Passports for purchase?

If you have enough money, not only can you go on a luxurious vacation in an exotic location, you can perhaps buy your way into its residency too.

The answer is, citizenship by investment programs or CIPs.

All you have to do is invest in a country's economy and it can grant you access to more powerful passports.

It's a controversial but flourishing industry catering to the elite travellers.

A report by CNN says, on October 4, one of the most highly anticipated new programs, Montenegro, announced that it was accepting 2,000 applications.

To get the passport of the beautiful Mediterranean nation, applicants need to invest a minimum of $274,000 in development projects.

They must also pay a fee of 100,000€ per application, which will fund growth in underdeveloped areas.

"Generally CIPs draw individuals from countries whose passports offer very limited abilities to travel, such as China, Russia, and Middle Eastern countries," Nuri Katz, founder of international financial advisory firm Apex Capital Partners, told CNN Travel in 2017.

"Most of the individuals making these types of investments are high net-worth entrepreneurs with net worth of about $2- to $15 million," he added.

How CIPs came to be

Japan and Singapore passports grant access to visa-free or visa-on-arrival to 190 jurisdictions. They are the most desirable passports in the world according to 2019 Passport Index by Henley & Partners citizenship planning consultancy.  

For those holding a less coveted passport, CIPs offer an alternative.

The legal framework enables foreigners to acquire door-opening passports by making large financial contributions, usually in infrastructure development or government bonds.

The concept began in 1984, when St. Kitts and Nevis -- a two-island nation in the Caribbean -- introduced the original CIP. The practice became more popular in 2009, when the country began heavily marketing its opportunities.

"The St. Kitts and Nevis program is the oldest in existence, so it is considered to be the platinum standard," Katz said.

Over the years, such programs have become more standard in developed countries.

The US, UK, Canada offer versions of it.

Austria, Antigua and Barbuda, Malta, Cyprus and Dominica all actively market versions of CIPs and more countries are considering adopting such programmes.

How it works

In 2017, Katz estimated that around 5,000 people per year were acquiring citizenship abroad through CIPs.

Katz himself is one of them. Originally an American citizen, the entrepreneur acquired citizenships in Israel and Canada where he lived for long periods. Later, he obtained a St. Kitts and Nevis citizenship through a real estate investment.

He is also a citizen of Antigua, because he purchased a home -- where he now resides with his family.

"I pursued citizenship in Antigua because I found a good school there for my son," he says.

"When I bought the house, I realized that attaining citizenship was a smarter decision than getting a residence permit that would require constant renewals."

Typically, applicants will undergo thorough financial and criminal evaluations to ensure the money has been earned legally, prior to residency or citizenship being approved.

The US CIP program is among the most difficult to obtain. Applicants must fulfil a five-year residence requirement before being eligible to apply for citizenship, which is not guaranteed.

CIPs can range from $100,000 in the island of Dominica to a minimum of $2.15 million in Cyprus. The more mobility a passport offers, the more expensive it is. -- and the best passports, in terms of mobility, tend to be the most expensive.

Katz explained the reason for Cyprus being so expensive, "Cyprus real estate market is well priced and that investing there can lead to good returns."

This European country is much desirable as it gives easy access to EU residency, quick processing times and relatively fuss-free documentation.

Another popular passport, Portugal, can be availed with an investment of $550,000 into the real state as it offers a two-year residency permit and a fast-track to citizenship in the country's Golden Visa Program.

Meanwhile, countries such as Antigua and Barbuda, in the Caribbean, are cheaper with just a $100,000 contribution into its National Development Fund required.

Why do it?

If you're already scoping property in Cyprus or Portugal, a CIP is like a two-in-one deal.

You'll can have shares in a new five-star resort, as well as a new passport.

There are professional benefits to it as well. Business travellers can have the ease of not wasting waiting weeks, or months, for expensive visas to be approved if they have CIPs.

One can just investment to purchase $560,000 in government bonds in Bulgaria and enjoy seamless travel to 170 jurisdictions -- in turn making travel significantly more efficient.

Keeping options open

A second passport might come in handy for an American if one is traveling to an unstable country or desires to live and work in Europe.

Americans can hold multiple passports but if they want to avoid US taxes or double-taxation, for those living abroad, they must renounce their citizenship.

Likewise, wealthy families with a restrictive Middle East passport, might choose to invest in a passport from Dominica so they can save time and travel the world more freely.

Or they might consider the investment a sort of security blanket or a back-up plan as the situation in the Middle East is not stable.

The price of CIPs

The pros of CIPs are that they provide economic support to capital-starved countries and personal perks for investors but there is also cons.

An associate policy analyst at the Migration Policy Institute's International Program, Kate Hooper says, "The exact due diligence procedures tend not to be publicly disclosed, and numerous reports have raised concerns about how effective these processes actually are at screening people and rooting out dirty money," says Hooper.

"Over the years, there have been a handful of cases where citizenship has been granted to people without proper screening."

Another issue, she says, is that CIPs put a clear price on residency rights.

"For example, the optics of selling EU citizenship prompted the EU to oppose Malta's CIP when it was introduced, only backing down when Malta agreed to add a number of additional conditions on granting citizenship, such as minimum residency requirements."

Unintended side effects

George DeMartino, a professor of international economics and ethics at the University of Denver, suggested CIPs could cause unintended side effects.

"These programs do not ensure a win-win solution to the problem of capital scarcity in poorer countries," DeMartino said in a 2017 interview with CNN.

"They are just as apt to represent beggar-thy-neighbour strategies -- and this problem is exacerbated when the country with the CIP is relatively wealthy and the investors come from relatively low-income countries," said DeMartino.

There is also a potentially more serious problem, he says, which involves politics.

"Programs such as these threaten to diminish political fraternity by affording special privileges to the already privileged," explained DeMartino.

"They permit those with the least need to migrate and achieve citizenship in a new country the greatest opportunity to do so, while those far more desperate to migrate, such as those facing dire economic circumstances at home, are fully excluded from the benefits of these programs. The programs are not the cause of this inequality, but they amplify it."