Villa in St Kitts

How many citizens does St Kitts and Nevis have? The size of the population is easy to come by—the CIA World Factbook put it at 51,538 in July—but the number of citizens is another matter. This is because the tiny state has turned its finances around in recent years by selling its citizenship to anyone with upwards of $300,000 to spare.

‘Buy a villa, get citizenship free’ is the simple proposition for those looking to put their wealth where it will not be overly troubled by taxes—or those in need of another passport. St Kitts and Nevis (SKN) citizens can travel without a visa to more than 100 countries, including Canada and all of Europe, and pay no personal income taxes. According to an index developed by Henley & Partners, a private consultancy that almost functions as a government agency for the purposes of citizenship, a St Kitts passport ranks 24th in the world in terms of the number of countries to which visa-free travel is possible (132), compared with passports from Pakistan (32 countries), Iraq (31) or Afghanistan (28).

Though passports have always been available in any country to those with enough money or connections, St Kitts and Nevis led the way in turning ad hoc arrangements into a lucrative state enterprise. It launched its Citizenship by Investment Programme (CIP) in 1984, just one year after the islands (now minus Anguilla) achieved independence, and claims to be one of the oldest in the world. The scheme allows foreigners to acquire citizenship by investing at least $400,000 in an approved real estate project for at least five years or by donating at least $250,000 to theSugar Industry Diversification Foundation (SIDF), a charity that is in effect a sovereign wealth fund set up by the country after the plantations went into terminal decline. The foundation says it has invested more than $55m in funding development through grants, loans and shareholdings.

Apart from the catastrophic effect of globalisation on the sugar and banana industries, Caribbean economies have long faced numerous other problems. They are net importers, face high transport costs, economies of scale are limited and the cost of doing business can leave the region struggling to compete. So the development of citizenship as a revenue stream seems to make sense, especially with the International Monetary Fund’s latest regional outlookforecasting slowing economies across the Caribbean: gross domestic product is projected to grow by 1.3% this year—the second-lowest rate in 12 years and more than a percentage point below the forecast in April. The IMF said lower commodity prices and ‘domestic policy uncertainties’ would drag on growth, arguing that structural reforms were urgently needed to increase productivity.

Within the region, however, St Kitts and Nevis has pulled away from the pack. GDP fell 0.9% in 2012 but the economy surged by 3.8% in 2013; growth of 3.5% is predicted this year and 3.2% in 2015. Haiti and the Dominican Republic are the only others to expect strong growth, according to the IMF (though this may be the result of infusions of aid and remittances more than organic growth). Even gas-rich Trinidad and Tobago is expected to grow by an anaemic 1.3% this year.

The St Kitts and Nevis prime minister, Denzil Douglas, made his priorities clear in last year’s budget address: ‘The resumption of growth in the real estate sector has moved to the top priority on the development agenda of my government … fiscal consolidation and strengthening the financial sector has been at the cornerstone of our policy agenda.’ This focus on boosting the service sector saw the country’s revenue jump nearly 16% between 2012 and 2013—largely thanks to the $100m brought in by the CIP. This helped raise total deposits of ‘residents’ to $4bn,Douglas said (equivalent to $78,000 per person—higher than for the EU and US together) and a surplus of more than $100m for the government budget. While the national debt is at 95% of GDP, Douglas said the government hoped to reduce this to 85% by 2013-14. Yet as recently as 2011 the IMF said St Kitts and Nevis, at 200% of GDP, had the world’s highest gross national debt after Japan, the St Kitts and Nevis Observer reported. With almost messianic rhetoric, Douglas sees the government bet on financial services helping steer the country on ‘the journey towards our destiny, which beckons with a bright light of a new economy brimming with real opportunities for our people.’

Despite the government’s success in cutting debt, the citizenship policy has many critics. ‘The idea that someone can gain fast-tracked citizenship in a country they have no ties to based on a wire transfer of funds or cash is a far cry from the vision of equal and participatory membership in a political community that is still reflected in many citizenship and naturalization laws,’ Ayelet Shachar, a professor at Toronto University’s law faculty, told Reuters. But she acknowledged: ‘It is likely that we will see more of these economic citizenship programmes because there are significant pressures on both the demand and the supply side.’

Though neither the high commission in London nor Henley would say how many people now had St Kitts and Nevis passports, there is certainly demand. St Lucia, Dominica, Grenada, Antigua and Barbuda, and the Turks and Caicos Islands have followed their neighbour down this route, according to Fox News Latino. In October the St Kitts and Nevis prime minister appeared at a conference in London promoting ‘citizenship solutions’ hosted by CS Global Partners. The consultancy is based in Mayfair, the capital’s most exclusive district, where hedge funds, luxury boutiques and high-end estate agents cater to the discreet needs of the absentee billionaire investor. In Britain and the US it is touted primarily as a tax-efficient property investment, with ‘advertorial’ articles in the Daily Telegraphand Wall Street Journal, for example, as well as in Gulf states such as Oman. But several legal firms and real estate agencies also make it very clear how easy it is to become a St Kittitian or Nevisian. The web trail of one promises ‘Extra privacy in small peaceful country … no personal visit required.’

In May 2014 the US Financial Crimes Enforcement Network (FinCEN), part of the US Treasury, warned that the passports were being acquired by people trying to evade sanctions and money-laundering controls. The St Kitts-Nevis Observer reported the US agency saying: ‘Illicit actors are abusing this programme to acquire SKN citizenship in order to mask their identity and geographic background for the purpose of evading US or international sanctions or engaging in other financial crime … for example, several Iranian nationals designated by the Office of Foreign Assets Control have obtained passports.’

This is despite St Kitts announcing last year that all Iranians were barred from getting local citizenship. When theObserver put the allegations to the prime minister that three Iranians—Pourya Nayebi, Houshang Hosseinpour and Houshang Farsoudeh—using SKN passports were subjects of US Treasury investigations, Douglas replied: ‘So what? … that should not in any way hurt our citizenship-by-investment programme.’

Associated Press reported in May that FinCEN claimed St Kitts ‘maintains lax controls as to who may be granted citizenship’ with the result that ‘illicit actors, including individuals intending to use the secondary citizenship to evade sanctions, can obtain a SKN passport with relative ease.’ Alarmed at this threat to the golden goose, Douglas responded by saying how ‘very pleased’ he was that the US had found evidence that citizens were using their new passports for unlawful transactions. All CIP applications would henceforth be sent to ‘some of our closest allies in crime-fighting, including the FBI, Scotland Yard, the Royal Canadian Mounted Police and Interpol’ and an oversight commission set up to monitor the scheme.

The European Parliament declared: ‘EU citizenship should never become a tradable commodity.’ And the EU justice commissioner, Viviane Reding, insisted: ‘You cannot put a price tag on EU citizenship.’ Several European countries thought otherwise—Austria, Spain, the UK, Bulgaria and Hungary among them, according to the BBC.Austrian citizenship can be had for $10m, according to Henley, while Malta offered its own for €650,000($800,000). Opposition MPs condemned the move—and it rose to €1.15m. Cyprus relaxed its citizenship rules for any non-resident investor who had lost more than $3m through paying a levy imposed after its banking crisis. These were mostly wealthy Russians, whose offshore accounts made up a third of Cyprus’s bank deposits.

So why criticise Caribbean states for offering passports and offshore banking? Writing in The Round Table, William Vlcek notes how the British government, as the colonial power, fostered offshore banking in the region, starting with the Cayman Islands in the 1960s, and criticises the recent imposition of global financial governance on small states in the name of combating terrorism as a coercive means to privilege larger developed economies. Vlcek derides the imperialist echoes of phrases such as ‘levelling the playing field’ and rather than removing inequalities instead he sees imposing punitive supervisory costs—a ‘regulatory tsunami’—as confirming ‘fundamental power asymmetries’.

But the flood of money into murky offshore financial institutions threatens more than the hegemony of capitalist elites. The loss to national exchequers of vast sums through legal tax avoidance and illegal evasion undermines the social welfare provision for ordinary working people in the west that has been built up over generations of struggle and indeed the very compact that underpins the legitimacy of tax and spending policies. Harmonising global financial governance is surely a legitimate response of governments to the instability and impoverishment created by the unhindered flow of capital. As Mark Hampton, who is cited by Vlcek, noted 20 years ago: ‘Hosting an OFC [offshore financial centre] is clearly not a panacea for SIE [small island development].’ By 2003, Hampton and J Christiansen had concluded that ‘OFCs face a volatile and increasingly unpredictable international context over which they have neither influence nor control.’

Even the scale of the problem is difficult to grasp. In 2013 The Economist put the Caribbean and Panama third behind Switzerland, and Britain, Ireland and the Channel Islands as a site of private offshore wealth, with North and South America the source of more than half of the funds. More hedge funds were domiciled in the Cayman Islands, Bermuda and the British Virgin Islands—all British Overseas Territories—than in the US in 2011. And one law firm’s office in the Caymans, Ugland House, is the registered office address for nearly 19,000 companies. The Boston Consulting Group reckons that roughly $8tn of private financial wealth out of a global total of $123tn sits offshore (excluding property, yachts and other such assets). The Tax Justice Network’s report The Price of Offshore Revisited reckoned in 2010 that it was ‘at least $21tn to $32tn’—though the author, a former McKinsey chief economist, calls his estimation an ‘exercise in night vision’. Global Financial Integrity estimated in Illicit Financial Outflows from the Developing World that $5.9tn had disappeared into offshore obscurity in the first decade of the millennium.

Do OFCs help development? The World Bank put Bahamas top of the Caribbean rich list with a gross national income per capita of $21,200 in 2013, surprisingly far ahead of energy-rich Trinidad and Tobago on $14,400. St Kitts and Nevis was third with $13,300. The infant mortality rate for St Kitts and Nevis averaged a remarkably low 15.24 deaths per 1,000 live births over the five years to 2010, the Pan American Health Organisation said (better than Mexico on 15.7 and Turkey on 20.7, according to the OECD. It was 4.8 in Britain and 6.7 in the US). Although the Poverty Assessment Report of the regional bloc Caricom found poverty declined on St Kitts and Nevis between 2000 and 2007, it also revealed a national poverty rate of 21.8% among all individuals, with 13.5% of households below the poverty line. The Caribbean Development Bank’s Poverty Assessment for SKN said: ‘The country has achieved middle-income status and on the basis of the MDGs [UN Millennium Development Goals], has arrived at levels that place it among the better-performing countries in the world, in terms of quality of life for the mass of its citizenry.’

However, these gains have not been equally shared: seizing on the hardship faced by many islanders, the oppositionTeam Unity coalition is campaigning for value-added tax to be lifted on such essentials as imported food, medicine, school uniforms and funerals. By comparison, in Britain (where successive governments have shifted much of the tax burden on to the less wealthy by favouring this regressive sales tax over progressive income tax) most of these goods and services are exempt.

Dominica also turned to selling citizenship to bring in foreign exchange. But Crispin Gregoire, Dominica’s former ambassador to the UN, is sceptical. ‘I am not a fan of the economic citizenship programme,’ he told Reuters. He called for greater transparency and better screening of applicants. ‘As it stands, it encourages people with something to hide. It must be a big source of income for the state, but they’re not doing a good job of regulating it.’

Another critic is GA Dwyer Astaphan, a former St Kitts security minister. He told Reuters that former sugar industry workers, the supposed beneficiaries of the SIDF, could not know where the money went. ‘There’s no transparency,’ he said. ‘Imagine making a contribution to a foundation to get citizenship of a country, but the inside information of the foundation is kept secret!’

After the FinCEN allegations, Dwyer Astaphan told the Christian Science Monitor that he feared such scandals were ‘hurting the country’s reputation and that eventually European countries will say “we have to review these visa agreements.” And that will ruin it.’

There is no suggestion of any impropriety on the part of Henley but some question its close relationship with the St Kitts government. Writing in the St Kitts and Nevis Observer, Dwyer Astaphan asked where Henley’s responsibility ended and the government’s began, alleging that (in 2012 at least) there was a serious risk of conflict of interest as Wendell Lawrence, St Kitts’ ambassador to Caricom, was also for many years the local representative of Henley, while, the sugar industry foundation’s website, was registered under the name of Henley’s chairman and to its office address in Jersey.

Asked to comment, Christian Kalin of Henley dismissed the allegations, saying the media in St Kitts and Nevis was ‘controlled by the opposition’, and that Dwyer Astaphan was a former minister who had been ‘thrown out of government amid accusations of corruption and fraud’ whose criticism ‘serves his political motivations’. Kalin claimed ‘the concept of residence and citizenship planning was created by Henley & Partners in the 1990s’ and that the firm had made the St Kitts scheme the world’s most successful since taking it over in 2007 ‘to advise and assist with reform[ing] the then almost defunct Citizenship-by-Investment programme’. Henley said it took a ‘success fee’ only on the SIDF option, ‘which we helped to introduce and promote worldwide’.

Kalin added: ‘This was highly needed as, interestingly, the programme was run into the ground by the same Minister Astaphan … Under his tenure as Minister of the National Security, the programme … came to a near-halt, due to mismanagement.’ He added that the initial five-year ‘mandate’ had been extended by two years but had now ‘concluded’—although Henley still promotes the St Kitts scheme on its website.

Meanwhile, Judith Gold, who headed the last IMF mission to St Kitts, warned of the need to learn from the mistakes Trinidad and Tobago made during the 1970s oil boom and resist the temptation to increase spending too fast on the back of the CIP. ‘In the same way that T&T had very large oil earnings, spending those [CIP] earnings too rapidly can lead to a decline in competitiveness in the rest of the economy,’ she said. ‘There is also a question of sustainability … we don’t know what the future holds and the advanced countries may clamp down on these programmes.’

By competing with each other to offer ever-more corporation-friendly tax regimes, Caribbean islands are playing a mutually destructive game of beggar thy neighbour. And as the IMF warned, betting the house on a one-strand economic programme can have catastrophic results when future investment is based on the continued popularity of your country’s passport and ‘brass-plate’ company domiciles. As Barry O’Leary, head of Ireland’s Industrial Development Agency, told the Irish Sunday Independent: ‘Brass-plate operations provide no real economic benefit—we want companies that are going to provide jobs and investment.’

Although attempts to boost regional unity has been chequered at best since the short-lived West Indies Federation, in an increasingly integrated global economy Caricom, the Organisation of Eastern Caribbean States and other blocs may help small states strengthen their economies more than having your citizenship touted as the ‘cheapest programme to gain second citizenship for Americans’. Today’s bonanza could so easily become a race to the bottom as neighbouring small states vie for oligarchs’ liquid assets, with the winner becoming the modern-day equivalent of the quiet Caribbean cove where pirates would hide out.