Here’s One Fight Uncle Sam Can’t Win

Just the other week, I witnessed economic imperialism at work. It came courtesy of a secretive US Treasury bureau called the Financial Crimes Enforcement Network (FinCEN).

The event occurred while I was visiting the island of Nevis. On May 20, FinCEN issued an “Advisory” that warned banks worldwide to apply special scrutiny to individuals identifying themselves as citizens of St. Kitts & Nevis.

The Federation of St. Kitts & Nevis is one of a handful of countries that offer “economic citizenship” to individuals who can ante up a six-figure sum and pass a stringent background check.

The process takes as little as four months. That’s much faster than the traditional way of seeking citizenship through a period of extended residence, which, in the case of St. Kitts & Nevis, would require 12 years.

Obviously, economic citizenship saves a great deal of time over traditional ways of seeking a second passport. But according to FinCEN, certain individuals are “abusing” the St. Kitts & Nevis passport program “for the purpose of engaging in illicit financial activity.” Supposedly, the program “is attractive to illicit actors because the program, as administered, maintains lax controls as to who may be granted citizenship.”

“Illicit actors” is a code phrase for “terrorists.” Specifically, “Iranian terrorists.” FinCEN says that, on at least six occasions, St. Kitts & Nevis committed the heinous crime of issuing passports to Iranian citizens on a “blacklist” compiled by another secretive Treasury agency, the Office of Foreign Assets Control (OFAC).

This isn’t the place to debate the wisdom of the OFAC blacklist or America’s undeclared financial war on Iran. The war’s purpose is to construct a global network of economic sanctions purportedly intended to prevent Iran’s Islamist government from developing nuclear weapons. St. Kitts & Nevis has already fallen into line in this war by promising not to issue passports to Iranian citizens.

Apparently, FinCEN doesn’t believe that St. Kitts & Nevis is trying hard enough to exclude Iranians from its economic citizenship program. And there’s more than just a hint of hypocrisy in that position. At least one other entrant in the economic citizenship market – Antigua – has no outright prohibition against Iranian applicants.

This isn’t the first time that St. Kitts & Nevis has come under the stern gaze of its powerful northern neighbor. In 2000, FinCEN issued another Advisory against St. Kitts & Nevis, warning US financial institutions to give “enhanced scrutiny to all financial transactions originating in or routed to or through the Federation of St. Kitts and Nevis, or involving entities organized or domiciled, or persons maintaining accounts, in St. Kitts and Nevis.”

At that time, FinCEN was upset because a secretive non-governmental organization, the Financial Action Task Force on Money Laundering (FATF) had identified St. Kitts & Nevis as being “non-cooperative in the fight against money laundering.” At the time, St. Kitts & Nevis didn’t appreciate being singled out as a haven for financial criminality. After all, every serious study of money laundering had concluded that most of it is conducted in the world’s largest financial centers: New York City and London, to be exact.

In spite of the reeking hypocrisy, St. Kitts & Nevis obligingly enacted stringent anti-laundering laws later that year. In response, not long after FinCEN issued that Advisory in 2000 against St. Kitts & Nevis, it was withdrawn.

I can personally attest to the rigor of these requirements. When I opened an account in Nevis last week, I discovered that banks there require far more documentation than in the US.

The same thing will happen this time, too. St. Kitts & Nevis will adapt and FinCEN will eventually withdraw the Advisory. Prime Minister Denzil Douglas has promised to “protect and defend” the economic citizenship program. I think he’ll succeed.

I had the privilege of sharing a meal with someone who had attended a private briefing by Mr. Douglas dealing with the FinCEN announcement. In that forum, the prime minister stressed that he felt St. Kitts & Nevis was being unfairly targeted. But both at that meeting and in a subsequent public statement, Mr. Douglas made clear that the program will remain in place. It brings in too much revenue not to survive.

The International Monetary Fund (IMF) agrees, and with good reason. In 2012, international banks reluctantly accepted a debt exchange package on $150 million of St. Kitts & Nevis’s outstanding debt, which required the banks to take deep haircuts. The megabanks that control the global financial system don’t want the IMF to let it happen again. In response, the IMF has reluctantly signed off on the program. Unless the US wants to turn the job of supporting St. Kitts & Nevis over to its taxpayers, there’s not much it can do about that country’s economic citizenship program.

Not that you’d be able to predict that from the anguished bleatings of other commentators on the offshore beat. One editor called FinCEN’s announcement “a death sentence for the economic citizenship program.” Another called it “an attack by the US government attempting to make it harder for their citizens to get foreign citizenship.”

Give me a break. If the US wants to shut down economic citizenship programs, it’s not been very successful at it. In just the last 18 months, at least four countries have announced new economic citizenship programs: Antigua and Grenada in the Caribbean, and Cyprus and Malta in the EU.

Economic citizenship programs are proliferating. That’s something to celebrate. These programs are a bracing antidote to the increasing tendency of governments to impose travel restrictions against their citizens, using passports as weapons. This has long been the policy of authoritarian governments like North Korea and China. But in recent years, the US and UK have made much greater use of passport revocations and even involuntary loss of citizenship against persons they perceive as “enemies of the state.”

Is it really surprising that a market has arisen to deal with these draconian restrictions on one of humanity’s most basic rights, the right to leave one’s own country? Economic citizenship programs are here to stay, whether Uncle Sam likes them or not.

Mark Nestmann

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