A Passport of Convenience

• Author: Judith Gold and Ahmed El-Ashram

A Passport of Convenience Finance & Development, December 2015, Vol. 52, No. 4

Judith Gold and Ahmed El-Ashram

Offering citizenship in return for investment is a win-win for some small states

“Are you a Global Citizen? Let us help you become one.” You may have seen such an advertisement in an in-flight magazine designed to lure some business class passengers, largely from less-developed economies, into acquiring a passport that can smooth their entry at the border of their next destination. A whole new industry of residence and citizenship planning has emerged over the past few years, catering to a small but rapidly growing number of wealthy individuals interested in acquiring the privileges of visa-free travel or the right to reside across much of the developed world, in exchange for a significant financial investment.

A growing phenomenonThe rapid growth of private wealth, especially in emerging market economies, has led to a significant increase in affluent people interested in greater global mobility and fewer travel obstacles posed by visa restrictions, which became increasingly burdensome after the terrorist attacks of September 11, 2001. This prompted a recent proliferation of so-called citizenship-by-investment or economic citizenship programs, which allow high-net-worth people from developing or emerging economy countries to legitimately acquire passports that facilitate international travel. In exchange, countries administering such programs receive a significant financial investment in their domestic economy. Also contributing to the rapid growth of such programs is the pursuit of political and economic safe havens, in a deteriorating geopolitical climate and amid increased security concerns. Other considerations include estate and tax planning.

Economic citizenship programs are administered by a growing number of small states in the Caribbean and Europe. Their primary appeal is that they confer citizenship with minimal to no residency requirements. Dominica, St. Kitts and Nevis, and several Pacific island nations have had such programs for years: the St. Kitts and Nevis program dates back to 1984. More recently, a number of new programs have been introduced or revived, including by Antigua and Barbuda, Grenada, and Malta, with St. Lucia the most recent addition to the list. While some of these programs have been in place for years, they have only recently seen a substantial increase in applicants, with a corresponding surge in capital inflows.

Similarly, economic residency programs were recently launched across a wide range of (generally much larger) European countries, including Bulgaria, France, Hungary, Ireland, the Netherlands, Portugal, and Spain. Almost half of EU member states now have a dedicated immigrant investor route. Also known as golden visa programs, these arrangements give investors residency rights—and access to all 26 Schengen Area countries, which have agreed to allow free movement of their citizens across their respective borders—while imposing minimal residency requirements (see table). Although these programs differ in that one confers permanent citizenship while the other provides just a residency permit, they both allow access to a large number of countries with minimal residency requirements, in return for a substantial investment in their economies (see Chart 1).

In contrast, some advanced economies, such as Canada, the United Kingdom, and the United States, have had immigrant investor programs since the late 1980s or early 1990s, offering a...