Going offshore in Eastern Europe — Part 2: the commoditization of citizenship

Going offshore in Eastern Europe — Part 2: the commoditization of citizenship

Пребиваването в страната вече е комодизирано в Гърция. Ще се случи ли същото и с гражданството?
Пребиваването в страната вече е комодизирано в Гърция. Ще се случи ли същото и с гражданството?

Putting citizenship up for sale is a controversial endeavor.


Some natural-born citizens of a country might revolt against the idea of wealthy foreign investors purchasing what is essentially their birthright. Others may be opposed to the possibility of Chinese or nationals of another state pouring into their own country. There are also geopolitical risks to weigh when a country implements a citizenship by investment (CBI) program.


Some existing CBI programs, for instance, have lured Russian oligarchs. Notably, aluminum magnate Oleg Deripaska, an ally of Russian President Vladimir Putin, purchased Cypriot, and hence EU, citizenship through the CBI program in Cyprus.


Reuters reported earlier this month that Iranian nationals are making use of Turkey’s recently revamped economic citizenship program to dodge U.S. sanctions.


Additionally, there are other reasons why a country could harm its standing with the European Union or United States by launching a CBI program. In early 2019, the European Commission released a report stating investor citizenship and even residence programs raise money laundering, corruption and tax evasion concerns, as well as security risks, including infiltration by non-EU organized crime groups. The U.S. government has expressed some similar concerns, even though it has its own immigrant investor program, known as EB-5.


Citizenship as a commodity


“Citizenship by investment is commoditized,” global citizenship expert Andrew Henderson said in an interview with Bulgaria Analytica earlier this year.


Andrew Henderson, founder of tax and immigration consultancy Nomad Capitalist
Andrew Henderson, founder of tax and immigration consultancy Nomad Capitalist

The reality may be that, despite powerful governments and institutions being leery of CBI programs, citizenship is now something that can be bought and sold, and the market forces driving this commoditization cannot be stopped.


For numerous reasons, including tax, travel and business advantages, certain investors have high demand for a second citizenship or even a second or third or fourth passport. And smaller countries, particularly ones with troubled economies, recognize an opportunity to capitalize on the existing demand. This has been common practice in the Caribbean and now increasingly so around Europe’s periphery.


CBI in the region


Several economic citizenship programs now exist among EU and NATO member states. A couple of well-known programs belong to EU island countries Cyprus and Malta.


Cypriot citizenship costs more than 2 million euros. It can be obtained through a 2 million euro real estate investment. There are also other requirements, which include making a 150,000 euro donation to the Cypriot government and purchasing and living in a home that costs at least 500,000 euros, according to Henderson’s firm Nomad Capitalist.


Maltese citizenship, which comes with unrestricted access to the Schengen zone, costs investors more than 1 million euros. Investors need to make three separate investments in a government fund, stocks or bonds and local real estate, according to Nomad Capitalist.


Two newer programs belong to NATO members Turkey and Montenegro. Turkey introduced a CBI program a few years ago with a cost to investors of about $1 million. Ankara has since lowered the price tag. Now it is possible to obtain economic citizenship in Turkey three different ways. The three routes to economic citizenship involve making a $250,000 real estate investment, depositing $500,000 in a Turkish bank or financial instrument and starting a business in Turkey that employs at least 50 workers.


While the Turkish passport does not even come with visa-free travel to the EU, Henderson describes it as a valuable “Tier C” passport that immigrant investors could combine with other citizenship to form a portfolio of passports. He said the program has been particularly attractive to citizens of Arab states.


Turkey is making a splash in the offshore world, with prime real estate in Istanbul now being convertible into a passport.
Turkey is making a splash in the offshore world, with prime real estate in Istanbul now being convertible into a passport.


Montenegrin economic citizenship requires investors to make a 100,000 euro donation and to purchase real estate in the country. Migrant investors can either purchase at least 250,000 euros worth of real estate in Montenegro’s northern region or make a real estate investment of at least 450,000 on the popular Montenegrin coast.


Henderson says pursuing economic citizenship in Montenegro largely amounts to making a bet on the country joining the EU. Currently, Montenegro and Serbia are slated as the two countries next in line to join the EU, though the accession process has been moving slowly.


Additionally, Moldova, a country effectively wedged between Russia and the West now offers economic citizenship. Investors can obtain Moldovan citizenship by making a 100,000 euro donation, which including fees, amounts to about 140,000 euros, Henderson said. As an alternative to the donation, Moldova is rolling out a real estate option. It is expected investors could obtain citizenship by purchasing 250,000 euros worth of real estate in Moldova.


Furthermore, EU and NATO member Bulgaria has offered economic citizenship for more than a decade, though Sofia has suggested it would scrap its CBI program, and it is unclear to what extent it is still active. In the past, Sofia has allowed migrant investors to obtain citizenship through the purchase of government bonds.


Investors could put 1 million leva, or about 512,000 euros, in a Bulgarian government bond, then get the money back and obtain citizenship after five years. Or for the fast-track option, investors could put 2 million leva, slightly more than 1 million euros, in government bonds and complete the process after one or two years.


Fighting crime or being “more Catholic than the pope?”


The European Commission’s Jan. 2019 report on CBI programs in the EU includes a strong critique of the administration of the Bulgarian program.


“In Malta, there is a regulator for the investor citizenship scheme, which publishes annual reports, which are subject to parliamentary scrutiny,” the European Commission report states. “On 22 May 2018, Cyprus announced the establishment of a Supervisory and Control Committee and the introduction of a code of conduct for its investor citizenship scheme. In Bulgaria, there is neither a regulator nor a code of conduct.”


Around the same time the Commission’s report was released, media reports cited Bulgaria’s Justice Ministry as saying Sofia’s CBI program failed to bring any economic benefits and would be discontinued. Reuters cited the Justice Ministry in reporting only 50 foreigners – nationals of Russia, Egypt, Israel and Pakistan – had received Bulgarian passports through the CBI program since 2013.


Henderson told Bulgaria Analytica he believed, in all, only about 100 investors had completed Bulgaria’s CBI program. The program has been in existence since 2005, according to the European Commission.


Henderson’s critique of the Bulgarian CBI program is entirely different than the criticism it receives from Brussels. Henderson said the program was very poorly marketed, something he attributes in part to Bulgaria bowing to EU pressure.


As mentioned in part 1 of this report, Henderson said he was told in Bulgaria, “We’re trying to be more Catholic than the pope.”


Sofia is seeking entry to the Schengen and euro zones, and Bulgarian officials are scared of making moves that would upset Brussels, Henderson said.


Passports remain in supply and demand


Investment migration is certainly not limited to CBI programs. There are 20 EU member states, including Bulgaria, which offer investor residence programs, known as “golden visas” in some cases. Investor residence programs are common across the Balkans as well.


Greece offers one of the most popular golden visas, which unlike with Bulgaria’s migrant investor programs, is heavily marketed. Greece advertises its golden visa in both English and Chinese in front of its own parliament.


Central Athens
Central Athens


“Dreaming of a new life in Greece or EU? Invest in property. Change your life!” the ad states. The primary cost of this golden visa is a 250,000 euro real estate investment.


And now media reports are suggesting Greece is considering rolling out a CBI program. Doing so would indicate Athens is moving in the opposite direction of Sofia – expanding, rather than contracting its efforts to attract migrant investors.


The investment migration debate is not nearing an end.


On the one hand, organized crime and hostile states could abuse migrant investor programs. If Russian and Chinese nationals, for instance, were to pour into EU and NATO member states – at much higher levels than has already occurred – that might raise questions about countries’ geopolitical orientation. Also, international real estate deals, which comprise a major component of migrant investor programs, are said to be magnets for fraud.


But countries offering CBI and golden visa programs won’t necessarily be lax with vetting, accounting and monitoring as Bulgaria allegedly has been. With proper mechanisms in place so states do their due diligence on vetting and tracking migrant investors, countries can attract much needed investment, as well as entrepreneurship.


Henderson predicted more countries will follow Turkey’s lead and start offering citizenship to entrepreneurs who arrive and hire workers.


High demand has caused CBI programs to pop up across the Caribbean and now across Europe’s periphery. In a world in which citizenship and residence are commoditized, Eastern Europe – with its low taxes and low costs of living and labor, coupled with a skilled workforce – may be a region where governments increasingly supply immigration privileges to meet the demand of global citizens.


By Josh Friedman

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