional borders and disrupt a nation’s day by day life has grown with it. Simply avoiding known problems without anticipating new ones wouldn’t work here.

Rogue ‘Citizens’ 

While once an individual has citizenship in a nation there is not (usually) an avenue to remove it, recent years have seen the growing recognition of the need for national laws that can be enforced globally. And within them there is potentially an avenue to address a rogue CIP individual. Most prominently this has been seen with the United States’ Magnitsky Act. It was created to allow US law enforcement to sanction who they deem to be human rights offenders, ban them from entry to the US and freeze their assets held in American institutions. Nations like Australia and Norway have also sought to enact laws that would allow their governments to strip dual-citizens of citizenship when having been involved with terrorism. 

When taken together, there is potentially a blueprint here for Caribbean nations, offering a path to seize the assets of the rogue CIP citizen and also to strip them of citizenship, thereby removing their right to reside in their adopted nation.  

Such a path would, of course, come with its own challenges, such as the need to ensure (however appalling their conduct may be) that a CIP individual is not left stateless when stripped of citizenship in the region. Yet because CIPs can easily be acquired without needing to surrender a current citizenship in the native nation, the likelihood of an individual being left stateless is reduced.

Existing Protections in Place

While the risks of a CIP citizen going rogue are not small or insignificant, it does need to be acknowledged that there are pre-existing hurdles and also broader deterrents in place that somewhat diminish the security risks. 

A High-Net-Worth Individual that also holds a prominent place in the private sector is by no means guaranteed to be a model citizen, but their public recognition does guarantee the risk of reputational damage if they are found to be generating outcry in their (adopted) CIP nation. 

Conversely, it’s an unavoidable reality that many nations that offer CIPs also offer a clandestine financial sector to HNWIs globally. This can be an enticement to those who may have acquired their wealth through dubious or even outright criminal means. 

There are existing laws in place to guard against abuses, such as Saint Lucia’s Proceeds of Crime Act. But CIP citizens could be anticipated to have means and ways to evade and frustrate national laws, internationally. So what measures can combat that? As a starting point: a government pursuing reforms that bring greater transparency and the closure of loopholes to its financial sector. This would, in turn, strengthen the security of its CIP against those seeking residency chiefly for the ability to bank money more easily than they could do in their native nation. 

The Cost of Citizenship

Citizenship today has been through a long journey and many evolutions since its origins with the Treaty of Westphalia in 1648. The tight security and restrictions surrounding the acquisition of citizenship — usually available only by birth, a close family link via a parent or martial spouse, or a long emigration process — meant essentially that all nations collectively protected the institution of citizenship. 

The rise of CIPs has changed all that. While a domestic investment is indeed a welcome contribution to a nation, parting with a couple of hundred thousand dollars in order to beome a CIP citizen in the Caribbean is not money that multi-millionaires and billionaires would feel financial pain over giving up.

Put simply, few would hold that financial investment signals strong links to a nation and its people. This is not to suggest that CIPs have no possible benefits, nor that they need to be abolished, but recent events have illustrated that there remains an imbalance between how much a nation charges for a CIP and how little that cost may be to a HNWI. And if citizenship comes cheap to such an individual, it’s unlikely they will ever truly value it.