An increasing number of people are looking out for a Plan B in their lives. That can often entail a second passport, which is one of the reasons why the citizenship business is booming. But what do you need to get one? finews.com takes a closer look.
The pandemic and the Ukraine War have deeply unsettled a large number of very wealthy people around the world. The uncertainty has as much to do with mobility as anything else. Both high-net-worth and ultra-high-net-worth individuals put enormous stock in being able to travel freely. But the current situation in the world has sharply limited their ability to travel freely unhindered.
That is prompting demand for second citizenships or permanent residency in foreign countries to boom as it is a kind of Plan B that can guarantee the lifestyle they lived in the recent past.
Undifferentiated Assumptions
(Image: Convert Kit, Unsplash)
Although a second citizenship is primarily seen as assuring relative mobility, there are many significant considerations that bear further thought. For example, whether children can study abroad, and whether assets are securely diversified in a way that is safer and easier than it is in their home country.
The business around second citizenships and permanent residency is seen as a controversial one in certain circles. That is mostly because such judgments rely on undifferentiated assumptions, one of the main ones being the incorrect view that many believe that passports and residency can be bought outright from private companies.
In reality, sovereign governments offer those kinds of programs officially, with some being more active than others in that regard. Companies can help as consultants and mediators for them and some of them are indeed fly-by-night outfits that are not up to standard. But most are professional and, everything considered, a certain amount of consulting is needed given that acquiring a second citizenship or permanent residency can quickly become a very complex matter, analysis by finews.com shows.
High Rate of Rejection
Malta (Image: Mike Nahiil, Unsplash)
Malta has become very popular for second citizenships given that the island is a member of the EU. Having its passport allows individuals to travel throughout Europe fully visa-free. Another point that makes it very popular is that the application for citizenship can be made just a year after receiving residency, something that few other governments allow, or at least not as quickly.
But anyone who starts that kind of process must reveal a very significant amount of personal information, from their family background, their careers, professional backgrounds, and their life history. They are even forced to disclose information about their health, research by finews.com shows. Every applicant is closely reviewed and 25 percent of the applicants in Malta are rejected, mostly because they cannot fulfill the strict due diligence requirements. All in all, it is a very expensive and time-consuming process and with the very strict requirements and high rejection rate, there is no guarantee of success.
Hundreds of Advisory Firms Worldwide
There are hundreds of advisory firms worldwide that are active in the residency and citizenship business. A small number are pretty shady, with some engaging in illicit practices in certain of the more far-flung destinations of the world. They can also be very intransparent towards their clients, particularly when it comes to financial matters.
But most advisors seem professional, and the leading firms are organized in the international association of the Investment Migration Council (IMC), based in Geneva. The IMC sets industry standards and issues a code of ethics and professional conduct that members have to adhere to, assuring a certain level of quality and self-regulation.
On the top end of the scale is Henley & Partners, the indisputable global market leader. According to research by finews.com, it has roughly half the entire market for citizenships and residence by investment in countries like Malta and Montenegro. It is a British-based firm with a global presence, which includes offices in both Zurich and Geneva.
Companies like Henley, which are also accredited by the respective governments involved, first establish whether the applicant even qualifies for the program they are considering. About 80 percent of applicants involved citizens from China, the US, the Middle East, India and Latin America. In Malta’s case, for example, it no longer accepts applications from Russian citizens.
Montenegro (Image: Dragisa Braunovic, Unsplash)
Henley & Partners requires candidates to complete an eight-page questionnaire that forms the basis as to whether the individual can apply for a second citizenship. It almost looks like the forms bank clients must complete when opening new accounts, right down to the declaration as to whether they are a politically exposed person (PEP).
Citizenship as Reward
Actually it goes even beyond that: the questionnaire asks whether the individual had previously applied for other citizenships, including any attempts by other family members. It also requests information on any rejected visa applications. In fact, the due diligence goes far and above that commonly employed by financial institutions and intermediaries in that it asks penetrating questions that do not solely pertain to an individual’s finances.
It is only when the consultancy believes that the candidate is fit for an application and fulfills all the necessary criteria that contact is made with the relevant government. In the case of Malta, it provides citizenships to individuals for so-called «exceptional services». It is a malleable term although in all cases it is usually belied by a clearly defined investment that the applicant needs to make. Officially, it is not buying a citizenship. Instead, it is about making an investment that confers a reward.
Little Control in the EU
Brüssel (Image: Alxandre Lallemand, Unsplash)
Malta started its program in 2013 under a program that was developed by Henley & Partners. By 2019, it had awarded about 1,800 citizenships, and currently grants about 200 citizenships per year which is a small fraction of the more than 700,000 EU citizenships grants annually, processes that entail little of the due diligence that Malta conducts.
In the meantime, Malta no longer speaks of a program. It now discusses it as a new process that foresees providing up to 400 citizenships a year up to a maximum of 1,500. That means that it is shrinking the market at the same time that demand for citizenships and residency in other countries, namely Portugal, Spain, Italy and Greece has risen massively.
But in those countries, applicants must wait a number of years before they receive citizenship. Moreover, the Portuguese indicated recently that it was stopping its program, although that seems to have remained little more than an indication of intent. It seems apparent that the revenues and foreign investments generated are too high for countries to ignore.
High Starting Costs – No Guarantee
It takes four different stages to get Maltese citizenship. The initial costs, without any guarantee of success, run to about $100,000. This is money that will flow to the government whatever happens. The consultancy fees for the application and subsequent guidance vary from company to company and are paid separately. On average, they run to several tens of thousands of dollars per individual.
The authorities first undertake a comprehensive background check of the applicant, much in similar fashion to what a bank does. In the second step, they perform police and judicial checks using the Interpol, Europol and FIU databases, among others i.e. going well beyond the due diligence that even a bank can do. An applicant outside the EU also has to apply for a visa at the same time, as it is one of the criteria for applying for Maltese citizenship.
Police in the UK (Image: Ethan Wilkinson, Unsplash)
The third stage involves the financial situation of the candidate and their family, inclusive of their professional situation. Here the applicant has to trace the source of their wealth even if it goes back several generations, and what liabilities and responsibilities they currently have (i.e. board mandates). They also must indicate their ownership of property, art and other assets.
Very Detailed Checks
Applicants are also required to undergo international standardized evaluations and checks when it comes to money laundering and terrorism finance. The questions are so comprehensive that even banking forms related to the source of wealth and source of funds come out looking relatively paltry and basic in comparison.
As part of all that, even when it is entirely involuntary, applications can run aground if the individual has any connections (for example through another board member or relative) who was rejected entry into a certain country at any time in the past, as the records will likely still be accessible. If anything like that comes up, it can end the process immediately.
(Image: Mana5280)
The applicant also has to complete a six-page doctor-attested form related to their health, including their medical history. Then, after all this, a decision is made. If the decision is negative, the authorities disclose no information as to why an applicant was rejected.
More Than $800,000 for an Investment
If the answer is a positive one, the applicant must wait nine to twelve months after which they are required to make an investment of slightly more than $800,000. The money, when sent, is also subject to further, intensive background checks by the authorities, including a detailed look at the source of the funds.
After that, he or she receives a passport offering visa-free travel to more than 170 countries. Still, the authorities do not stop there. They even continue to observe their new citizen for five years after giving them citizenship.
