In the intricate landscape of global finance, Investment Migration (IM) programmes, often labelled ‘Golden Visas,’ emerge as pivotal tools, particularly for smaller nations. These programmes, aimed at attracting foreign direct investment, skilled professionals, job opportunities, and economic growth, carry undeniable benefits. However, their alluring promise is not without complexities – controversies arise when due diligence is neglected and oversight falters.
IM refers to obtaining citizenship or residency in a foreign country through financial investment. Highly successful entrepreneurs, industry leaders, talented individuals seeking better opportunities, and people from all around the world looking for a better lifestyle, faster processing in visa applications, safer living environments, and more freedom can apply for a second passport or residency in their desired country. This allows them to grow and prosper and offer their families a better future.
Investment by migration is estimated to be a 20-billion-dollar industry globally, generating significant societal and economic benefits and noticeable contributions to GDP.
Investment migration programmes can substantially contribute to a country’s GDP, particularly in smaller states with limited resources, and fragile economies usually dependent on tourism.
“It is unfortunate that the sector remains largely unregulated, with only a handful of countries having established an independent regulator to oversee the operation of their programmes.”
Investment Migration Council (IMC) CEO, Bruno L’ecuyer
With the world’s prevailing economic and political uncertainties, programmes such as these will likely become more critical due to increasing debt and climate change. According to McKinsey, following the end of the pandemic, many governments, even those in advanced economies, need to figure out how to address their rising fiscal challenges.
Investment migration programmes can provide a much-needed economic boost to countries, especially during challenging times. The situation is becoming even more arduous with the Ukrainian war in Europe and significant disturbances in the Middle East.
However, the substantial inflow of Foreign Direct Investment (FDI) generated through citizenship or residence programs has triggered alarms, particularly in the European Union (EU), placing the sector under increased scrutiny.
Citizenship as the ultimate, random lottery? The philosophical and legal dilemmas
Citizenship, often considered the ultimate random lottery, sparks philosophical and legal debates, especially regarding its acquisition through investment. Dimitry Kochenov, a distinguished legal studies professor at the Central European University, delves into ethical concerns in his article ‘Sacred Citizenship: Its Hypocrisy, Its Randomness, Its Price,’ published in the Investment Migration Yearbook (2018-2019). In his seminal article, Kochenov challenges the sanctity tied to citizenship solely by birthright, countering critics who see it as morally untouchable and not meant for financial transactions.
Emphasising the question of citizenship’s essence, he contends, “Once the inevitable randomness of exclusion is admitted, we need to ask what citizenship is actually about.” Kochenov asserts that a strict non-discrimination approach neglects citizenship’s key function—random exclusion—essential for territorial, dignitary, and political delineation.
“A strict non-discrimination approach would deprive citizenship of its main – and ultimately only key function – i.e. random exclusion of large parts of society from territory, dignity and political life.”
Kochenov underscores that opposing the sale of citizenship on moral or ethical grounds means forgetting citizenship’s true nature and acquisition. In his perspective, citizenship signifies the last feudal remnant in a merit-based world, with arguments against investment migration missing this crucial point.
The EU’s Dilemmas and Opportunities
Despite expressing legitimate concerns about money laundering, security risks, tax evasion, and corruption associated with Investment Migration (IM) and Residency By Investment (RBI) programmes, a significant number of EU member states, alongside the UK, have actively participated in these initiatives. While acquiring citizenship, national laws and EU law are rather clear: citizenship matters and the criteria for acquiring citizenship remains – at least for the moment – the sole competence of the Sovereign States/EU Member States.
As of 2020, half of the EU member states hosted IM and RBI initiatives, with notable beneficiaries including Portugal, Greece, Malta, Spain, Italy, and Austria. This nuanced dynamic highlights a certain complexity in the EU’s approach. Some argue that the simultaneous engagement of many EU members in these programs raises questions about the challenges of finding a balanced stance, emphasising the need for careful consideration and ongoing dialogue on investment migration issues.
Improved Due Diligence and Greater Scrutiny as the Way Forward
As EU institutions such as the European Commission have discussed stricter regulations for residency programmes, the Investment Migration Council (IMC), the global forum for investment migration stakeholders that establishes standards, qualifications, and conducts research, has welcomed the report published by the FATF and OECD on “Misuse of Citizenship and Residency by Investment Programmes” in November 2023.
The IMC fully supports elevated global standards to prevent industry money laundering and financial crimes. They advocate continuous collaboration and adherence to international standards to improve the industry and are dedicated to actively implementing these recommendations.
Investment Migration has received considerable negative publicity lately. However, there is still a promising future for countries willing to adopt a rigorous approach to ensure proper due diligence and coordinated efforts at the EU level for CBI, IM, and RBI programmes.
Led by CEO Bruno L’ecuyer, the IMC is calling for the standardisation of due diligence practices and specialised training to address concerns while still maintaining the economic advantages of IM. Bruno emphasises the urgent need for effective oversight to prevent any potential misuse while still preserving the economic benefits of IM.
“If the EU tightens regulations on IM, CBI, and RBI programmes, smaller nations with fragile economies such as Caribbean states will bear the brunt. These countries already struggle with climate change, often exacerbated by wealthier states – a truly ironic situation.”
“It is unfortunate that the sector remains largely unregulated, with only a handful of countries having established an independent regulator to oversee the operation of their programmes. All those working in the field of investment migration – within or outside of Europe – should join the IMC’s efforts and work together to put an end to the abuse of investment migration initiatives and maintain high standards for the industry,” concluded the CEO of IMC.
A Critical Role in Smaller States’ Economies
Investment migration is crucial for smaller nations. It provides an economic boost and serves as a lifeline for these countries, which may otherwise lack the natural resources and affluence to sustain their financial wellbeing. Through programmes such as these, governments can secure funding for critical activities, such as disaster relief and social projects, that align with the UN’s sustainable development goals.
Brenda Floissac Fleming, managing partner at Polaris in Saint Lucia, notes, “The citizenship by investment program has been an enormous positive impact on the country’s economy, especially since tourism, the main source of income, was on hold during the pandemic.”
Christian Kälin, chairman of Henley & Partners, highlights the societal value created by well-run investment migration programs, particularly during economic stress. “The injection of liquidity into small and isolated economies reliant on tourism and trade can, literally, be a lifesaver,” he states.
Investment Migration as a catalyst for economic well-being
Investment Migration programmes, when conducted legally, offer substantial global benefits. In the US, the EB-5 Immigrant Investor Program attracts economically successful individuals, contributing to the nation’s status as a hub for skilled immigrants, inventors, and Nobel laureates. Internationally, these programmes can significantly impact GDP. For example, within five years, Malta gained over €1.4 billion, constituting 2% of its GDP, while Cyprus’ similar initiatives contributed a substantial 4.5% annually (that is, up to 2021).
In the Caribbean, Investment Migration serves as a financial lifeline. Antigua and Grenada derive approximately 5% of their GDP from Citizenship or Residency programs, while Vanuatu and St Lucia boast even higher figures at 10% and 20%, respectively. Dominica and Saint Kitts reach between 40% and 50%. Recognised by the IMF, these programs empower developing countries, particularly microstates, to recover from deep recessions.
“Citizenship is now the top export of some microstates and can generate more government revenue than all taxes combined.”
Kristin Surak, Associate professor of Political Sociology at the London School of Economics and Political Science (LSE)
For many host countries, investment migration is critical for funding key government activities such as disaster relief and social programs in line with UN Sustainable Development Goals. Beyond economic benefits, investment migration fosters global mobility, enabling highly skilled individuals to contribute to the growth of their chosen nations. Despite concerns about taxable income loss and skilled worker migration, the freedom to move remains crucial, promoting global mobility and offering advantages for individuals and countries.
Removing IM programmes has a negligible macroeconomic impact on large countries like Canada, Australia, and the US but a significant effect on sectors and small nations.
According to Kristin Surak, an associate professor of Political Sociology at the London School of Economics and Political Science, in her paper titled “The Economics of Investment Migration: The Citizenship and Residence Industry and Economic Outcomes,” published at the University of Oxford (2022), the cessation or restriction of these programs is likely to have a considerable effect. In the short term, affected countries may be compelled to resort to IMF loans to address resulting economic gaps.
In her recently published book, ‘The Golden Passport’ (2023), Surak underscores that “Citizenship is now the top export of some microstates and can generate more government revenue than all taxes combined.” She further notes that analyses conducted by Big Four accountancies and the IMF attribute citizenship by investment with rescuing declining property and construction sectors, revitalising tourist infrastructure, and steering government finances from deficits to surpluses.
EU’s Transformative Opportunity in Investment Migration Programs
While the EU has expressed reservations about IM, CBI, and RBI programs, a transformative opportunity awaits—an opportunity to strike a delicate balance between security concerns and championing the economic well-being of smaller nations with fragile, less resilient economies.
Far beyond a mere challenge, this juncture represents a pivotal moment for the EU: one that could usher in a positive transformation. Despite existing obstacles, the future of IM, CBI, and RBI programs depends on the meticulous implementation of stringent due diligence at both the individual member state and macro-EU levels. Recognising these programs as a ‘force for good’ in this ever more volatile world is a collective effort; this collaboration holds the key to unlocking the full potential of the investment migration sector.
In envisaging a future marked by shared prosperity, innovation, and sustainability, a unified commitment across Europe becomes paramount. Recognising the positive force that well-regulated IM programs can be, especially for the economic improvement of smaller and less resilient economies, underscores the significance of this journey. It symbolises the EU’s resilience and unwavering dedication to fostering positive global change through the facilitation of economic empowerment and growth in the world’s less economically privileged regions.
