Sense and Nonsense About Citizenship by Investment

Sense and Nonsense About Citizenship by Investment

By Mark Nestmann • February 7, 2017

Through an accident of birth, I and over 280 million other people are native-born US citizens. Unless we owe the IRS more than $50,000, or are otherwise ineligible, this status entitles us to carry a US passport. It is one of the world’s premier travel documents, providing us the right to enter more than 170 other countries either without a visa, or by obtaining a visa on arrival.

Another billion or so people live in countries – I’ll call them “passport heavens” – that give their citizens the right to hold a passport providing visa-free entry to at least 140 countries. But many more people – at least 4.5 billion in all – live in nations that issue passports permitting visa-free travel to fewer than 60 countries.

These “passport hells” include the world’s most populous nations: India (permitting visa-free entry into 52 countries) and China (50). They also include all of the Muslim-dominated nations included in President Trump’s recent travel ban: Iran (37), Iraq (30), Syria (32), Sudan (37), Libya (36), Yemen (38) and Somalia (31).

It was with this background in mind that I settled into my armchair on January 1, 2017, to watch “Passports for Sale,” on the CBS 60 Minutes program. Veteran journalist Steve Kroft – a native-born US citizen – was the correspondent.

Kroft carried out a series of interviews, mainly with opponents of citizenship-by-investment (CBI) programs. These CBI programs, which I’ve helped clients navigate for over a decade, provide the opportunity to escape from a “bad” citizenship acquired as an accident of birth. The total costs for this option start at about $130,000 for a single applicant, including all fees.

In the case of US citizens living abroad, citizenship-by-investment programs are the easiest way to acquire a second nationality and subsequently surrender US citizenship. “Expatriation” is a radical step, but it’s also the only way that a US citizen can permanently end the obligation to pay tax on his or her worldwide income and comply with onerous US tax and reporting obligations.

There’s a phenomenon at work here as well. In a world where governments are erecting increasingly stringent barriers to entry, it should come as no surprise that the market has responded, in the form of CBI programs.

Kroft derides all of them as “mail-order citizenship.” While that’s a convenient sound bite, our experience with these programs demonstrates that acquiring a second nationality isn’t quite as simple as, say, ordering a refrigerator filter on Amazon.

The nation with the CBI program that received the most criticism on 60 Minutes was the Commonwealth of Dominica. The Nestmann Group has been a licensed agent for this program for nearly a decade; in this period, we’ve helped nearly 100 individuals and families obtain Dominica passports. We’ve assisted victims of sexual violence, entrepreneurs under attack for failing to bribe government officials, and Americans seeking to expatriate, among others. So while the CBI market isn’t perfect, it’s a necessary outlet in a world constantly erecting barriers to the free movement of vulnerable people.

Kroft, in contrast, views “mail-order passports” as a security risk to US border enforcement policies. As he put it:

It’s a legal way to circumvent visa controls that nations set up to screen people coming into their country.

That’s factually correct – the point is that it’s become increasingly difficult to qualify for a visa at all, especially if you live in a passport hell.

Kroft continues:

But it’s also an opportunity for shady characters to mask their true identities, and avoid suspicion as they travel around the globe.

In my experience, that’s simply not true. For instance, here’s a partial list of the documentation you need to provide to the Dominica government in order to acquire citizenship by investment there:

  • Criminal background check not more than 90 days old from your country of birth and every country you have lived in more than six months;

  • Birth certificate;

  • National identity card;

  • Proof of residential address;

  • Personal and professional references;

  • Bank reference;

  • List of other citizenships;

  • Details of any litigation you have been involved in;

  • A detailed statement of the source of funds to be used to pay for the contribution or real estate investment used to qualify for citizenship; and

  • A balance sheet of assets and liabilities.

All this information and much more is passed on to an investigative firm retained by the government of Dominica. At the applicant’s expense, all this information must be verified. If it cannot be verified, the applicant won’t receive citizenship – or a second passport.

That’s not enough for Kroft and others who benefit mightily from the accident of birth that gave them US citizenship. He notes approvingly that President Trump’s appointee to head the Department of Homeland Security, John Kelly, declared in 2016 that “cash-for-passport programs could be exploited by criminals, terrorists, or other nefarious actors.”

I can’t truthfully say that this statement is 100% false; Kroft provided numerous examples of situations where “nefarious actors” had obtained second passports. Most of them, though, involved the sale of diplomatic passports. No citizenship-by-investment program authorizes the sale of such documents. So while it may be true that corrupt politicians occasionally sell diplomatic passports to criminals or terrorists, these actions have nothing to do with legitimate CBI programs.

The advantages of a second citizenship and passport boil down to one core principle: freedom.

Your passport is the property of the government that issued it. If your government decides it doesn’t want you to travel internationally, it can simply revoke your passport, leaving you trapped in that country. And if an accident of birth traps you in a passport hell, it’s increasingly difficult to relocate or even visit a passport heaven, even if you have a valid passport .

This type of travel restriction is not a complicated concept to understand. At least one high-level advisor to President Donald Trump gets it. Billionaire and Silicon Valley entrepreneur Peter Thiel was granted New Zealand citizenship in 2011. It’s his third citizenship, along with one from Germany, where he was born, and the US, where he was naturalized.

Incidentally, New Zealand doesn’t have a citizenship-by-investment program. Ordinarily, you can acquire citizenship there only after a period of prolonged residence. Media reports indicate Thiel couldn’t have qualified that way. But like almost every other country in the world, New Zealand law permits the government to award citizenship – and a passport – to an individual who provides outstanding service to the nation. That’s almost certainly what happened in his case.

If you’re interested in a second citizenship and passport, caution is the watchword. Like it or not, if you’re looking for a second passport, there are only a few legitimate options. The best way to qualify for one is through your ancestry. If your parents (sometimes grandparents) were born in another country, there’s a good chance you qualify for citizenship there. Ireland is the best-known example, but there are many others. To find out, do some research on the internet or contact the nearest consulate of that country to see if you qualify.

Another route to a second passport is your spouse. If he or she has a citizenship other than the one you have, there’s likely a procedure in place by which you can acquire it as well. Again, do some research to find out.

A third option is ordinary naturalization in another country. In most cases, that requires that you first qualify for residence. You must then live in that country for at least two years (more commonly, five to 10 years) before you qualify for citizenship. Once you do, you can then apply for a passport. Argentina, Peru, and the Dominican Republic are probably the easiest countries to qualify for citizenship after a relatively short period of legal residence.

Finally, there are the citizenship-by-investment programs. I’ve investigated seven of them that are of unquestioned legitimacy: Antigua & Barbuda, Cyprus, Dominica, Grenada, Malta, St. Kitts & Nevis, and St. Lucia.

But I’ve also seen “instant” passports offered from Belize, Bulgaria, the Dominican Republic, Mexico, Nicaragua, and Suriname, among other countries. These documents are all fakes or genuine passports issued illegally. These are the travel documents used by “shady characters [masking] their true identities.” If you get caught with one, you’ll have serious problems. At the minimum, you’ll have your passport confiscated. In many countries, you could face imprisonment.

Let’s be careful out there!

Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.

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About The Author

Since 1990, Mark Nestmann has helped thousands of clients seeking wealth preservation and international tax planning solutions. He is the author of highly acclaimed Lifeboat Strategy and other books & reports dealing with these subjects.

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