Given global socio-political developments, many individuals are leaving their homeland in search of an enhanced standard of living, security, and better business opportunities. This trend has given rise to the new global industry of Residence and Citizenship by Investment. It has grown into a USD 20bn annual sector, with projections indicating continuous and significant growth in the coming years.
Residence and citizenship by investment programs, often operated by countries seeking to attract investment and talent, offer individuals and families the opportunity to acquire legal residency or citizenship through various investment routes.
THE RISE OF RESIDENCE AND CITIZENSHIP PROGRAMS: A GLOBAL PHENOMENON
The allure of these programs lies in the promise of access to better access, education, healthcare, and business opportunities, as well as the ability to travel visa-free to a broader range of countries. For high-net-worth individuals from politically unstable regions or countries with limited passport power, obtaining second citizenship can also provide a sense of security and freedom of mobility. However, for passport holders of developed countries, the increased geopolitical tensions and security situation have also increased interest in these possibilities.
According to a report by the Migration Policy Institute, residence, and citizenship by investment programs have seen a significant uptick in popularity, with over 100 countries offering some form of the investment migration program. These programs typically involve making substantial financial contributions to the host country through direct investment, real estate purchases, or donations to sovereign funds.
ECONOMIC IMPACTS AND BENEFITS OF RESIDENCE AND CITIZENSHIP PROGRAMS
The positive impacts of these programs are significant. One remarkable aspect of these initiatives is their ability to furnish nations with ‘sovereign equity’ – a term coined by the chairman of one of the leading firms and pioneers in this sector, Henley & Partners. Sovereign equity is a source of capital without the need for further borrowing. Research by the International Monetary Fund suggests that these programs have the potential to strengthen foreign direct investment (FDI), nurture innovation, and stimulate commercial development in host countries. Additionally, they serve as a lifeline for countries grappling with economic challenges, providing a steady influx of highly skilled workers and entrepreneurs.
A study by the World Bank found that countries with well-designed investment migration programs have experienced significant positive economic impacts. These include increased foreign direct investment, job creation, and infrastructure development. This optimistic outlook on the economic benefits of investment migration is a key driver of the growing interest in these programs.
An entire industry has emerged servicing clients who seek alternative residence and citizenship. Several companies specialize in facilitating these transactions, offering services ranging from legal counsel to assistance with property acquisition and residence or citizenship applications. Leading players in the industry include Henley & Partners, immigration law firm Fragomen, and also specific offices of the big four professional services firms. These firms play a crucial role in navigating the complex legal and bureaucratic processes involved in obtaining citizenship or residence through investment in countries including Turkiye, Jordan, Montenegro, Austria, Thailand, USA, Hong Kong, Australia, Greece, and Italy, among others.
CHALLENGES SURROUNDING RESIDENCE AND CITIZENSHIP PROGRAMS
However, investment programs’ proliferation of residence and citizenship has raised concerns about potential risks and negative consequences. Some critics argue that these programs can enable tax evasion and money laundering and even facilitate the escape of criminals and politically exposed individuals seeking to evade justice. The Organization for Economic Co-operation and Development (OECD) has called for enhanced transparency measures and stricter due diligence standards to mitigate the risks associated with investment migration.
Due diligence is a key component of most residences and citizenship through investment programs. Companies such as Henley & Partners employ various methods to screen applicants and ensure compliance with legal and regulatory requirements. The process involves not only confirming the applicant’s identity and personal information, assessing the source of their wealth, and ensuring transparency of the origin of funds, but also utilizing top-tier due diligence software to scrutinize their details, cross-referencing against international police databases like Interpol and Europol, and obtaining comprehensive verification reports from reputable external due diligence agencies. This multitiered approach, largely pioneered also by Henley & Partners, is a more thorough due diligence process than most financial institutions currently apply.
STRIKING A BALANCE FOR RESIDENCE AND CITIZENSHIP PROGRAMS
Though there have been concerns in the past about security, transparency, and accountability, governments and companies have actively worked to refine and evolve these programs over the years. As their popularity continues to grow, policymakers, regulators, and industry stakeholders are ensuring vigorous due diligence to safeguard against abuse. Robust oversight and responsible governance are key for these programs to realize their potential as economic growth and development engines in an increasingly interconnected world.
