Europe’s Tantrum Over Citizenship by Investment

We’ve long recommended to our clients that they acquire a second citizenship and passport.

The rationale for acquiring an alternative nationality boils down to one principle: freedom. The passport you carry doesn’t belong to you. It can be taken away if you violate a growing number of laws, including, in the United States, having a “seriously delinquent tax debt.”

Having a second citizenship and passport makes sense for just about anyone – just in case.

Tens of millions of US citizens are eligible for a second citizenship and passport based on their ancestry. If your parents (and sometimes grandparents or even great-grandparents) were born in another country, it’s likely you can claim citizenship there, although a short period of residency might be required. Ireland and Italy, both members of the European Union, have some of the most liberal rules in this regard.

You could also gain citizenship through marriage. If your spouse is a citizen of another country, it’s likely you could qualify for that citizenship as well, although again, you’ll probably need to reside there for a few years before you get it.

Those with a certain religion – Judaism and Thai Buddhism specifically – are able to claim Israeli or Thai citizenship based on that religion.

The most common way to obtain a second citizenship, though, is to become a naturalized citizen through an extended period of legal residency along with proof of societal integration and proficiency in the local language. Naturalization generally requires five or more years of residency.

Unfortunately, the vast majority of people who want second citizenship don’t qualify for it in any of these ways. And thus, 40 years ago, the world’s first modern citizenship by investment (CBI) program came into existence, in the Federation of St. Kitts & Nevis. Since then, more than 20 such schemes have come and gone, with 11 of them currently active. Five of them – Antigua & Barbuda, the Commonwealth of Dominica, Grenada, St. Lucia, and St. Kitts & Nevis – are from small island countries in the Caribbean.

The value proposition for CBI for small island nations is compelling. CBI gives their economies a source of revenue independent from tourism and agriculture, the traditional economic mainstays in the Caribbean. That became especially important in the 1980s, when sugar production – long the backbone of Caribbean island economies – began to decline. For instance, St. Kitts shut down its last sugar factory in 2005 after the debts of the state-owned sugar industry reached nearly a third of the country’s GDP.

Caribbean CBI revenues became indispensable during the COVID shutdowns; a time when tourism effectively ended. In St. Kitts & Nevis, CBI accounts for around 40% of the island government’s income; in the Commonwealth of Dominica, it’s even higher; over 50%.

The value proposition for individuals who acquire a second nationality through a CBI program is equally clear. Most people who purchase CBI are from countries whose passports offer limited visa-free travel options, such as China and India. A Chinese passport offers visa-free entry, or entry with minimal visa formalities to only 80 countries. St. Kitts & Nevis provides comparable access to 155 countries, including all 27 members of the European Union.

But CBI programs (and residence by investment programs, or RBI) are controversial. In 2018, the Organization for Economic Cooperation and Development (OECD) released a report claiming these programs were a threat to a global tax collection initiative called the “common reporting standard” It also released a blacklist of countries it claimed had abusive CBI and RBI programs. The list included every such program then existing, except (naturally) those in OECD member countries.  

Also in 2018, the European Parliament issued a report claiming that CBI devalues the concept of citizenship because there’s no real commitment to forging a new identity in a person’s adopted country.

The campaign against RBI and CBI programs intensified in 2019, when the European Commission (EC) released a report focusing on the purported risks of investment migration schemes. It claimed that the programs threatened border security and encouraged tax evasion, money laundering, and corruption.

We believe these concerns are grossly exaggerated. Every CBI program requires applicants to undergo a rigorous due diligence review. That process is far more comprehensive than required to qualify for citizenship through ordinary immigration. And there’s no due diligence required whatsoever for someone who simply sneaks across a border and takes up residence in another country.

With that background in mind, we were disappointed to learn of the July 19 announcement from the UK Home Office that effective immediately, citizens of Dominica and Vanuatu, two countries with CBI programs, would need to obtain visas before visiting or transiting the United Kingdom. Both Dominica and Vanuatu were accused of granting citizenship “to individuals known to pose a risk to the UK.” However, the statement didn’t outline specific examples of how these countries’ CBI programs were endangering the United Kingdom.

Then on July 26, a “reliable source” within the European Commission – the governing body for EU affairs – revealed that the European Union was about to implement six specific demands for “third country” (i.e., outside the European Union) CBI programs:

1. Enhanced due diligence on all applicants to be conducted by reputable EU, US, or UK due diligence firms.

2. Mandatory interviews for all CBI applicants, either in person or virtually.

3. Ending delivery of certificates of nationality through the mail or courier services. Instead, new citizens should collect these documents in person in their adopted country or at one of its diplomatic outposts.

4. Increasing the minimum threshold to qualify for CBI to US $200,000 (per single applicant) for donations or US $400,000 for real estate investments.

5. Requiring that CBI payments must be sent directly the country offering citizenship, rather than through an intermediary.

6. Ending all promotions for CBI that mentions the benefit of visa-free access to EU countries.

Remarkably, only a day later (July 27), St. Kitts & Nevis announced changes to its citizenship program that mirror the EU demands point-by-point. The wording of this press release, combined with the new regulations sent to agents for the program, make it clear that the St. Kitts & Nevis government is determined to preserve visa-free access to the European Union.

Meanwhile, on July 21, the European Union agreed to set up a committee to discuss and restructure OECS-based CBI programs. As part of this process, we anticipate major changes to these programs along the lines of what’s just been announced in St. Kitts & Nevis.

So what’s next for CBI? We anticipate a bifurcation of CBI programs into market segments that cater to applicants seeking visa-free access to EU countries and those that don’t. CBI programs from countries that don’t have visa-free EU access, such as Vanuatu, will be priced lower than those that do, such as St. Kitts & Nevis.

In the meantime, there’s a window of opportunity to acquire CBI from legacy CBI programs before these more stringent conditions become effective. The best established such program is from Dominica, for which The Nestmann Group is an authorized agent.

If Dominica wishes to maintain visa-free access to the European Union, it will need to increase the required donation for a single applicant from $100,000 to $200,000 or more in the next few months. But for the moment, the $100,000 minimum donation remains in place. If you’re interested in Dominica citizenship at the current price, we suggest you contact us immediately at service@nestmann.com to begin the application process.