Got $100K? $500K? $3M? Ultra-Rich Americans Are Spending Big On Second Passports
Even before the pandemic, the American passport had been in decline, sliding in the past five years from first place to being tied for seventh on the latest Henley Passport Index, a ranking of the world’s most powerful passports.
Since March, the United States’ inability to control the spread of COVID-19 has led to an even more spectacular fall from grace. Holders of what was once a no-visa-required pass into nearly 200 countries are now barred from traveling to most of Europe, Asia and even Canada.
Of course, if you’ve got enough money, there is always a workaround. For anywhere from $100,000 to several million dollars, you can buy a second — or a third — passport through a Citizenship by Investment Program (CIP), which allows you to invest in a country in exchange for citizenship. While these programs have been around for decades, firms that facilitate the buy-in process are seeing a noticeable increase in interest from Americans.
“The virus has been a major driver of engagement,” says Paddy Blewer, a director at Henley & Partners, a global citizenship advisory firm based in London that has seen a 60% year-over-year increase in Americans interested in citizenship programs.
While the average American may view the pandemic as a temporary crisis, the uber rich see a more troubling, permanent crack in their financial security. “The virus demonstrated that US citizenship is not as strong as it was once assumed it would always be. Yes, at the moment, Americans can’t travel, but they also understand the longer term consequences,” says Blewer. “So they’re making an investment as a hedge against longer-term volatility. It’s about ‘what is the world going to look like in 10 years time?’ Citizenship by investment can be a real hedge against local volatility.”
“The reasons people generally get second citizenship through these investment programs is because they are very restricted by their own citizenship,” says Nuri Katz, president of international investment advisory firm Apex Capital Partners Corporation.
For wealthy travelers used to going where they want, when they want, this new lack of freedom is having a profound psychological impact. “Americans have never felt like what a person from Russia feels — an educated, middle class, wealthy Russian — or a wealthy Chinese person, who is also very restricted,” says Katz. “Suddenly Americans have to think about, ‘wait, I can’t go anywhere,’ and that feeling of restriction when you’re used to feeling freedom is very upsetting and very worrisome. They are expressing themselves in a way that I’m used to foreigners expressing themselves who have been living with these restrictions their whole lives. It’s a really interesting phenomenon.”
For wealthy Americans who want to play in a global sandbox, investment migration provides a competitive advantage. “Three separate investment bankers have told me that their clients are looking at building multi-million dollar international portfolios and that it would be an awful lot easier to do it if they weren’t going in under an American passport,” says Blewer.
“It has simply become harder for Americans to be global,” he continues. “People of high net worth are used to being able to live the life they want to and build the businesses they want to — and at the moment they can’t. So this is not about emigration. It’s about optionality.”
So where does a wealthy American globalist start shopping for a second citizenship?
More than 60 nations, the U.S. included, allow legal residents the opportunity to apply for citizenship after meeting certain criteria. But only about a dozen countries allow non-residents to purchase citizenship outright, typically through a payment in the form of a direct investment in the local economy, often through a real estate development or other business venture.
In the Caribbean, popular options include Antigua and Barbuda, Anguilla, Dominica, Grenada, St. Lucia and St. Kitts and Nevis. In Europe, there are programs in Austria, Cyprus, Malta, Moldova, Montenegro, Turkey and Portugal.
One big consideration is cost. On the low end, citizenship in the Caribbean island Dominica (not to be confused with the Dominican Republic) can be purchased for $100,000 for an individual or $200,000 for a family of four. Among the benefits, there is no income tax on non-resident citizens and all citizens are granted visa-free travel to the 26 European countries in the Schengen zone.
Meanwhile, Montenegro is Europe’s cheapest citizenship program, which costs roughly €450,000, or the equivalent of $532,000. Montenegro is on the path to European Union membership and its citizens have visa-free access to Schengen-zone countries. The other European programs typically require more substantial investments, ranging from $1.4 million for Malta to $9.5 million for Austria.
“So, obviously, a lot fewer people can afford half a million dollars than can afford $100,000,” says Katz. “Also, Americans understand the Caribbean because it’s close and it’s easily accessible.”
Another consideration is time. For an applicant going through a Caribbean CIP, it typically takes several months to obtain citizenship. “All the countries do their very, very serious due diligence and background checks on applicants,” says Katz. “You can’t get around that.”
But the European CIPs tend to have considerably higher barriers to entry, and the application process takes longer to wrap up. “I think it’s fair to say that an awful lot of Americans are doing a Caribbean citizenship as a bridge to a traditional European citizenship,” says Blewer. “They’re actually looking at European citizenship — whether that is Montenegro, Cyprus, Malta, or Austria, depending on their needs, depending on their investment level, depending on where they want to build their businesses and have alternative centers of gravity — but all of those programs take over a year.” Citizenship through Portugal’s CIP typically takes six years.
It’s reasonable to expect more Citizenship-by-Investment Programs to pop up in the near future. “A lot of small countries have been looking at citizenship programs for quite a while now. I’ve personally been approached by three countries who want to start doing them,” says Katz. “The South American countries are trying to create them, and some of the small, developing islands in the Pacific are looking at doing this.”
Published: 15 August 2020