01 April 2020 - Podcast
This article was originally published by Private Wealth on June 25, 2019.
There has never been a time in history when all of the nations in the world were safe and free from political, personal, financial, commercial or other risks. Today is no different. One can argue—and this writer does—that we are living in a time of great prosperity and consequently greater uncertainty than ever before. In such times, those with the means to take steps to hedge against such risks are doing so.
After all, what use is wealth if it is subject to usurious tax regimes, if one’s business is at the mercy of unpredictable and corrupt governments, if one’s health is threatened by pollution and effects of climate change, and one’s children must travel to school in an armored car?
It is estimated that by 2022, there will be more than 500,000 individuals with a net worth of more than US$50 million—these are the high-net-worth individuals (HNWIs) we reference. Thousands of these people are demi-billionaires, with a net worth of more than $500 million, and billionaires. While a significant number of them will be concentrated in high-risk countries like Asia, the Middle East, Latin America, Africa and Russia/CIS, where the risks seems to be clear, those in more developed countries like the United States, United Kingdom (Brexit, anyone?) and EU are not without risks; while perhaps less obvious they are nonetheless very frightening and real.
What do the wealthy do when facing these risks? They can build walls, drive in bullet-proof cars and have security. That is protection, not risk management. To manage risk, they establish residence or citizenship in a country where there is much less risk. To meet the demand of these families, an ever-lengthening list of capital-friendly countries have been offering opportunities to gain residence or citizenship through investment and are now part of a US$20 billion global industry.
It is estimated that there are over 100 countries that allow the wealthy refuge through carefully crafted programs. The trend to offer citizenship began with St. Kitts & Nevis in 1984 and has gone on to include several other Caribbean nations, a few European countries and some in Asia. Add to this residence programs like the U.S.’ EB-5 (1990), UK’s Tier 1 Investor Visa (2008) and various European “Golden Visas,” the list goes on and on.
Cynics, and specifically the European Commission and OECD, routinely sound the alarm—without any evidence—that tax dodgers and criminals are acquiring second residence or citizenship. Why else would a law-abiding and patriotic person do such a thing? While I do not dispute that bad actors can abuse any system, my personal experience of representing many of the world’s wealthiest families and entrepreneurs navigating these issues tells me that this is not the rule, and may not even be the exception. Let me share the example of a few real clients.
In his 40s, Abdullah is a citizen of Saudi Arabia and one of the wealthiest businessmen in the Middle East. He has no criminal record and sits on the boards of companies, charities and universities. Alarmed by the arbitrary detention and extortion of business leaders and friends in his country, he was afraid to go home. Abdullah’s passport was about to expire, which made it impossible for him to travel. Going back to renew the passport was not something he wanted to do. The ability to secure a second passport—in his case St. Kitts—by investing in a hotel development was a life raft for Abdullah as it provided him and his family a safe haven and the ability to travel.
Sarah is a Nigerian billionaire who made her wealth through investments in oil and gas and real estate. She has children in boarding schools and university in the UK and US Despite her significant wealth, Sarah’s Nigerian passport offered limited freedom of travel and no right to work in Europe or the US For her, acquiring a European passport by purchasing a substantial property in Cyprus made sense, as did getting a Tier-1 visa in the UK for her son and an EB-5 green card in the US for her daughter. All of this gave Sarah and her family the freedom to travel, live and work almost anywhere in the world. It also gave Sarah peace of mind.
The Cheng family are multibillionaires who were very concerned about the situation in China. While the patriarch of the family opted to remain in China, his wife (who is also his business partner) and their two daughters, both in their mid-20s, decided to settle abroad. Mrs. Cheng acquired citizenship in Malta by purchasing a beautiful home in St. Julian’s. Her daughters, because they are both under 26, automatically and derivatively obtained passports. Mrs. Cheng and her younger daughter then established a gaming business in Malta, which has an entire economy built around the industry. Her older daughter acquired citizenship in Grenada and is in the process of establishing a business in the US, which she will operate with an E-2 visa-based bilateral investment treaty between the US and Grenada.
Each of these three families (their identities obviously altered) are real people and typical of our clients. There are many more. They take advice from attorneys and accountants and are fully compliant with their international tax and reporting obligations. Similar to how investors diversify portfolios, these families diversify their global residence and nationalities in the face of risk. They take careful and legitimate steps to protect themselves and their families while gaining better travel and work access. And often, the countries which they choose to call home benefit from their new citizens.
The history of investment immigration has a growth trajectory and is innovative. There is a global competition among countries to attract capital and talent. HNWIs living in emerging markets acutely feel the strain of unmitigated risks and for this burgeoning cohort investment, immigration is a valuable benefit that provides safety and greater market access.