The urge to escape covid-19 has given it a boost

FOR THE industry’s critics, it is a scandal that exposes exactly what they have been warning about. Many people have an almost instinctive distaste for the business in selling long-term-residence rights in a country or even citizenship there for cash, usually in the form of an authorised investment. So a documentary this month on Al Jazeera, a Qatar-based television channel, seeming to uncover corruption in an “investment migration” scheme offered by Cyprus, did not not seem especially shocking. It showed Cypriot politicians filmed in a sting operation, apparently willing to sell their country’s passport to a (fictitious) Chinese businessman who, in the cover story, had been convicted to seven years in jail for money-laundering, and so should have been ineligible.

For the industry’s practitioners—the consultants, accountants, bankers, wealth managers, lawyers and government departments selling their country’s charms—this is a blow. Although the politicians involved have protested their innocence, Cyprus has suspended its “golden passport” scheme from November 1st. European Union officials in Brussels and members of the European Parliament were already hostile to such schemes. And in response to the latest scandal, the European Commission has begun legal action (“infringement procedures”) to investigate both Cyprus’s scheme and one offered by Malta. It is an extremely sensitive issue for the EU. On the one hand, no issue is more jealousy guarded as a “national” competence than whom a country allows to be a citizen. On the other hand, a passport from an EU member confers the right to live and work anywhere in the EU; and a “Schengen” visa allows free travel to 22 EU members and four other countries.

Defenders of the schemes insist that criminals seeking a bolthole are the exception, and that they are making great strides in imposing stricter “due diligence” standards. The vast majority of their customers, they argue, are honest, respectable people with a legitimate hankering after an alternative to the passport and residence rights they acquired by the lottery of birth. The loss of Cyprus restricts their options. But there are plenty of others, and demand is booming, despite the huge decline in global mobility brought by the pandemic. Indeed, covid-19 has spurred interest in investment migration.

“The industry is not merely robust in turbulence,” says Christian Nesheim, editor of Investment Migration Insider, a trade journal, “it thrives on it.” Indeed it really took off partly as a response to the global financial crisis of 2007-08. Like so many other businesses, it ground to a halt in the early days of the pandemic, as travel became impossible for much of the world and governments stopped processing paperwork. But since then it has enjoyed “more demand than we have ever seen”, in the words of Paddy Blewer of Henley & Partners, which advises both individuals seeking new residence or citizenship and governments designing programmes for them. People in countries with high infection rates and creaking health services began to see that as a reason to move elsewhere. And people with passports that had previously found themselves able to travel the world more or less unimpeded found their countries on banned or quarantine lists. At the beginning of the year, for example, according to Henley’s research, an American passport entitled its holder to travel to 185 countries without first securing a visa. That number has since shrunk to fewer than 75.

Around the world, nearly 100 countries offer a “residence by investment” programme, including many of the world’s richest countries, such as America, Australia, Britain and New Zealand. Only a dozen or so countries offer citizenship—including five Caribbean island-states (Antigua and Barbuda, Dominic, Grenada, St Kitts and St Lucia), a Pacific one (Vanuatu), Jordan, Turkey and, within the European Union, Austria, Bulgaria and Malta (as well as, until the end of the month, Cyprus). The citizenship or residence by investment (CRBI) business traces its ancestry to a law passed in 1984 in tiny St Kitts and Nevis, offering citizenship to foreigners who made a “substantial” investment. How substantial varies from country to country. In Cyprus’s case at least €2m ($2.3m) in investment, usually in property, is required. Malta demands a “donation” of €650,000 to a government fund, €150,000 invested in government bonds and a property purchase or long-term lease. Research this subject online, and you will soon be seeing advertisements offering a choice of Caribbean citizenships “from $150,000”.

Al Jazeera’s choice of a Chinese applicant made sense, China is by far the biggest market for most CRBI schemes. Much the most popular destination for Chinese investment migrants is America. But the waiting-list for Chinese applicants to America’s “EB-5” long-term visa programme is 10-15 years. The EU is a good second choice. The commonest reason Chinese people want residence elsewhere is education. Parents want to spare their offspring the gruelling university-entrance exam, the gaokao. And they believe that a foreign education will open up opportunities unavailable at home. Even childless Chinese also see the attractions of a “plan B” should they find the political or economic climate in China inhospitable.

China’s success in containing the virus and the deterioration in its relations with America and some other countries have done nothing, apparently, to dent demand this year. A worsening climate of repression continues to make the option of an alternative residence abroad seem desirable. That is especially true in Hong Kong since the imposition in June of a draconian national-security law. In fact, many Hong Kong residents already have a second potential home. In the 1980s and 1990s, as the handover from British to Chinese sovereignty in 1997 loomed, Hong Kong was a big driver of the growth of the CRBI industry.

Bruno L’ecuyer, chief executive of the Investment Migration Council, an industry lobbying group, says demand is also increasing during the pandemic in other big markets such as India and Russia. And the Middle East seems to be behind the rapid growth in Turkey’s citizenship by investment programme, which granted 4,000 passports between March and May. Worldwide, says Mr L’ecuyer, the business is “slowly becoming more mainstream”. It is no longer just for the “ultra” and “very high net-worth” individuals. These days, it seems, merely very rich will do.

What has been new during the pandemic is burgeoning interest from countries previously seen as destinations rather than sources of investment migration, such as Britain, and, in particular, America, which has, as Mr Nesheim points out, far more very rich people than any other country. In Britain, interest in second passports or residences has been increasing ever since the country voted for Brexit in 2016. In America, the election of Donald Trump that year had a similar effect. In both countries, the pandemic has accelerated the trend. Henley reports an increase of 238% in inquiries from Americans in the first nine months of this year compared with the same period in 2019, though they still make up only a small percentage of the global business’s overall numbers.

Indeed, those numbers themselves are fairly small—about 5,000 passports a year, and several times that number of long-term resident’s visas. And the industry likes to point to the good done with the large sums of money raised from investors—facilitating the rebuilding of Dominica after Hurricane Maria in late 2017, for example; or Cyprus’s recovery from the financial crisis. In Dominica the citizenship by investment programme was forecast by the government to make up 51% of recurrent government revenue and 25% of GDP this year. Doubtless, as minds turn to the cost of recovery from the pandemic, many governments will find investment migration’s attractions hard to resist. The industry is confident Cyprus’s scheme will be back.

Source: economist.com
Published: 20 October 2020